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48 ALITALIA, Petitioner, vs. INTERMEDIATEAPPELLATE COURT and FELIPA E. PABLO,

Respondents

[G.R. No. 71929 : December 4, 1990.]Topic:Liability under the Warsaw Convention

Doctrine:The Convention's provisionsdo not "regulate orexclude liability for other breaches of contract by thecarrier" or misconduct of its officers and employees, orfor some particular or exceptional type of damage.

Facts:1. Dr. Felipa Pabloan associate professor in the University of the Philippines, and a research grantee of the

Philippine Atomic Energy Agencywas invited to take part at a meeting of the Department of Researchand Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United

Nations in Ispra, Italy. She accepted the invitation, and was then scheduled by the organizers to read a paperon "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops."To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.

2. She arrived in Milan on the day before the meeting, in accordance with the itinerary set for her byALITALIA. However, she was told by the ALITALIA personnel at Milan that her luggage was delayed,since it was in one of the succeeding flights from Rome to Milan. Dr. Pablosluggage consisted of herclothing, scientific papers, slides and other research material.

3. Dr. Pablo even went to Rome to try to locate her bags herself, but to no avail.4. Completely distraught and discouraged, she returned to Manila without attending the meeting in Italy.5. Dr. Pablo demanded that ALITALIA make reparation for the damages she suffered. ALITALIA offered her

free airline tickets, but she rejected them, and thus commenced the action against ALITALIA.6. As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, Italy, but only on the day

afterher scheduled appearance and participation at the U.N. meeting. Of course, Dr. Pablo was no longerthere to accept delivery; she was already on her way home to Manila.

7. For some reason, the suitcases were not actually restored to Prof. Pablo by ALITALIA until 11 months later,and 4 months after the institution of her action.

8. CFI rendered judgment in Dr. Pablo's favor, ordering ALITALIA to pay her P20,000 as nominal damages.ALITALIA appealed to IAC.

9. IAC still rendered judgment in favor of Dr. Pablo, and even increased the award of nominal damages toP40,000 (which was the then present cost of the roundtrip airfare).

10.ALITALIAscontentions: Warsaw Convention should have been applied to limit ALITALIA'S liability; and There is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's

fees.

Issue:Whether or not the Warsaw Convention is applicable in the instant case, so as to limit ALITALIAs liability Held:No, it is not.

Ratio:1. Under the Warsaw Convention, an air carrier is made liable for damages for:

1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board theaircraft or in the course of its operations of embarking or disembarking;2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it tookplace during the carriage by air;" and3) delay in the transportation by air of passengers, luggage or goods.

2. [I]t is provided in the Convention that the "action for damages, however, founded, can only be broughtsubject to conditions and limits set out" therein.

3. [The Convention also limits the liability of carriers in certain instances. However, the] Warsaw Convention

however denies to the carrier availment "of the provisions which exclude or limit his liability, if the damageis caused by his wilful misconduct or by such default on his part as, in accordance with the law of the courtseized of the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly)caused . . by any agent of the carrier acting within the scope of his employment." 22 The Hague Protocolamended the Warsaw Convention by removing the provision that if the airline took all necessary steps toavoid the damage, it could exculpate itself completely, 23 and declaring the stated limits of liability notapplicable "if it is proved that the damage resulted from an act or omission of the carrier, its servants oragents, done with intent to cause damage or recklessly and with knowledge that damage would probablyresult." The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger

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could recover unlimited damages upon proof of wilful misconduct.4. [The limitations on an airline's liability] should be deemed a limit of liability only in those cases where the

cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is

not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise

improper conduct on the part of any official or employee for which the carrier is responsible, and there

is otherwise no special or extraordinary form of resulting injury . The Convention's provisions, in

short, do not "regulate or exclude liability for other breaches of contract by the carrier" or misconduct

of its officers and employees, or for some particular or exceptional type of damage.5. In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner

airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without appreciabledamage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo becausepetitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointeda breachof its contract of carriage, to be sure with the result that she was unable to read the paper and make thescientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that she hadpainstakingly labored over, at the prestigious international conference, to attend which she had traveledhundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of theorganizers. She felt, not unreasonably, that the invitation for her to participate at the conference, extended bythe Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations, was asingular honor not only to herself, but to the University of the Philippines and the country as well, anopportunity to make some sort of impression among her colleagues in that field of scientific activity. Theopportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its

contract.Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, whichgradually turned to panic and finally despair, from the time she learned that her suitcases were missing up tothe time when, having gone to Rome, she finally realized that she would no longer be able to take part in theconference. As she herself put it, she "was really shocked and distraught and confused."Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be restrictedto that prescribed by the Warsaw Convention for delay in the transport of baggage.

6. [Dr. Pablo] is not, of course, entitled to be compensated for loss or damage to her luggage. As alreadymentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitledto nominal damageswhich, as the law says, is adjudicated in order that a right of the plaintiff, which hasbeen violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose ofindemnifying the plaintiff for any loss sufferedand this Court agrees that the respondent Court of Appeals

correctly set the amount thereof at P40,000.00.NOTE

Provision of the Warsaw Convention on the limited liability of carriers:1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000 francs . . . Nevertheless, by specialcontract, the carrier and the passenger may agree to a higher limit of liability.2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs per kilogramme, unless the

passenger or consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery atdestination and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding thedeclared sum, unless he proves that sum is greater than the actual value to the consignor at delivery.

b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the weight to be taken intoconsideration in determining the amount to which the carrier's liability is limited shall be only the total weight of the package or packagesconcerned. Nevertheless, when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affectsthe value of other packages covered by the same baggage check or the same air way bill, the total weight of such package or packages shall also

be taken into consideration in determining the limit of liability.

3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5000 francs per passenger.4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the courtcosts and of the other expenses of litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount of the damagesawarded, excluding court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the

plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, if that islater.

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049 Pan American World Airways vs. IAC

[G.R. No. 70462; Aug. 11, 1988]

TOPIC: Liability under the ConventionPONENTE: Cortes, J.

AUTHOR: RCNOTES:Pan Am seeked to limit its liability for lost baggage up tothe amount specified in the airline ticket absent a declarationof a higher valuation and payment of additional charges.

FACTS:1. Plaintiff Rene V. Pangan, pres. and gen. mngr. of the plaintiffs Sotang Bastos and Archer Production while in SanFrancisco, Califonia and Primo Quesada of Prime Films, San Francisco, California, entered into an agreement where theformer, for US $2,500.00 per picture, bound himself to supply the latter with 3 films. ('Ang Mabait, Masungit at ang

Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States.) It was alsoagreed that plaintiffs would provide the promotional and advertising materials.2. On his way home to the Philippines, Pangan visited Guam where he contacted Leo Slutchnick of the Hafa AdaiOrganization. Pangan entered into a verbal agreement with Slutchnick for the exhibition of 2 of the films at the Hafa AdaiTheater in Guam for P7,000.00 per picture. Pangan also provided the promotional and advertising materials for the films.3. Due to the above agreements, Pangan caused the preparation of the requisite promotional handbills and still pictures forwhich he paid P12,900.00. Likewise in preparation for his trip abroad to comply with his contracts, Pangan purchased 14clutch bags, 4 capiz lamps and 4 barong tagalog, total value of P4,400.00.4. Pangan obtained from defendant Pan Am's Manila Office (through Your Travel Guide) an economy class airplane ticketfor Manila to Guam on defendant's Flight (No. 842) upon payment of the regular fare.5. The Your Travel Guide is a tour and travel office owned and managed by plaintiffs witness Mila de la Rama.6. 2 hours before departure time Pangan was at the defendant's ticket counter at the Manila International Airport and

presented his ticket and checked in his 2 luggages, for which he was given baggage claim tickets.7. The 2 luggages had the promotional & advertising materials, clutch bags, barong tagalog and his personal belongings.8. Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight (No. 842) inthe economy class. Since there was no space in the economy class, Pangan took the first class because he wanted to be ontime in Guam to comply with his commitment with an additional sum of $112.00.9. When Pangan arrived in Guam, his 2 luggages did not arrive with his flight, as a consequence of which his agreementswith Slutchnick and Quesada for the exhibition of the films in Guam and in the United States were cancelled.10. He then filed a written claim for his missing luggages.11. Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to protest as tothe treatment which he received from the employees of the defendant and the loss of his two luggages.12. Defendant Pan Am assured Pangan that his grievances would be investigated and given its immediate consideration.13. The present complaint was filed by the plaintiff due to Pan Ams failure to communicate with Pangan.

14. CFI: Pan Am liable. (actual damages with interest, attys fees, and costs of suit)15. IAC: Affirmed.

ISSUE:Whether or not the IAC erred as a matter of law in affirming the CFI's award of actual damages beyond the limitation ofliability set forth in the Warsaw Convention and the contract of carriage.HELD:Yes, petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as stipulated at the back of the ticket.>>WHEREFORE, the Petition is GRANTED and the Decision of the IAC is SET ASIDE and a new judgment is rendered ordering petitioner to pay

private respondents damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual payment.

RATIO:1. The airline ticket contains the following conditions:

NOTICEIf the passenger's journey involves an ultimate destination or stop in a country other than the country of departurethe Warsaw Convention may be applicable and the Convention governs and in most cases limits the liability ofcarriers for death or personal injury and in respect of loss of or damage to baggage. See also notice headed "Adviceto International Passengers on Limitation of Liability.CONDITIONS OF CONTRACT1. As used in this contract "ticket" means this passenger ticket and baggage check of which these conditions and thenotices form part, "carriage" is equivalent to "transportation," "carrier" means all air carriers that carry or undertaketo carry the passenger or his baggage hereunder or perform any other service incidental to such air carriage."WARSAW CONVENTION" means the convention for the Unification of Certain Rules Relating to International

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Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28thSeptember 1955, whichever may be applicable.2. Carriage hereunder is subject to the rules and limitations relating to liability established by the WarsawConvention unless such carriage is not "international carriage" as defined by that Convention.3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subjectto: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and relatedregulations which are made part hereof (and are available on application at the offices of carrier), except intransportation between a place in the United States or Canada and any place outside thereof to which tariffs in forcein those countries apply.

xxx xxx xxxNOTICE OF BAGGAGE LIABILITY LIMITATIONSLiability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advanceand additional charges are paid: (1) for most international travel (including domestic portions of internationaljourneys) to approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400 per passenger forunchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on most carriers (a few havelower limits). Excess valuation may not be declared on certain types of valuable articles. Carriers assume noliability for fragile or perishable articles. Further information may be obtained from the carrier.

2. On the basis of the said stipulations printed at the back of the ticket, petitioner contends that its liability for the lostbaggage of Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage andpay the corresponding additional charges.3. Petitioner cites Ong Yiu v. CA, where the Court sustained the validity of a printed stipulation at the back of an airline

ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that the carrier's liability waslimited to said amount since the passenger did not declare a higher value, much less pay additional charges. (Ong Yiu issquarely applicable to the instant case.)4. While it may be true that petitioner had not signed the plane ticket, he is, nevertheless bound by the provisions thereof."Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passengerregardless of the latter's lack of knowledge or assent to the regulation." It is known as a contract of "adhesion" wherein oneparty imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirelyprohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.5. Randolph v. American Airline: A contract limiting liability upon an agreed valuation does not offend against the policyof the law forbidding one from contracting against his own negligence.6. On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc., where the Court held that the stipulationlimiting the carrier's liability to a specified amount was invalid, finds no application in the instant case, as the ruling in said

case was premised on the finding that the conditions printed at the back of the ticket were so small and hard to read thatthey would not warrant the presumption that the passenger was aware of the conditions and that he had freely and fairlyagreed thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged,much less shown to exist.7. Northwest Airlines, Inc. v. Cuenca: "To apply the Warsaw Convention which limits a carrier's liability to US$9.07 perpound or US$20.00 per kilo in cases of contractual breach of carriage is against public policy" is utterly misplaced.8. Mendoza v. Philippine Air Lines, Inc.: Under Art.1107 of the Civil Code, a debtor in good faith like the defendantherein, may be held liable only for damages that were foreseen or might have been foreseen at the time the contract oftransportation was entered intoBefore defendant could be held to special damages, such as the present alleged loss ofprofits on account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him ofthe particular circumstances attending the shipment, and which probably would lead to such special loss if he defaulted.Or, as the rule has been stated in another form, in order to purpose on the defaulting party further liability than for damages

naturally and directly, i.e., in the ordinary course of things, arising from a breach of contract, such unusual or extraordinarydamages must have been brought within the contemplation of the parties as the probable result of breach at the time of orprior to contracting. Generally, notice then of any special circumstances which will show that the damages to beanticipated from a breach would be enhanced has been held sufficient for this effect.>> Thus, applying the ruling to the instant case, in the absence of a showing that Pan Am's attention was called to thespecial circumstances requiring prompt delivery of Pangan's luggages, Pan Am cannot be held liable for the cancellation ofPangans contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. 9. The Court is unable to uphold the IAC's disregard the ruling in Mendoza that petitioner is liable for damages based onthe finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and

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California were cancelled because of the loss of the 2 luggages in question." The evidence reveals that the proximate causeof the cancellation of the contracts was Pangan's failure to deliver the promotional and advertising materials on the datesagreed upon. For this petitioner cannot be held liable. Pangan had not declared the value of the 2 luggages he had checkedin and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to thecondition therein requiring delivery of the promotional and advertising materials on or before a certain date.

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50 CHINA AIRLINES,petitioner v DANIEL CHIOK, respondentG.R. No. 152122 July 30, 2003

Facts:

On September 18, 1981, Daniel Chiok purchased from China Airlines, Ltd. (CAL forbrevity) a passenger ticket for air transportation covering Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorsable to Philippine Airlines, Ltd. (PAL for

brevity)

Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipeiusing the CAL ticket. Before he left for said trip, the trips covered by the ticket werepre-scheduled and confirmed by the former. When he arrived in Taipei, he went tothe CAL office and confirmed his Hongkong to Manila trip on board PAL Flight No.PR 311. The CAL office attached a yellow sticker indicating that his flight status wasOK.

When Chiok reached Hongkong, he went to the PAL office and sought to reconfirmhis flight back to Manila. The PAL office also confirmed his return trip on board

Flight No. PR 311 and attached its own sticker.

On November 24, 1981, Chiok proceeded to Hongkong International Airport for hisreturn trip to Manila. However, upon reaching the PAL counter, Chiok saw a posterstating that PAL Flight No. PR 311 was cancelled due to typhoon in Manila. He wasthen informed that all the confirmed ticket holders of PAL Flight No. PR 311 wereautomatically booked for the next flight the following day.

On November 25, 1981, Chiok was not able to board the plane because his name didnot appear in PALs computer list of passengers. Chiok then sought to recover hisluggage but found only two and realized that his new Samsonite luggage was

missing which contained cosmetics worth HK$14,128.80

He then proceeded to PAL and confronted the reservation officer who previouslyconfirmed his flight back to Manila. However, the reservation officer showed himthat his name was on the list. Chiok then decided to use his CAL ticket and askedPALs reservation officer if he could use the ticket to book him for the said flight; The

latter, once again, booked and confirmed the formers trip on a flight scheduled to

depart that evening.

Later, Chiok went to the PAL check-in counter and it was Carmen Chan, PALsterminal supervisor who attended to him. As this juncture, Chiok had already placedhis travel documents, including his clutch bag, on top of the PAL check-incounter.Thereafter, Carmen directed PAL personnel to transfer counters. In theensuing commotion, Chiok lost his clutch bag containing the following, to wit: (a)$2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-pieceset of gold (18 carats) cross pens valued atP3,500; (f) a Cartier watch worth aboutP7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and(h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-

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by and at around 7:30 p.m., PAL personnel informed him that he could now check-in.

Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 fordamages, against PAL and CAL, as defendants, docketed as Civil Case No. 82-13690,with Branch 31, Regional Trial Court, National Capital Judicial Region, Manila.

RTC: held CAL and PAL jointly and severally liable to respondent but didnt rule on

respective crossclaims

CA: affirmed RTCs decision and debunked petitioners claim that it had merely

acted as an issuing agent for the ticket covering HK-Manila leg; Cited the decision inKLM Royal Dutch Airlines v CA:

Article 30 of the Warsaw providing that in case of transportation to be performed by

various successive carriers, the passenger can take action only against the carrier who

performed the transportation during which the accident or the delay occurred

presupposes the occurrence of either an accident or delay in the course of the air trip,

and does not apply if the damage is caused by the willful misconduct on the part of the

carriers employee or agent acting within the scope of his employment.

On PALs appeal, CA ruled that the airlines negligence was the proximate cause of

the incident since in spite of the confirmations he had secured, his name didnt

appear in the list of passengers

Issues:

(1) W/N CA committed judicial misconduct in finding liability against CAL on thebasis of misquotation from KLM Royal Dutch v CA and in magnifying its misconductby denying CALs motion for reconsideration on a mere syllabus, unofficial at that;

(2) W/N CAL is liable for damages;

Ruling:

(1) Yes, CA committed a lapse when it relied merely on the unofficial syllabus of ourruling in KLM v. C.A Indeed, lawyers and litigants are mandated to quote decisions ofthis Court accurately.However, since this case is not administrative in nature, wecannot rule on the CA justices administrative liability, if any, for this lapse. In the

case at bar, we can only determine whether the error in quotation would besufficient to reverse or modify the CA Decision.

In the instant case, the CA ruled that under the contract of transportation, petitioner-- as the ticket issuing carrier (like KLM) -- was liable regardless of the fact that PALwas to perform or had performed the actual carriage. It elucidated on this point asfollows:

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By the very nature of their contract, defendant-appellant CAL is clearly liable under

the contract of carriage with [respondent] and remains to be so, regardless of those

instances when actual carriage was to be performed by another carrier. The issuance

of a confirmed CAL ticket in favor of [respondent] covering his entire trip abroad

concretely attests to this. This also serves as proof that defendant appellant CAL, in

effect guaranteed that the carrier, such as defendant-appellant PAL would honor his

ticket, assure him of a space therein and transport him on a particular segment of his

trip.

Notwithstanding the errant quotation, we have found after careful deliberation thatthe assailed Decision is supported in substance by KLM v. CA. The misquotation bythe CA cannot serve as basis for the reversal of its ruling.

(2) Yes, CAL is liable for damages;

It is significant to note that the contract of air transportation was betweenpetitioner and respondent, with the former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has always been treated inthis jurisdiction as a single operation. This jurisprudential rule is supported by the

Warsaw Convention, to which the Philippines is a party, and by the existingpractices of the International Air Transport Association (IATA).

Article 1, Section 3 of the Warsaw Convention states:

Transportation to be performed by several successive air carriers shall be deemed, for

the purposes of this Convention, to be one undivided transportation, if it has been

regarded by the parties as a single operation, whether it has been agreed upon under

the form of a single contract or of a series of contracts, and it shall not lose its

international character merely because one contract or a series of contracts is to be

performed entirely within a territory subject to the sovereignty, suzerainty, mandate,

or authority of the same High Contracting Party.

Article 15 of IATA-Recommended Practice similarly provides:

Carriage to be performed byseveral successive carriers under one ticket, or under a

ticket and any conjunction ticket issued therewith, is regarded as a single operation.

In American Airlines v. Court of Appeals, we have noted that under a general poolpartnership agreement, the ticket-issuing airline is the principal in a contract ofcarriage, while the endorsee-airlineis the agent.

Likewise, as the principal in the contract of carriage, the petitioner in British Airwaysv. Court of Appeals was held liable, even when the breach of contract had occurred,not on its own flight, but on that ofanother airline. The Decision followed our rulingin Lufthansa German Airlines v. Court of Appeals, in which we had held that theobligation of the ticket-issuing airline remained and did not cease,regardless of the

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fact that another airline had undertaken to carry the passengers to one of theirdestinations.

In the instant case, following the jurisprudence cited above, PAL acted as thecarrying agent of CAL. In the same way that we ruled against British Airways andLufthansa in the aforementioned cases, we also rule that CAL cannot evadeliability to respondent, even though it may have been only a ticket issuer forthe Hong Kong-Manila sector.

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051 UNITED AIRLINES, petitioner, vs.WILLIE J. UY,

respondent.

G.R. No. 127768 November 19, 1999

BELLOSILLO, J.:

TOPIC: The Warsaw Convention

PONENTE: BELLOSILLO, J.:

AUTHOR:NOTES: (if applicable)

FACTS:

1. On October 13, 1989, respondent, a passenger of United Airlines, checked in together with his luggage one piece of which wasfound to be overweight at the airline counter. To his utter humiliation, an employee of petitioner rebuked him saying that he should

have known the maximum weight allowance per bag and that he should have packed his things accordingly. Then, in a loud voicein front of the milling crowd, she told respondent to repair his things and transfer some of them to the light ones.

2. Respondent acceded but his luggage was still overweight. Petitioner billed him overweight charges but its employee reused tohonor the miscellaneous charges under MCD which he offered to pay with. Not wanting to leave without his luggage, he paid withhis credit card. Upon arrival in manila, he discovered that one of his bags had been slashed and its contents stolen.

3. In a letter dated October 16, 1989, he notified petitioner of his loss and requested reimbursement. Petitioner paid for his loss basedon the maximum liability per pound. Respondent considered the amount grossly inadequate. He sent two more letters to petitionbut to no avail.

4. On June 9, 1992, respondent filed a complaint for damages against petitioner Airline. Petitioner moved to dismiss the complaintinvoking the provisions of Article 29 of the Warsaw Convention. Respo ndent countered that according to par. 2 of Article 29, themethod of calculating the period of limitation shall be determined by the law of the court to which the case is submitted.

ISSUE(S): Whether or not the action for damages is barred by the lapse of the 2-year prescriptive period under Art. 29 of the WarsawConvention.

HELD: No.

RATIO:

Supreme Court held that although the 2-year prescriptive period under the Warsaw Convention has lapsed, it did not preclude theapplication of other pertinent provisions of the Civil Code. Thus, the action for damages could still be filed based on tort whichcan be filed within 4 years from the time cause of action accrued. As for the action pertaining to the loss of the contents of theluggage, while it was well within the bounds of the Warsaw Convention, the Supreme Court found that there was an exception tothe applicability of the 2-year prescriptive period that is when the airline employed delaying tactics and gave the passenger therun-around.

As to the applicability of the Warsaw Convention: The Courts have discretion whether to apply them or not. Within ourjurisdiction we have held that the Warsaw Convention can be applied, or ignored, depending on the peculiar facts presented byeach case. Thus, we have ruled that the Convention's provisions do not regulate or exclude liability for other breaches of contractby the carrier or misconduct of its officers and employees, or for some particular or exceptional type of damage. Neither may the

Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and precluderecovery therefor beyond the limits set by said Convention. Likewise, we have held that the Convention does not preclude theoperation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damagesfor violating the rights of its passengers under the contract of carriage, especially if willful misconduct on the part of the carrier'semployees is found or established.

Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and humiliating treatment he receivedfrom petitioner's employees at the San Francisco Airport which caused him extreme embarrassment and social humiliation; and,(b) the slashing of his luggage and the loss of his personal effects amounting to US $5,310.00.

While his second cause of action - an action for damages arising from theft or damage to property or goods - is well within thebounds of the Warsaw Convention, his first cause of action -an action for damages arising from the misconduct of the airlineemployees and the violation of respondent's rights as passenger - clearly is not.

Action for damages arising from the misconduct of the airline employees and the violation of the respondents rights as passengersis covered under the Civil Code. Consequently, insofar as the first cause of action is concerned, respondent's failure to file his

complaint within the two (2)-year limitation of the Warsaw Convention does not bar his action since petitioner airline may still beheld liable for breach of other provisions of the Civil Code which prescribe a different period or procedure for instituting theaction, specifically, Art. 1146 thereof which prescribes four (4) years for filing an action based on torts.

Exception to the application of the 2-year prescriptive period: when airline employed delaying tactics. As for respondent's secondcause of action, indeed the travaux preparatories of the Warsaw Convention reveal that the delegates thereto intended the two (2)-year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject to the various tolling provisions of thelaws of the forum. This therefore forecloses the application of our own rules on interruption of prescriptive periods. Article 29,par. (2), was intended only to let local laws determine whether an action had been commenced within the two (2) -year period, andwithin our jurisdiction an action shall be deemed commenced upon the filing of a complaint. Since it is indisputable that

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respondent filed the present action beyond the two (2)-year time frame his second cause of action must be barred. Nonetheless, itcannot be doubted that respondent exerted efforts to immediately convey his loss to petitioner, even employed the services of two(2) lawyers to follow up his claims, and that the filing of the action itself was delayed because of petitioner's evasion.

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

respondent's second cause of action cannot be considered as time-barred under Art. 29 of the Warsaw Convention.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

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052 RADIO COMMUNICATIONS OF THE PHILIPPINES,INC., (RCPI) petitioner, vs. NATIONALTELECOMMUNICATIONS COMMISSIONandKAYUMANGGI RADIO NETWORK INCORPORATED,respondents.G.R. No. L-68729 May 29, 1987Topic: Public Utility & Public Service

Author: rhonabursRCPI filed this petition to seek the reversal of the decision o

National Telecommunications Commission (NTC), which ordereformer to desist from operating its radio telephone services in SOccidental Mindoro, and Sorsogon.

SC affirmed that RCPI has no authority to operate such serwithout the required certificate.

FACTS:1. RCPI has been operating a radio communications system since 1957 under its legislative franchise granted by RA 20

2. RCPI established a radio telegraph service in Sorsogon (1968), San Jose, Mindoro (1971), and Catarman, Samar (193. There was a NTC decision (1980) that authorized Kayumanggi Radio Network Incorporated to operate rcommunications systems in Catarman, Samar and in San Jose, Mindoro.4. So in 1983, Kayumanggi Radio Network filed a complaint with the NTC alleging that the petitioner was operatinCatarman, Samar and in San Jose, Mindoro without a certificate of public convenience and necessity.5. RCPI counter-alleged that its telephone services in the places subject of the complaint are covered by the legislafranchise recognized by both the public respondent and its predecessor, the Public Service Commission.6. RCPI further stated that it has been in operation in the questioned places long before Kayumanggi filed its applicatiooperate in the same places.5. NTC decision: ordered RCPI to immediately cease or desist from the operation of its radio telephone services in theplaces stating that under E0 No. 546, a certificate of public convenience and necessity is mandatory for the operaof communication utilities and services including radio communications.

6. RCPIs motion for reconsideration was denied. Hence this petition.

RCPIs main argument: the abolition of the Public Service Commission and the creation of the NatiTelecommunications Commission under Executive Order No. 546 to replace the defunct Public Service Commissionnot affect sections 14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).

ISSUE: WON petitioner RCPI, a grantee of a legislative franchise to operate a radio company, is required to secucertificate of public convenience and necessity before it can validly operate its radio stations including radio telephservices in Catarman, Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.

HELD: Yes. The records of the case do not show any grant of authority from the Secretary of Public Works Communications before the petitioner installed the questioned radio telephone services. No certificate of pu

convenience and necessity appears to have been secured by the petitioner from the public respondent when scertificate, was required by the applicable public utility regulations

RATIO:

1. Pursuant to PD No. 1, the Public Service Commission was abolished and its functions were transferred to tspecialized regulatory boards, as follows: the Board of Transportation, the Board of Communications and the BoarPower and Waterworks. The functions so transferred were still subject to the limitations provided in sections 14 and 1the Public Service Law, as amended. With the enactment of Executive Order No. 546 on July 23, 1979 implementing PNo.1, the Board of Communications and the Telecommunications Control Bureau were abolished and their functions wtransferred to the National Telecommunications Commission (Sec. 19(d), Executive Order No. 546). Section 15 of Executive Order spells out the functions of the National Telecommunications Commission as follows:

Sec. 15. Functions of the Commission.-The Commission shall exercise the following functions:

a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio communications petitiosystems, wire or wireless telephone or telegraph system, radio and television broadcasting system and other similar public utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of public service communications; and determine aprescribe charges or rates pertinent to the operation of such public utility facilities and services except in cases where charges or rates aestablished by international bodies or associations of which the Philippines is a participating member or by bodies recognized by thPhilippine Government as the proper arbiter of such charges or rates;c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio communication systemincluding amateur radio stations and radio and television broadcasting systems; xxx xxx xxx xxx

xxxxx xxxx

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It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the jurisdiction ofPublic Service Commission and the Board of Communications no longer exists because of the changes effected byReorganization Law and implementing executive orders. The petitioner's claim that its franchise cannot be affectedExecutive Order No. 546 on the ground that it has long been in operation since 1957 cannot be sustained.

A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the hands of a subjeToday, a franchise, being merely a privilege emanating from the sovereign power of the state and owing its existence grant, is subject to regulation by the state itself by virtue of its police power through its administrative agencies.

2. We ruled in Pangasinan transportation Co., Inc. v. Public Service Commission (70 Phil. 221) that:

... statutes enacted for the regulation of public utilities, being a proper exercise by the State of its police power,

applicable not only to those public utilities coming into existence after its passage, but likewise to those alre

established and in operation ...

Executive Order No. 546, being an implementing measure of P.D. No. I is applicable to the petitioner who mus

bound by its provisions. The petitioner cannot install and operate radio telephone services on the basis of

legislative franchise alone.

3. The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can operate a rcommunications system anywhere within the Philippines is erroneous. In the words of R.A. No. 2036 itself, approva

the then Secretary of Public Works and Communications was a precondition before the petitioner could put up rstations in areas where it desires to operate. The records of the case do not show any grant of authority from the Secretary of Public Works and Communications before the petitioner installed the questioned radio telephone servicescertificate of public convenience and necessity appears to have been secured by the petitioner from the public respondwhen such certificate, was required by the applicable public utility regulations.

4. It was well within the powers of the public respondent (NTC) to authorize the installation by [Kayumanggi RNetwork] of radio communications systems in Catarman, Samar and San Jose, Mindoro. Under the circumstances ofcase, the mere fact that the petitioner possesses a franchise to put up and operate a radio communications system in cerareas is not an insuperable obstacle to the public respondent's issuing the proper certificate to an applicant desirinextend the same services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature

can a franchise be granted except that it must be subject to amendment, alteration, or even repeal by the legisla

when the common good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express provision inpetitioner's franchise, which provides compliance with the above mandate R.A. 2036, sec. 15).

5. The petitioner has not shown why the private respondent should be denied the authority to operate its services in Saand Mindoro. It has not overcome the presumption that when the public respondent disturbed the petitioner's monopocertain areas, it was doing so pursuant to public interest and the common good.

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053 RODOLFO B. ALBANOvs. HON. RAINERIO O. REYES, PHILIPPINE PORTSAUTHORITY, INTERNATIONAL CONTAINER

TERMINAL SERVICES, INC., E. RAZON, INC.,

ANSCOR CONTAINER CORPORATION, and

SEALAND SERVICES. LTD.

G.R. No. 83551, 11 July 1989

TOPIC: Sec. 13, Public Service Act, Art. XII, Sec. 11,1987 Constitution

PONENTE: Paras, J.

AUTHOR: SarahNOTES:

FACTS:1. PPA Board adopted its Resolution No. 850 directing PPA management to prepare the Invitation to Bid and

relevant bidding documents and technical requirements necessary for the public bidding of the developmmanagement and operation of the MICT at the Port of Manila, and authorizing the Board Chairman, SecreRainerio O. Reyes, to oversee the preparation of the technical and the documentation requirements for the Mleasing as well as to implement this project.

2. Secretary Reyes, by DOTC Special Order 87-346, created a seven (7) man "Special MICT Bidding Commitcharged with evaluating all bid proposals, recommending to the Board the best bid, and preparing corresponding contract between the PPA and the winning bidder or contractor.2.1 Members: 3 PPA representatives, 2 Department of Transportation and Communications (DO

representatives, 1 Department of Trade and Industry (DTI) representative and one 1 private se

representative.3. PPA published the Invitation to Bid which publication included the reservation by the PPA of "the right to re

any or all bids and to waive any informality in the bids or to accept such bids which may be considered madvantageous to the government."

4. 7 consortiaof companies actually submitted bids.4.1 Bidding Committee recommended the award of the contract to develop, manage and operate the MIC

International Container Terminal Services, Inc. (ICTSI) as having offered the best Technical and FinanProposal. Accordingly, respondent Secretary declared the ICTSI consortiumas the winning bidder.

5. 2 successive cases were filed against the respondents which assailed the legality or regularity of the MICT bidd5.1 Special Civil Action 55489 for "Prohibition with Preliminary Injunction" filed with the RTC of Pasi

Basilio H. Alo, an alleged "concerned taxpayer"5.2 Civil Case 88-43616 for "Prohibition with Prayer for Temporary Restraining Order (TRO)" filed with

RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9) firm consortium "Manila ContaTerminals, Inc." which had actively participated in the MICT Bidding.

6. President of the Philippines approved the proposed MICT Contract, with directives that "the responsibilityplanning, detailed engineering, construction, expansion, rehabilitation and capital dredging of the port, as wethe determination of how the revenues of the port system shall be allocated for future port works, shall remain the PPA; and the contractor shall not collect taxes and duties except that in the case of wharfage or tonnage dand harbor and berthing fees, payment to the Government may be made through the contractor who shall iprovisional receipts and turn over the payments to the Government which will issue the official receipts."

7. Albano: filed the present petition as citizen and taxpayer and as a member of the HOR, assailing the award ofMICT contract to the ICTSI by the PPA. The petitioner claims that since the MICT is a public utility, it neelegislative franchise before it can legally operate as a public utility, pursuant to Article 12, Section 11 of the 1Constitution.

ISSUE:1. Whether or not a franchise specially granted by the Congress is necessary for the operation of the Ma

International Container PortHELD:

1. No.RATIO:

1. Executive Order No. 30, dated July 16, 1986, provides:

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WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the Philippines, by virtue opowers vested in me by the Constitution and the law, do hereby order the immediate recall of the francgranted to the Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine PAuthority (PPA) to take over, manage and operate the Manila International Port Complex at North HaManila and undertake the provision of cargo handling and port related services thereat, in accordance P.D. 857 and other applicable laws and regulations.

Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine Ports Authority) states:

a) The corporate duties of the Authority shall be:

(ii) To supervise, control, regulate, construct, maintain, operate, and provide such facior services as are necessary in the ports vested in, or belonging to the Authority.

xxx xxx xxx

(v) To provide services (whether on its own, by contract, or otherwise) within the Districts and the approaches thereof, including but not limited to

berthing, towing, mooring, moving, slipping, or docking of any vessel;

loading or discharging any vessel;

sorting, weighing, measuring, storing, warehousing, or otherwise handling goods.

xxx xxx xxx

b) The corporate powers of the Authority shall be as follows:

xxx xxx xxx

(vi) To make or enter into contracts of any kind or nature to enable it to discharg

functions under this Decree.

Thus, while the PPA has been tasked, under E.O. No. 30, with the management and operation of the Manila InternatiPort Complex and to undertake the providing of cargo handling and port related services thereat, the law provides that shall be "in accordance with P.D. 857 and other applicable laws and regulations." On the other hand, P.D. No. expressly empowers the PPA to provide services within Port Districts "whether on its own, by contract, or otherwise" [6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the InternatiContainer Terminal Services, Inc. (ICTSI) for the management, operation and development of the MICP.

2. Even if the MICP be considered a public utility, or a public serviceon the theory that it is a "wharf' or a "dockcontemplated under the Public Service Act, its operation would not necessarily call for a franchise from the LegislaBranch. Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law

granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain puutilities. (See E.O. Nos. 172 and 202)

That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form of authorizafor the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does not necessaimply, as petitioner posits that only Congress has the power to grant such authorization. Our statute books are replete wlaws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of pu

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utilities.

As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the MICP, in accordance P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes the PPA to perform the servicitself, by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857 together, the inescapconclusion is that the lawmaker has empowered the PPA to undertake by itself the operation and management of the Mor to authorize its operation and management by another by contract or other means, at its option. The latter power havbeen delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manageMICP becomes unnecessary.

In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857, chose to contract out the operaand management of the MICP to a private corporation. This is clearly within its power to do. Thus, PPA's actprivatizing the MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the PPA undeCharter which empowers the PPA to "supervise, control, regulate, construct, maintain, operate and provide such facilor services as are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857)

The contract between the PPA and ICTSI, coupled with the President's written approval, constitute the necesauthorization for ICTSI's operation and management of the MICP. The award of the MICT contract approved by no than the President of the Philippines herself enjoys the legal presumption of validity and regularity of official action. Incase at bar, there is no evidence which clearly shows the constitutional infirmity of the questioned act of government.

Dissenting/Concurring Opinion:

Separate Opinions

GUTIERREZ, JR., J., concurring:

I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the various bcontractors and that in making such evaluation it has the technical expertise which neither this Court nor Congress possesses.

However, I would feel more comfortable in the thought that the above rulings are not only grounded on firm legal foundations but are also factually accurate if theshows greater consistency in its submissions to this Court.

I recall that inE. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the case in favor of the PPA because, among others, submissions that: (1) the petitioner therein committed violations as to outside stevedoring services, inadequate equipment, delayed submission of reports, and

compliance with certain port regulations; (2) respondent Marina Port Services and not the petitioner was better qualified to handle arrastre services; (3) the petibeing controlled by Alfredo Romualdez could not enter into a management contract with PPA and any such contract would be null and void; and (4) evenpetitioner may not have shared in the illegal intention behind the transfer of majority shares, it shared in the benefits of the violation of law.

I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit diametrically different statements regarding the capabilitieworth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila International Container Terminal will depend a great deal on the expertise, reliabilicompetence of E. Razon, Inc., for its successful operations. The time difference between the two petitions is insubstantial. After going over the pleadings of the p

petition, I am now convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are accurate and meritorious. Theredistinct possibility that we may have been unfair in the earlier petition because of assertions made therein which are contradictory to the submissions in the

petition. No such doubts would exist if the Government is more consistent in its pleadings on such important factual matters as those raised in these two petitions.

Separate Opinions

GUTIERREZ, JR., J., concurring:

I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the various bcontractors and that in making such evaluation it has the technical expertise which neither this Court nor Congress possesses.

However, I would feel more comfortable in the thought that the above rulings are not only grounded on firm legal foundations but are also factually accurate if theshows greater consistency in its submissions to this Court.

I recall that inE. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the case in favor of the PPA because, among others, submissions that: (1) the petitioner therein committed violations as to outside stevedoring services, inadequate equipment, delayed submission of reports, andcompliance with certain port regulations; (2) respondent Marina Port Services and not the petitioner was better qualified to handle arrastre services; (3) the peti

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being controlled by Alfredo Romualdez could not enter into a management contract with PPA and any such contract would be null and void; and (4) evenpetitioner may not have shared in the illegal intention behind the transfer of majority shares, it shared in the benefits of the violation of law.

I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit diametrically different statements regarding the capabilitieworth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila International Container Terminal will depend a great deal on the expertise, reliabilicompetence of E. Razon, Inc., for its successful operations. The time difference between the two petitions is insubstantial. After going over the pleadings of the p

petition, I am now convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are accurate and meritorious. Theredistinct possibility that we may have been unfair in the earlier petition because of assertions made therein which are contradictory to the submissions in the

petition. No such doubts would exist if the Government is more consistent in its pleadings on such important factual matters as those raised in these two petitions.

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054 NAPOCOR vs CAGR 103442-45 May 21, 1993

FACTS:

This is a consolidated case comprising of four separate complaints., filed against NPCand a particular Chavez.

Plaintiffs filed a complaint against respondent for the lost of lives and destruction ofproperties due to the negligence of the latter in releasing water from Angat dam duringthe typhoon Kading

Benjamin Chavez, being the supervisor at that time of a multi-purpose hydroelectric plantin the Angat River at Hilltop, Norzagaray, Bulacan, failed to exercise due diligence inmonitoring the water level at the dam.

NPCs allegations were as follows:

1) the NPC exercised due care, diligence and prudence in the operation and maintenance

of the hydroelectric plant;2) the NPC exercised the diligence of a good father in the selection of its employees; 3)written notices were sent to the different municipalities of Bulacan warning the residentstherein about the impending release of a large volume of water with the onset of typhoon"Kading" and advise them to take the necessary precautions;4) the water released during the typhoon was needed to prevent the collapse of the damand avoid greater damage to people and property;5) in spite of the precautions undertaken and the diligence exercised, they could still notcontain or control the flood that resulted and;6) the damages incurred by the private respondents were caused by a fortuitous event orforce majeure and are in the nature and character of damnum absque injuria. By way of

special affirmative defense, the defendants averred that the NPC cannot be sued becauseit performs a purely governmental function.

The trial court dismissed the complaints as against the NPC on the ground that theprovision of its charter allowing it to sue and be sued does not contemplate actions basedon tort. Its decision on 30 April 1990 dismissing the complaints "for lack of sufficientand credible evidence."

Court of Appeals reversed the appealed decision and awarded damages in favor of theprivate respondents. Based on the findings that From the mass of evidence extant in therecord, We are convinced, and so hold that the flash flood on October 27, 1978, wascaused not by rain waters (sic), but by stored waters (sic) suddenly and simultaneouslyreleased from the Angat Dam by defendants-appellees, particularly from midnight ofOctober 26, 1978 up to the morning hours of October 27, 1978.

ISSUE:Whether or not respondent is negligent?Whether or not the notices of warning were insufficient?Whether or not The damages suffered was not DAMNUM ABSQUE INJURIA?

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HELD:

We declared therein that the proximate cause of the loss and damage sustained by theplaintiffs thereinwho were similarly situated as the private respondents herein wasthe negligence of the petitioners, and that the 24 October 1978 "early warning notice"supposedly sent to the affected municipalities, the same notice involved in the case at bar,

was insufficient.

The petitioners were guilty of "patent gross and evident lack of foresight, imprudence andnegligence in the management and operation of Angat Dam," and that "the extent of theopening of the spillways, and the magnitude of the water released, are all but products ofdefendants-appellees' headlessness, slovenliness, and carelessness."

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach ofan obligation due to an "act of God," the following must concur: (a) the cause of thebreach of the obligation must be independent of the will of the debtor; (b) the event mustbe either unforseeable or unavoidable; (c) the event must be such as to render it

impossible for the debtor to fulfill his obligation in a moral manner; and (d) the debtormust be free from any participation in, or aggravation of the injury to the creditor.(Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon StevedoringCorp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).

Accordingly, petitioners cannot be heard to invoke the act of God or force majeure toescape liability for the loss or damage sustained by private respondents since they, thepetitioners, were guilty of negligence. The event then was not occasioned exclusively byan act of God or force majeure; a human factor negligence or imprudence hadintervened. The effect then of the force majeure in question may be deemed to have, even

if only partly, resulted from the participation of man. Thus, the whole occurrence wasthereby humanized, as it were, and removed from the laws applicable to acts of God.

Reference to the full text Facts:

This present controversy traces its beginnings to four (4) separate complaints2fordamages filed against the NPC and Benjamin Chavez before the trial court. The plaintiffstherein, now private respondents, sought to recover actual and other damages for the lossof lives and the destruction to property caused by the inundation of the town ofNorzagaray, Bulacan on 26-27 October 1978. The flooding was purportedly caused bythe negligent release by the defendants of water through the spillways of the Angat Dam(Hydroelectric Plant). In said complaints, the plaintiffs alleged, inter alia, that: 1)defendant NPC operated and maintained a multi-purpose hydroelectric plant in the AngatRiver at Hilltop, Norzagaray, Bulacan; 2) defendant Benjamin Chavez was the plantsupervisor at the time of the incident in question; 3) despite the defendants' knowledge, asearly as 24 October 1978, of the impending entry of typhoon "Kading," they failed toexercise due diligence in monitoring the water level at the dam; 4) when the said waterlevel went beyond the maximum allowable limit at the height of the typhoon, thedefendants suddenly, negligently and recklessly opened three (3) of the dam's spillways,

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thereby releasing a large amount of water which inundated the banks of the Angat River;and 5) as a consequence, members of the household of the plaintiffs, together with theiranimals, drowned, and their properties were washed away in the evening of 26 Octoberand the early hours of 27 October 1978.

3

In their Answers, the defendants, now petitioners, alleged that: 1) the NPC exercised duecare, diligence and prudence in the operation and maintenance of the hydroelectric plant;2) the NPC exercised the diligence of a good father in the selection of its employees; 3)

written notices were sent to the different municipalities of Bulacan warning the residentstherein about the impending release of a large volume of water with the onset of typhoon"Kading" and advise them to take the necessary precautions; 4) the water released duringthe typhoon was needed to prevent the collapse of the dam and avoid greater damage topeople and property; 5) in spite of the precautions undertaken and the diligence exercised,they could still not contain or control the flood that resulted and; 6) the damages incurredby the private respondents were caused by a fortuitous event orforce majeureand are inthe nature and character of damnum absque injuria. By way of special affirmativedefense, the defendants averred that the NPC cannot be sued because it performs a purelygovernmental function.4

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56 - Tatad vs. Sec. Garcia, April 16, 1995;

Francisco Tatad, John Osmena and Rodolfo Biazon, petitioners,vs.Hon. Jesus Garcia, in his capacity as the Secretary of the Department of Transportation &Communications, and EDSA LRT CORPORATION, LTD., respondents.

Facts:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further

implementing the Revised and Restated Agreement to Build, Lease and Transfer a Light Rail TransitSystem for EDSA and the Supplemental Agreement to the same project.

Petitioners Francisco Tatad, John Osmena and Rodolfo Biazon are members of the Philippine Senate andare suing in their capacities as Senators and as taxpayers. Respondent Jesus Garcia was then Secretary ofthe DOTC, while private respondent EDSA LRT CORPORATION, Ltd. is a private corporation organizedunder the laws of Hongkong.

In 1989, DOTC planned to construct a light railway transit line along EDSA, which shall traverse the cities ofPasay, Quezon, Mandaluyong and Makati. The objective is to provide a mass transit system along EDSAand to alleviate the congestion in the metropolis.

On March 15, 1990, then DOTC Secretary Oscar Orbos, acting upon a proposal to construct the EDSA LRTIII on a Build-Operate-Transfer (BOT) basis, had invited Elijahu Levin from the Eli Levin Enterprises, Inc tosend a technical team to discuss the project with the DOTC.

On July 9, 1990, RA No. 6957 referred to as the Build-Operate-Transfer (BOT) was signed by thenPresident Corazon Aquino. The said Act provides for two schemes for the financing, construction andoperation of government projects through private initiative and investment: BOT or Build-Transfer (BT).

In accordance with the provisions of RA 6957 and to set the EDSA LRT III project underway, thePrequalification Bids and Awards Committee and the Technical Committee were formed.

The prequalification criteria totalling 100% are as follows: a.) Legal aspects10%; b.)Management/Organizational capability30%; c.) Financial capability- 30%; and d.) Technical capability30%.

Of the 5 applicants, only the EDSA LRT Consortium met the requirements of garnering at least 21 pointsper criteria, except for Legal aspects, and obtaining an over-all passing mark of at least 82 points. The

Legal aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified inthe Constitution and other pertinent laws.

Subsequently, Sec. Orbos was appointed Executive Secretary to the President of the Philippines and wasreplaced by Nicomedes Prado. The latter recommended the award of the EDSA LRT III project to the solecomplying bidder, the EDSA LRT Consortium, and requested for authority to negotiate with the said firm forthe contract pursuant to the BOT Law. Authority was granted to proceed with the negotiations. The EDSALRT Consortium submitted its proposal to DOTC.

Finding the proposal to be in compliance with the bid requirements, DOTC and EDSA LRT Corporation, Ltd.,in substitution of the EDSA LRT Consortium, entered into an An Agreement to Build, Lease and Transfer aLight Rail Transit System for EDSA under the terms of the BOT Law.

Secretary Prado, thereafter, requested presidential approval of the contract.

Exec. Sec. Franklin Drilon, who replaced Sec. Orbos, informed Sec. Prado that the President could not grantthe requested approval for failure to comply with the requirements of the BOT Law.

In view whereof, Sec. Drilon, the DOTC and private respondent re-negotiated the agreement. On April 22,1992, the parties entered into a Revised and Restated Agreement to Build, Lease and Transfer and LightRail Transit System for EDSA. On May 6, 1992, DOTC, represented by Sec. Jesus Garcia, Sec. Prado andprivate respondent entered into a Supplemental Agreement to the April Revised Agreement so as to clarifytheir respective rights and responsibilities.

The two agreements were approved by President Fidel Ramos.

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According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and SlovakFederal Republics and will have a maximum carrying capacity of 450,000 passengers a day. The system willhave its own power facility. It will also have 13 passenger stations and one depot in 16-hectare governmentproperty at North Avenue.

Private respondents shall undertake and finance the entire project required for a complete operational lightrail transit system. Target completion date is approximately 3 years from the implementation date of thecontract. Upon full and partial completion and viability thereof, private respondent shall deliver the use andpossession of the completed portion to DOTC which shall operate the same. DOTC shall pay privaterespondent rentals on aj monthly basis through an Irrevocable Letter of Credit. The rentals shall bedetermined by an independent and internationally accredited inspection firm to be appointed by the parties.

As agreed upon, private respondents capital shall be recovered from the rentals to be paid by the DOTCwhich, in turn, shall come from the earnings of the EDSA LRT III. After 25 years and DOTC shall havecompleted payment of the rentals, ownership of the project shall be transferred to the latter for aconsideration of only US $1.00.

In their petition, petitioners argued that the agreement of April 22, 1992, as amended by the SupplementalAgreement of May 6, 1993, in so far as it grants EDSA LRT COPORTATION, LTD., a foreign corporation,the ownership of EDSA LRT III, a public utility, violates the constitution, and hence, is unconstitutional. Theycontend that the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by theConstitution to Filipino citizens and domestic corporations, not foreign corporations like private respondent.

Issue:

Whether or not the EDSA LRT III assumes all the obligations and liabilities of a common carrier.

Held:

What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals andthe power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public,they do not by themselves constitute a public utility. What constitutes a public utility is not their ownershipbut their use to serve the public.

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a public utility shall be grantedexcept to citizens of the Philippines or to corporations or associations organized under the laws of thePhilippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise,certificate or authorization be exclusive character or for a longer period than 50 years.

The right to operate a public utility may exist independently and separately from the ownership of thefacilities thereof. One can own said facilities without operating them as a public utility, or conversely, onemay operate a public utility without owning the facilities used to serve the public. The devotion of property toserve the public may be done by the owner or by the person in control thereof who may not necessarily bethe owner thereof.

While private respondent is the owner of the facilities necessary to operate the EDSA LRT III, it admits that itis not enfranchised to operate a public utility. In view of this incapacity, private respondent and DOTCagreed that on completion date, private respondent will immediately deliver possession of the LRT systemby of lease for 25 years, during which period DOTC shall operate the same as a common carrier and privaterespondent shall provide technical maintenance and repair services to DOTC.

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a commoncarrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses,damages, injuries or death which may be claimed in the operation or implementation of the system, exceptlosses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition ofequipment or facilities or the defective maintenance of such equipment facilities.

Wherefore, the petition is DISMISSED.

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057 RP v. Manila Electric Co. (MERALCO)G.R. No. 141314, (15 November 2002TOPIC: Public Utility & Public ServicePONENTE: PUNO, J.

AUTHOR:NOTES: (if applicable)

FACTS:

1. December 23, 1993: MERALCO filed with the ERB an application for the revision of its rate schedules. Theapplication reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The

application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the PublicService Act and Section 8 of Executive Order No. 172.

2. January 28, 1994: the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to thefollowing condition that in the event, however, that the Board finds, after hearing and submission by theCommission on Audit of an audit report on the books and records of the applicant that the latter is entitled to alesser increase in rates, all excess amounts collected from the applicants customers as a result of this Ordershall either be refunded to them or correspondingly credited in their favor for application to electric bills

covering future consumptions. The ERB also requested COA to conduct an audit and examination o f the booksand other records of account of the applicant and submit the same to the ERB.

3. February 11, 1997: COA submitted its report with the recommendation not to include income taxes paid byMERALCO as part of its operating expenses for purposes of rate determination and the use of the net averageinvestment method for the computation of the proportionate value of the properties used by MERALCO during the

test year for the determination of the rate base.4. Subsequently, the ERB rendered its decision adopting the above recommendations and authorized MERALCO to

implement a rate adjustment in the average amount of P0.017 per kwh, effective with respect to MERALCOsbilling cycles beginning February 1994.

5. The ERB further ordered that the provisional relief in the amount of P0.184/kwh granted under the Boards Orderdated 28 January 1994 is hereby superseded and modified and the excess average amount of P0.167/kwh startingwith MERALCOs billing cycles beginning February 1994 until its billing cycles beginning February 1998, berefunded to MERALCOs customers or correspondingly credited in their favor for future consumption. The ERB

held that income tax should not be treated as operating expense as this should be borne by the stockholders whoare recipients of the income or profits realized from the operation of their business hence, should not be passed onto the consumers.

6. Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in

computing the rate base, only the proportionate value of the property should be included, determined in accordancewith the number of months the same was actually used in service during the test year.

7. On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the MERALCOrates by an average of P0.167 per kwh and the refund of such amount to MERALCOs customers beginningFebruary 1994 and until its billing cycle beginning February 1998.

ISSUE(S):1. Whether the CA erred in ruling that income tax paid by MERALCO should be treated as part of its operating expensesand thus considered in determining the amount of increase in rates imposed by MERALCO2. Whether the CA erred in rejecting the net average investment method used by the COA and the ERB and insteadadopted the average investment method used by MERALCOHELD: Both YESRATIO:

1. The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutesprescribing rules for the control and regulation of public utilities are a valid exercise thereof. When privateproperty is used for a public purpose and is affected with public interest, it ceases to be juris privati only andbecomes subject to regulation. The regulation is to promote the common good. Submission to regulation may bewithdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subjectto public regulation.

2. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates

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while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does notgive the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return oninvestment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility uponthe value of the property performing the service and one that is reasonable to the public for the services rendered.The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.

3. While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegatedthrough an administrative agency, a determination of whether the rates so fixed are reasonable and just is a purelyjudicial question and is subject to the review of the courts.

4. The ERB was created under Executive Order No. 172 to regulate, among others, the distribution of energy

resources and to fix rates to be charged by public utilities involved in the distribution of electricity. In the fixing ofrates, the only standard which the legislature is required to prescribe for the guidance of the administrativeauthority is that the rate be reasonable and just. It has been held that even in the absence of an expressrequirement as to reasonableness, this standard may be implied. What is a just and reasonable rate is a questionof fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or toohigh as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider the givensituation, requirements and opportunities of the utility

5. In the cases at bar, findings and conclusions of the ERB on the rate that can be charged by MERALCO to thepublic should be respected. The function of the court, in exercising its power of judicial review, is to determinewhether under the facts and circumstances, the final order entered by the administrative agency is unlawful orunreasonable. Thus, to the extent that the administrative agency has not been arbitrary or capricious in the exercise

of its power, the time-honored principle is that courts should not interfere. The principle of separation of powersdictates that courts should hesitate to review the acts of administrative officers except in clear cases of grave abuseof discretion.

6. In determining the just and reasonable rates to be charged by a public utility, three major factors areconsidered by the regulating agency: a) rate of return; b) rate base and c) the return itself or the computedrevenue to be earned by the public utility based on the rate of return and rate base. The rate of return is ajudgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the useof its property for service to the public. The rate of return of a public utility is not prescribed by statute but byadministrative and judicial pronouncements. This Court has consistently adopted a 12% rate of return for publicutilities. The rate base, on the other hand, is an evaluation of the property devoted by the utility to the publicservice or the value of invested capital or property which the utility is entitled to a return.

Income Tax as Operating Expense Cannot be Allowed For Rate-Determination Purposes

7. The ERB correctly ruled that income tax should not be included in the computation of operating expenses of apublic utility.Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general,operating expenses are those which are reasonably incurred in connection with business operations to yieldrevenue or income. They are items of expenses which contribute or are attributable to the production of income orrevenue. As correctly put by the ERB, operating expenses should be a requisite of or necessary in the operation ofa utility, recurring, and that it redounds to the service or benefit of customers . Clearly, by its nature, income taxpayments of a public utility are not expenses which contribute to or are incurred in connection with the productionof profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made inexchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a publicutility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to theoperation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of payingincome tax should be Meralcos alone and should not be shifted to the consumers by including the same in the

computation of its operating expenses.8. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is toallow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the servicesit provides. It does not give the public utility the license to indiscriminately charge any and all types of expensesincurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production ofservices by the public utility. To charge consumers for expenses incurred by a public utility which are not relatedto the service or benefit derived by the customers from the public utility is unjustified and inequitable.

9. While the public utility is entitled to a reasonable return on the fair value of the property being used for the serviceof the public, no less than the Federal Supreme Court of the United States emphasi zed: [t]he public cannot

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properly be subjected to unreasonable rates in order simply that stockholders may earn dividends If acorporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and themwhich the Constitution does not require to be remedied by imposing unjust burdens on the public.

Use of Net Average Investment Method is Not Unreasonable10. In the determination of the rate base, property used in the operation of the public utility must be subject to

appraisal and evaluation to determine the fair value thereof entitled to a fair return. With respect to those propertieswhich have not been used by the public utility for the entire duration of the test year, i.e., the year subject to auditexamination for rate-making purposes, a valuation method must be adopted to determine the proportionate value ofthe property. Petitioners maintain that the net average investment method (also known as actual number of

months use method) recommended by COA and adopted by the ERB should be used, while MERALCO arguesthat the average investment method (also known as the trending method) to determine the proportionate value ofproperties should be applied.

11.Under the net average investment method,properties and equipment used in the operation of a public utilityare entitled to a return only on the actual number of months they are in service during the period. In contrast, theaverage investment method computes the proportionate value of the property by adding the value of the propertyat the beginning and at the end of the test year with the resulting sum divided by two.

12.The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness ofnet average investment method is borne by the records of the case. In its report, the COA explained that thecomputation of the proportionate value of the property and equipment in accordance with the actual number ofmonths such property or equipment is in service for purposes of determining the rate base is favored, as against the

trending method employed by MERALCO, to reflect the real status of the property. By using the net average