G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner, vs. HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.

Benjamin S. Valte for petitioner.

Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court of Appeals

1 promulgated on 15 December 1980 in CA-

G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment dismissing the Complaint of private respondents for damages arising from breach of contract of carriage, and awarding instead P90,000.00 as moral damages.

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their economy and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de (meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director

and Treasurer, for the extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible unless the fare differentials resulting from the increase in fares triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of the impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and warned her that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the trip.

However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets because of their expiration, and the GANAS had to purchase new tickets. They encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able to return only after pre-payment in Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought upon themselves the predicament they found themselves in and assumed the consequential risks; that travel agent Ella's affixing of validating stickers on the tickets without the knowledge and consent of AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his authority as a travel agent; and that AIR FRANCE was not guilty of any fraudulent conduct or bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations of Fact as wen as on the documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana, the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in a Decision, which decreed:

WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS (P90,000.00) plus costs.

SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance, to which we gave due course.

The crucial issue is whether or not, under the environmental milieu the GANAS have made out a case for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake the final portion of his journey by departing from the last point at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has expired before the passenger completes his trip (parag.

3.5.1.) ... To complete the trip, the passenger must purchase a new ticket for the remaining portion of the journey" (ibid.)

3

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it imposed additional charges representing fare differentials, it was motivated by self-interest or unjust enrichment considering that an increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the IATA tariff rules which provide:

6. TARIFF RULES

7. APPLICABLE FARE ON THE DATE OF DEPARTURE

3.1 General Rule.

All journeys must be charged for at the fare (or charge) in effect on the date on which transportation commences from the point of origin. Any ticket sold prior to a change of fare or charge (increase or decrease) occurring between the date of commencement of the journey, is subject to the above general rule and must be adjusted accordingly. A new ticket must be issued and the difference is to be collected or refunded as the case may be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs when the journey is already commenced.

4

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in question could not be extended beyond the period of their validity without paying the fare differentials and additional travel taxes brought about by the increased fare rate and travel taxes.

ATTY. VALTE

Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?

A I told her, because that is the reason why they accepted again the tickets when we returned the tickets spin, that they could not be extended. They could be extended by paying the additional fare, additional tax and additional exchange during that time.

Q You said so to Mrs. Manucdoc?

A Yes, sir." ... 5

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the request for extension of the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the imminent departure of the GANAS on the same day so that he could not get in touch with Air France

6 was certainly in

contravention of IATA rules although as he had explained, he did so upon Teresita's assurance that for the onward flight from Osaka and return, the GANAS would make other arrangements.

Q Referring you to page 33 of the transcript of the last session, I had this question which reads as follows: 'But did she say anything to you when you said that the tickets were about to expire?' Your answer was: 'I am the one who asked her. At that time I told her if the tickets being used ... I was telling her what about their bookings on the return. What about their travel on the return? She told me it is up for the Ganas to make the arrangement.' May I know from you what did you mean by this testimony of yours?

A That was on the day when they were asking me on May 7, 1971 when they were checking the tickets. I told Mrs. Manucdoc that I was going to get the tickets. I asked her what about the tickets onward from the return from Tokyo,

and her answer was it is up for the Ganas to make the arrangement, because I told her that they could leave on the seventh, but they could take care of that when they arrived in Osaka.

Q What do you mean?

A The Ganas will make the arrangement from Osaka, Tokyo and Manila.

Q What arrangement?

A The arrangement for the airline because the tickets would expire on May 7, and they insisted on leaving. I asked Mrs. Manucdoc what about the return onward portion because they would be travelling to Osaka, and her answer was, it is up to for the Ganas to make the arrangement.

Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember, what were her exact words?

A Her words only, it is up for the Ganas to make the arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be recalled that the GANAS left in Manila the day before the expiry date of their tickets and that "other arrangements" were to be made with respect to the remaining segments. Besides, the validating stickers that Ella affixed on his own merely reflect the status of reservations on the specified flight and could not legally serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the thought that by

commencing the trip the day before the expiry date, they could complete the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint filed by private respondents hereby dismissed.

No costs.

SO ORDERED.

G.R. No. 159489 February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner, vs. CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-Fact PONCIANO C. MARQUEZ, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision1 and

Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the

Court of Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the Decision

3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila,

Branch 3, finding petitioner as defendant and the co-defendants below jointly and severally liable to the plaintiffs, now herein respondents.

The antecedent facts are as follows:

Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January 1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program for policyholders. It was offering 8% prepaid interest a month for certain amounts

deposited on a monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977 for P10,000.

4 In return, Valle issued Pedroso his

personal check for P800 for the 8%5 prepaid interest and a Filipinas Life "Agents

Receipt" No. 807838.6

Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the promotional investment and Apetrior confirmed that there was such a promotion. She was even told she could "push through with the check" she issued. From the records, the check, with the endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch.

Relying on the representations made by the petitioners duly authorized representatives Apetrior and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of her initial investment. A month after, her investment of P10,000 was returned to her after she made a written request for its refund. The formal written request, dated February 3, 1977, was written on an inter-office memorandum form of Filipinas Life prepared by Alcantara.

7 To collect the amount, Pedroso personally went to the Escolta branch

where Alcantara gave her the P10,000 in cash. After a second investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate of 5%

8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments,

Valle would take back from Pedroso the corresponding yellow-colored agents receipt he issued to the latter.

Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the investment plan. Palacio made a total investment of P49,550

9 but at only 5% prepaid interest. However, when Pedroso tried to

withdraw her investment, Valle did not want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return her money. With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect their respective investments, and to inquire why they had not seen Valle for quite some time. But their attempts were futile. Hence, respondents filed an action for the recovery of a sum of money.

After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion for reconsideration.

Petitioner now comes before us raising a single issue:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.

10

Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally liable to the herein respondents?

Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance company and was not engaged in the business of collecting investment money. It contends that the investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.

11

On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from them. In fact, Filipinas Lifes official documents and facilities were used in consummating the transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents act within the scope of their authority.

Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering the assailed decision and resolution.

It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550, respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was also established by the parties. When respondents sought confirmation, Alcantara, holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority, in this case, respondents did exercise due diligence in removing all doubts and in confirming the validity of the representations made by Valle.

Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

12 The general rule is that the principal is responsible for the acts of its

agent done within the scope of its authority, and should bear the damage caused to third persons.

13 When the agent exceeds his authority, the agent becomes

personally liable for the damage.14

But even when the agent exceeds his authority, the principal is still solidarily liable together with the agent if the principal allowed the agent to act as though the agent had full powers.

15 In other words, the acts of

an agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them, expressly or impliedly.

16 Ratification in agency is the

adoption or confirmation by one person of an act performed on his behalf by another without authority.

17

Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much more so if the principal ratified his agents acts beyond the latters authority. The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself."

18

WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568 are AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. 152122 July 30, 2003

CHINA AIRLINES, petitioner, vs. DANIEL CHIOK, respondent.

PANGANIBAN, J.:

A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For reasons of public interest and policy, the ticket-issuing airline

acts as principal in a contract of carriage and is thus liable for the acts and the omissions of any errant carrier to which it may have endorsed any sector of the entire, continuous trip.

The Case

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of

Court, seeking to reverse the August 7, 2001 Decision2 and the February 7, 2002

Resolution3

of the Court of Appeals (CA) in CA-GR CV No. 45832. The challenged Decision disposed as follows:

"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional Trial Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by deleting that portion regarding defendants-appellants liabilities for the payment of the actual damages amounting to HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs against defendants-appellants."

4

The assailed Resolution denied Petitioners Motion for Partial Reconsideration.

The Facts

The facts are narrated by the CA5 as follows:

"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines, Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for brevity).

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

"When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight back to Manila. The PAL office confirmed his return trip on board Flight No. PR 311 and attached its own sticker. On November 24, 1981, Chiok proceeded to Hongkong International Airport for his return trip to Manila. However, upon reaching the PAL counter, Chiok saw a

poster stating that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then informed that all the confirmed ticket holders of PAL Flight No. PR 311 were automatically booked for its next flight, which was to leave the next day. He then informed PAL personnel that, being the founding director of the Philippine Polysterene Paper Corporation, he ha[d] to reach Manila on November 25, 1981 because of a business option which he ha[d] to execute on said date.

"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan (hereafter referred to as Lok) ha[d] taken and received Chioks plane ticket and his luggage. Lok called the attention of Carmen Chan (hereafter referred to as Carmen), PALs terminal supervisor, and informed the latter that Chioks name was not in the computer list of passengers. Subsequently, Carmen informed Chiok that his name did not appear in PALs computer list of passengers and therefore could not be permitted to board PAL Flight No. PR 307.

"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not allowed to take his flight. The latter then wrote the following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter sought to recover his luggage but found only 2 which were placed at the end of the passengers line. Realizing that his new Samsonite luggage was missing, which contained cosmetics worth HK$14,128.80, he complained to Carmen.

"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer, Carie Chao (hereafter referred to as Chao), who previously confirmed his flight back to Manila. Chao told Chiok that his name was on the list and pointed to the latter his computer number listed on the PAL confirmation sticker attached to his plane ticket, which number was R/MN62.

"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if this ticket could be used to book him for the said flight. The latter, once again, booked and confirmed the formers trip, this time on board PAL Flight No. PR 311 scheduled to depart that evening. Later, Chiok went to the PAL check-in counter and it was Carmen who attended to him. As this juncture, Chiok had already placed his travel documents, including his clutch bag, on top of the PAL check-in counter.

"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion, Chiok lost his clutch bag containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL personnel informed him that he could now check-in.

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

"He alleged therein that despite several confirmations of his flight, defendant PAL refused to accommodate him in Flight No. 307, for which reason he lost the business option aforementioned. He also alleged that PALs personnel, specifically Carmen, ridiculed and humiliated him in the presence of so many people. Further, he alleged that defendants are solidarily liable for the damages he suffered, since one is the agent of the other."

6

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It did not, however, rule on their respective cross-claims. It disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to jointly and severally pay:

1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the time of the loss of the luggage consisting of cosmetic products;

2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;

3. P200,000.00 by way of moral damages;

4. P50,000.00 by way of exemplary damages or corrective damages;

5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor of the plaintiff; and

6. The costs of this proceedings."7

The two carriers appealed the RTC Decision to the CA.

Ruling of the Court of Appeals

Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an issuing agent for the ticket covering the Hong Kong-Manila leg of respondents journey. In support of its Decision, the CA quoted a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of Appeals

8 as follows:

"Article 30 of the Warsaw providing that in case of transportation to be performed by various successive carriers, the passenger can take action only against the carrier who performed the transportation during which the accident or the delay occurred presupposes the occurrence of either an accident or delay in the course of the air trip, and does not apply if the damage is caused by the willful misconduct on the part of the carriers employee or agent acting within the scope of his employment.

"It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of a condition which purportedly would excuse the carrier from liability, where the notice is written at the back of the ticket in letters so small that one has to use a magnifying glass to read the words. To preclude any doubt that the contract was fairly and freely agreed upon when the passenger accepted the passage ticket, the carrier who issued the ticket must inform the passenger of the conditions prescribed in the ticket or, in the very least, ascertain that the passenger read them before he accepted the passage ticket. Absent any showing that the carriers officials or employees discharged this responsibility to the passenger, the latter cannot be bound by the conditions by which the carrier assumed the role of a mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences in its own lines.

"Where the passage tickets provide that the carriage to be performed thereunder by several successive carriers is to be regarded as a single operation, the carrier which issued the tickets for the entire trip in effect guaranteed to the passenger that the latter shall have sure space in the various carriers which would ferry him through the various segments of the trip, and the ticket-issuing carrier assumes full responsibility for the entire trip and shall be held accountable for the breach of that guaranty whether the breach occurred in its own lines or in those of the other carriers."

9

On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport respondent when, in spite of the confirmations he had secured for Flight PR 311, his name did not appear in the computerized list of passengers. Ruling that the airlines negligence was the proximate cause of his excoriating experience, the appellate court sustained the award of moral and exemplary damages.

The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and US$2,000.00, because the lost piece of luggage and clutch bag had not actually been "checked in" or delivered to PAL for transportation to Manila.

On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate court had erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover, it argued that respondent was fully aware that the booking for the PAL sector had been made only upon his request; and that only PAL, not CAL, was liable for the actual carriage of that segment. Petitioner likewise prayed for a ruling on its cross-claim against PAL, inasmuch as the latters employees had acted negligently, as found by the trial court.

Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue that would warrant a modification or a reversal of the Decision. As to the alleged misquotation, the CA held that while the portion it had cited appeared to be different from the wording of the actual ruling, the variance was "more apparent than real since the difference [was] only in form and not in substance."

10

CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this Court denied PALs appeal, docketed as GR No. 149544, for failure to serve the CA a copy of the Petition as required by Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court. PALs Motion for Reconsideration was denied with finality on January 21, 2002.

Only the appeal of CAL11

remains in this Court.

Issues

In its Memorandum, petitioner raises the following issues for the Courts consideration:

"1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner on the basis of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in magnifying

its misconduct by denying the petitioners Motion for Reconsideration on a mere syllabus, unofficial at that.

"2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the case before it.

"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the petitioner."

12

The Courts Ruling

The Petition is not meritorious.

First Issue:

Alleged Judicial Misconduct

Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two airlines on an unofficial syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was allegedly aggravated when the CA, in an attempt to justify its action, held that the difference between the actual ruling and the syllabus was "more apparent than real."

13

We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court accurately.

14 By the same token, judges

should do no less by strictly abiding by this rule when they quote cases that support their judgments and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to perform official duties diligently by being faithful to the law and maintaining their professional competence.

However, since this case is not administrative in nature, we cannot rule on the CA justices administrative liability, if any, for this lapse. First, due process requires that in administrative proceedings, the respondents must first be given an opportunity to be heard before sanctions can be imposed. Second, the present action is an appeal from the CAs Decision, not an administrative case against the magistrates concerned. These two suits are independent of and separate from each other and cannot be mixed in the same proceedings.

By merely including the lapse as an assigned error here without any adequate and proper administrative case therefor, petitioner cannot expect the imposition of an administrative sanction.

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

Applicability of KLM v. CA

In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office in Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its Flight 861. On the day of their departure, however, the airline rudely off-loaded them.

When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by arguing that its liability for damages was limited only to occurrences on its own sectors. To support its argument, it cited Article 30 of the Warsaw Convention, stating that when transportation was to be performed by various successive carriers, the passenger could take action only against the carrier that had performed the transportation when the accident or delay occurred.

In holding KLM liable for damages, we ruled as follows:

"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be sustained. That article presupposes the occurrence of either an accident or a delay, neither of which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its manager there, refused to transport the respondents to their planned and contracted destination.

"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals that condition was printed in letters so small that one would have to use a magnifying glass to read the words. Under the circumstances, it would be unfair and inequitable to charge the respondents with automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly and freely agreed upon by the respondents when they accepted the passage tickets issued to them by the KLM. As the airline which issued those tickets with the knowledge that the respondents would be flown on the various legs of their journey by different air carriers, the KLM was chargeable with the duty and responsibility of specifically informing the respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the respondents read them before they accepted their passage tickets. A thorough search of the record, however,

inexplicably fails to show that any effort was exerted by the KLM officials or employees to discharge in a proper manner this responsibility to the respondents. Consequently, we hold that the respondents cannot be bound by the provision in question by which KLM unilaterally assumed the role of a mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on its own lines.

"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the respondents provide that the carriage to be performed thereunder by several successive carriers is to be regarded as a single operation, which is diametrically incompatible with the theory of the KLM that the respondents entered into a series of independent contracts with the carriers which took them on the various segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM which issued them tickets for their entire trip and which in effect guaranteed to them that they would have sure space in Aer Lingus flight 861. The respondents, under that assurance of the internationally prestigious KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry out the respondents' scheduled itinerary previously and mutually agreed upon between the parties.

"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an official of the Aer Lingus which the KLM had engaged to transport the respondents on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting party who occupies an inferior position with respect to the other contracting party, that the KLM should be held responsible for the abuse, injury and embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer Lingus."

15

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

"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of carriage with [respondent] and remains to be so, regardless of those instances when actual carriage was to be performed by another carrier. The issuance of a confirmed CAL ticket in favor of [respondent] covering his entire trip abroad concretely attests to this. This

also serves as proof that defendant-appellant CAL, in effect guaranteed that the carrier, such as defendant-appellant PAL would honor his ticket, assure him of a space therein and transport him on a particular segment of his trip."

16

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

Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and the bench to refer to and quote from the official repository of our decisions, the Philippine Reports, whenever practicable.

17 In the absence of

this primary source, which is still being updated, they may resort to unofficial sources like the SCRA.

18 We remind them that the Courts ponencia, when used to

support a judgment or ruling, should be quoted accurately.19

Second Issue:

Liability of the Ticket-Issuing Airline

We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision must be annulled, not only because it was rooted on an erroneous quotation, but also because it disregarded jurisprudence, notably China Airlines v. Intermediate Appellate Court

20 and China Airlines v. Court of Appeals.

21

Jurisprudence Supports CA Decision

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

22 to which the Philippines is a party, and by the existing

practices of the International Air Transport Association (IATA).

Article 1, Section 3 of the Warsaw Convention states:

"Transportation to be performed by several successive air carriers shall be deemed, for the purposes of this Convention, to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall not lose its international character merely because one contract or a series of contracts is to be performed entirely

within a territory subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting Party."

23

Article 15 of IATA-Recommended Practice similarly provides:

"Carriage to be performed by several successive carriers under one ticket, or under a ticket and any conjunction ticket issued therewith, is regarded as a single operation."

In American Airlines v. Court of Appeals,24

we have noted that under a general pool partnership agreement, the ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is the agent.

"x x x Members of the IATA are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation among airline members are allowed even by telephone and it has become an accepted practice among them. A member airline which enters into a contract of carriage consisting of a series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and through the required process of interline settlement of accounts by way of the IATA clearing house an airline is duly compensated for the segment of the trip serviced. Thus, when the petitioner accepted the unused portion of the conjunction tickets, entered it in the IATA clearing house and undertook to transport the private respondent over the route covered by the unused portion of the conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment under the IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby assumed the obligation to take the place of the carrier originally designated in the original conjunction ticket. The petitioners argument that it is not a designated carrier in the original conjunction tickets and that it issued its own ticket is not decisive of its liability. The new ticket was simply a replacement for the unused portion of the conjunction ticket, both tickets being for the same amount of US$ 2,760 and having the same points of departure and destination. By constituting itself as an agent of the principal carrier the petitioners undertaking should be taken as part of a single operation under the contract of carriage executed by the private respondent and Singapore Airlines in Manila."

25

Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of Appeals

26 was held liable, even when the breach of contract had

occurred, not on its own flight, but on that of another airline. The Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,

27 in which we had held

that the obligation of the ticket-issuing airline remained and did not cease, regardless of the fact that another airline had undertaken to carry the passengers to one of their destinations.

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

Moral and Exemplary Damages

Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the factual basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the CA affirming those of the RTC will not be disturbed by this Court.

28 Indeed, the Supreme Court is not a trier of

facts. As a rule also, only questions of law -- as in the present recourse -- may be raised in petitions for review under Rule 45.

Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:

"Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier.

x x x x x x x x x

"Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith." (Italics supplied)

There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent (PAL) is guilty of bad faith that would entitle respondent to moral damages.

In Lopez v. Pan American World Airways,29

we defined bad faith as a breach of a known duty through some motive of interest or ill will.

In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila. That duty arose when its agent confirmed his reservation for Flight PR 311,

30 and it became demandable when he presented himself for the trip

on November 24, 1981.

It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November 24, 1981. This fact, however, did not terminate the carriers responsibility to its passengers. PAL voluntarily obligated itself to automatically transfer all confirmed passengers of PR 311 to the next available flight, PR 307, on the following day.

31 That responsibility was subsisting when respondent, holding a

confirmed ticket for the former flight, presented himself for the latter.

The records amply establish that he secured repeated confirmations of his PR 311 flight on November 24, 1981. Hence, he had every reason to expect that he would be put on the replacement flight as a confirmed passenger. Instead, he was harangued and prevented from boarding the original and the replacement flights. Thus, PAL breached its duty to transport him. After he had been directed to pay the terminal fee, his pieces of luggage were removed from the weighing-in counter despite his protestations.

32

It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on November 25, 1981, and to the likelihood that his business affairs in the city would be jeopardized because of a mistake on their part. It was that mistake that had caused the omission of his name from the passenger list despite his confirmed flight ticket. By merely looking at his ticket and validation sticker, it is evident that the glitch was the airlines fault. However, no serious attempt was made by PAL to secure the all-important transportation of respondent to Manila on the following day. To make matters worse, PAL allowed a group of non-revenue passengers, who had no confirmed tickets or reservations, to board Flight PR 307.

33

Time and time again, this Court has stressed that the business of common carriers is imbued with public interest and duty; therefore, the law governing them imposes an exacting standard.

34 In Singson v. Court of Appeals,

35 we said:

"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive of gross negligence, recklessness and wanton disregard of the rights of the latter, [are] acts evidently indistinguishable or no different from fraud, malice and bad faith. As the rule now stands, where in breaching the contract of carriage the defendant

airline is shown to have acted fraudulently, with malice or in bad faith, the award of moral and exemplary damages, in addition to actual damages, is proper."

36 (Italics supplied)

In Saludo v. Court of Appeals,37

the Court reminded airline companies that due to the nature of their business, they must not merely give cursory instructions to their personnel to be more accommodating towards customers, passengers and the general public; they must require them to be so.

The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care that the law requires of common carriers.

38 As narrated in Chans

oral deposition,39

the manner in which the airline discharged its responsibility to respondent and its other passengers manifested a lack of the requisite diligence and due regard for their welfare. The pertinent portions of the Oral Deposition are reproduced as follows:

"Q Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and naturally the passengers on said flight had to be accommodated on the first flight the following day or the first flight subsequently. [W]ill you tell the Honorable Deposition Officer the procedure followed by Philippine Airlines in the handling of passengers of cancelled flight[s] like that of PR 311 which was cancelled due to [a] typhoon?

A The procedure will be: all the confirmed passengers from [PR] 311 24th November [are] automatically transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed passengers.

Q Aside from this procedure[,] what do you do with the passengers on the cancelled flight who are expected to check-in on the flights if this flight is cancelled or not operating due to typhoon or other reasons[?] In other words, are they not notified of the cancellation?

A I think all these passengers were not notified because of a typhoon and Philippine Airlines Reservation were [sic] not able to call every passenger by phone.

Atty. Fruto:

Q Did you say were not notified?

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

Atty. Calica:

Q Per procedure, what should have been done by Reservations Office when a flight is cancelled for one reason or another?

A If there is enough time, of course, Reservations Office x x x call[s] up all the passengers and tell[s] them the reason. But if there [is] no time[,] then the Reservations Office will not be able to do that."

40

x x x x x x x x x

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

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

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

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

Atty. Fruto: Yes.

A I believe I saw it.

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

A Yes.

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

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

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

41

A This is what we call a computer reference.

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

A Yes.

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

A Correct.

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

A Should be.

Q Should be. O.K. Now do you remember how many passengers x x x were transferred from flight 311, 24 November to flight 307, 25 November 81?

A I can only give you a very brief idea because that was supposed to be air bus so it should be able to accommodate 246 people; but how many [exactly], I dont know."

42

x x x x x x x x x

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

A Yes.

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

A Yes.

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

A Swire House building is not directly under Philippine Airlines. it is just an agency for selling Philippine Airlines ticket. And besides around six o clock theyre close[d] in Central.

Q So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on behalf of Philippine Airlines and also...

A Yes.

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

A Yes."43

Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate Appellate Court,

44 which petitioner urges us to adopt. In

that case, the breach of contract and the negligence of the carrier in effecting the immediate flight connection for therein private respondent was incurred in good faith.

45 Having found no gross negligence or recklessness, we thereby deleted the

award of moral and exemplary damages against it.46

This Courts 1992 ruling in China Airlines v. Court of Appeals47

is likewise inapplicable. In that case, we found no bad faith or malice in the airlines breach of its contractual obligation.

48 We held that, as shown by the flow of telexes from one

of the airlines offices to the others, petitioner therein had exercised diligent efforts in assisting the private respondent change his flight schedule. In the instant case, petitioner failed to exhibit the same care and sensitivity to respondents needs.

In Singson v. Court of Appeals,49

we said:

"x x x Although the rule is that moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in the death of a passenger, or where the carrier is guilty of fraud or bad faith, there are situations where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral damages."

In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight on November 24, 1981 -- initially from CAL and subsequently from the PAL office in Hong Kong. The status of this flight was marked

"OK" on a validating sticker placed on his ticket. That sticker also contained the entry "RMN6V." Ms Chan explicitly acknowledged that such entry was a computer reference that meant that respondents name had been entered in PALs computer.

Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PALs witness, he should have been automatically transferred to and allowed to board Flight 307 the following day. Clearly resulting from negligence on the part of PAL was its claim that his name was not included in its list of passengers for the November 24, 1981 PR 311 flight and, consequently, in the list of the replacement flight PR 307. Since he had secured confirmation of his flight -- not only once, but twice -- by personally going to the carriers offices where he was consistently assured of a seat thereon -- PALs negligence was so gross and reckless that it amounted to bad faith.

In view of the foregoing, we rule that moral and exemplary50

damages were properly awarded by the lower courts.

51

Third Issue:

Propriety of the Cross-Claim

We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the CA should have ruled on the cross-claim, considering that the RTC had found that it was PALs employees who had acted negligently.

Section 8 of Rule 6 of the Rules of Court reads:

"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant."

For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA,

52 the Court stated:

"x x x. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom no final determination of the case can be had. The partys interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties that his legal presence as a party to the proceeding is an absolute

necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable.

x x x x x x x x x

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

PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative and in accordance with due process and fair play that PAL should have been impleaded as a party in the present proceedings, before this Court can make a final ruling on this matter.

Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include the airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any ruling on the cross-claim in the present Petition would not be legally feasible because PAL, not being a party in the present case, cannot be bound thereby.

53

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

G.R. No. L-3407 June 29, 1951

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BERNARDO BAGAMASPAD and BIENVENIDO M. FERRER, defendants-appellants.

Jose G. Flores, for appellants. Nemesio P. Labunao for appellee.

MONTEMAYOR, J.:

On May 25, 1948, the plaintiff Philippine National Bank, a banking corporation organized and operating under the laws of the Philippines, with main office in the City of Manila and agencies in different provinces like the province of Cotabato, initiated this suit in the Court of First Instance of Cotabato for the purpose of

collecting from the defendants Bernardo Bagamaspad and Bienvenido M. Ferrer who, in the years 1946 and 1947, were its Agent and Assistant Agent, respectively, in its Cotabato Agency, the sum of P704,903.18, said to have been disbursed and released by them as special crop loans, without authority and in a careless manner to manifestly insolvent, unqualified or fictitious borrowers, all contrary to the rules and regulations of the plaintiff Bank. In the course of the trial, upon petition of plaintiff's counsel, the amount of the claim was reduced to P699,803.57, due to payments made by some of the borrowers. On March 31, 1949, the trial court rendered judgment in favor of the plaintiff, ordering both defendants to pay jointly and severally to it the sum of P699,803.57, representing the uncollected balance of the special crop loans improperly released by said defendants, with legal interest thereon from the date of the filing of the complaint, plus costs. The two defendants appealed from that decision. The appeal was first taken to the Court of Appeals but in view of the amount involved it was certified to this Tribunal by the said Court of Appeals.

The uncontroverted facts in the present case may be briefly stated as follows. Because of the Pacific War and by reason of the destruction and loss of animals of labor, farm implements, and damage to or abandonment of farm lands, after liberation there was acute shortage of foodstuff. President Roxas in order to foment and encourage food production, instructed the plaintiff Philippine National Bank to extend special facilities to farmers in the form of crop loans in order to enable them to rehabilitate their farms. In pursuance of said instructions and to cooperate with the Administration, the plaintiff Bank passed the corresponding resolution (Exhibit B) authorizing the granting of ten-month special crop loans to bona fide food producers, land-owners or their tenants, under certain conditions. Delfin Buencamino, one of the Vice-President of the Bank and head of the Branches and Agencies Department of said institution, was entrusted with the supervision of the granting of these loans. Juan Tueres, one of the Assistant Managers of said Department drafted the corresponding rules and regulations regarding the granting of said specials crops loans. After approval by Buencamino, these rules and regulations were embodied in a circular letter (Exhibit C), a copy of which was personally delivered to defendant Ferrer. These rules and regulations were later amplified by another circular letter (Exhibit D). Besides circularizing its branches and agencies with these rules and regulations, on June 14, 1946, the Bank held in Manila a conference in of all its manager and Agents. Defendant Ferrer, Assistant Agent of the Cotabato Agency attended the conference in representation of said Agency. He arrived late but Tueres explained to him what had been discussed during the conference, emphasizing to him the necessity of exercising diligence and care in the granting of the crop loans to see to it that they are granted only to bona fide planters, land-owners or tenants, as well as repeating to him the advice of Vicente Carmona, President of the bank, that the Managers and Agents of the Bank should not allow themselves to be fooled.

The Cotabato Agency under the management of the two defendants began granting these special crop loans in July, 1946, and by March of the following year, 1947, said Agency had granted to over 5,000 borrowers, loans in the total amount of a little over eight and half million pesos.

The theory on which the Bank's claim and complaint are based is that the two defendants Bagamaspad and Ferrer acting as Agent and Assistant Agent of the Cotabato Agency, in granting new crop loans after November 13, 1946, violated the instructions of the Bank, and that furthermore, in granting said crop loans, they acted negligently and did not exercise the care and precaution required of them in order to prevent the release of crop loans to persons who were neither qualified borrowers nor entitled to the assistance being rendered by the Government and the Bank, all contrary to the rules and regulations issued by the Bank.

Because of the form heavy disbursements made by the Cotabato Agency in the form of crop loans and because of exhaustion of its funds, said agency sent a telegram, Exhibit 11, dated November 11, 1946, requesting authority from the central office to secure cash from the Zamboanga Agency. Replying to this telegram, Delfin Buencamino sent a letter, Exhibit E, dated November 13, 1946, addressed to the Cotabato Agency stating among other things that the purposes of these funds (to be obtained from the Zamboanga Agency was to meet the release of the second installment crop loans being granted which according to the telegram aggregated P60,000 daily. The letter reminded the Agency's that the Central office had not yet received the Agency's monthly reports on special crop loans granted, as required by the regulations, and it emphasized the necessity of performing inspection of the field to verify whether the amount released as first installment was actually used for the purpose for which it was granted, before releasing the second installment. In relation with the said letter, Exhibit F, dated November 18, 1946, to the central office making reference to said Exhibit E, reiterating the Agency's heavy disbursements on second installments for crop loans and stating that Ferrer had been instructed to proceed to Zamboanga to secure the needed cash, and that Ferrer was able to secure P300,000 from the Zamboanga Agency. Then making reference to and quoting a portion of the letter of Buencamino, Exhibit E, Bagamaspad in his letter said:

In connection with the following portion:

"In this connection, we would like to state that the purpose of these funds is to meet the release of the second installment of crop loans being granted by that agency, which, according to your said telegram, will run to P600,000 daily."

of your above mentioned letter, may we know if could still entertain new applicants on Special Crop Loans? We are constrained to request for this matter because there are now on file no less than 1,000 new applicants which we could not entertain because of your above quoted statement. Yesterday they held a demonstration and copy of the picture is hereto attached. In addition, there are about 5,000 settlers in Koronadal Valley who, according to your indorsement of Oct. 31, 1946 to the Technical Assistant to the President of the Philippines, could be given crop loans. If we could not therefore disburse from the funds taken from Zamboanga Agency against first installment of applicants on crop loans, we shall appreciate if you could give us definite course of action towards the clarifications of our stand to the public.

We are again sending Asst. Agent B.M. Ferrer to Zamboanga to despatch this letter without delay and wait there for whatever instruction that you may give with reference to our desire to secure more cash from our Zamboanga Agency, say P1,000,000 and whether we shall continue granting special crop loans or not.

With reference to the cash that we desire to secure more, we could tell you with assurance that the same shall arrive their safely under guard on a chartered plane which will cost not more than P300 only.

From this letter of Bagamaspad of which his co-defendant and Ferrer must have been aware, because he himself prepared it upon order of Bagamaspad(pp. 340-344, t.s.n.), particularly the portion above-quoted, it will be seen that without waiting for authority to secure funds from the Zamboanga Agency, Ferrer obtained P300,000 from said Agency, and that Bagamaspad again had sent Ferrer to Zamboanga to await instruction from the central office regarding their desire and intention to secure in additional P1,000,000 for the Cotabato Agency. As matter of fact, however, once in Zamboanga, and without waiting for instructions, Ferrer again secured P500,000 from the Zamboanga Agency. It was while Ferrer already carrying the P500,000 was about to board the plane that was to taken him to Cotabato, that he received the answer from the central office, Exhibit G, authorizing him to obtain only P3,0000,000 from the Zamboanga Agency, with the statement that as soon as the said amount was exhausted, the Cotabato Agency may again request for replenishment. This letter of the Central Office again emphasized the necessity of strict compliance with the rules and regulations regarding the required field inspection before releasing the second installment. The said letter, Exhibit G, ended with the following:

Concerning the new special crop loan applications numbering about 1,000, we would like to be informed whether the farms of the said applicants

have already been actually planted, considering that at this period planting season in low-land palay region is now over. As the purpose for which special crop loans are being granted by the Bank is to provide the farmers with funds to meet the expenses of their farms and if said farms have already been planted, we believe that the farmers may not need said credit facilities unless it has been found out by actual investigation and verification that said loans are needed by them.

Please, therefore, let us hear from you regarding this matter. (Emphasis ours)

In answer to this letter, Exhibit G, defendants sent a telegram, Exhibit H, dated November 25, 1946 to the central office in Manila, stating that for Cotabato, the planting season for second crops of December. In answer to Exhibit H, the central office sent a telegram, Exhibit I, dated November 28, 1946, expressly instructing the Cotabato Agency to discontinue granting new crop loans. The defendants claim that this telegram, Exhibit I, was received by them by mail on December 7, 1946.

In their brief the appellant contend that the trial court erred in finding and holding that extending new special crop loans after November 26, 1946, amounting to P726,680, as they as Agent and Assistant Agent, respectively, of the of the Cotabato Agency, did so at their own risk and in violation of the instructions received from the Manila office; also that the court erred in holding that they (appellants) acted with extreme laxity, negligence and carelessness in granting said new special crops loans. On the first assigned error appellants maintain that outside of the telegram, Exhibit I, which they claim to have received only on December 7, 1946, there was no instruction by the central office stopping the granting of new special crop loans.

It may be that there was no such express instruction couched in so many words directly ordering the defendants to stop granting new special crop loans, but that said idea of the central office could be gathered from its letter, Exhibit E, and that it was understood and clearly, by the defendants, is evident. If defendants did not so understand it, namely, that they were no longer authorized to grant new special crop loans, how else may we interpret the contents of the letter of Bagamaspad, Exhibit F, particularly that portion wherein after quoting a portion of the central office letter Exhibit E, he asks if they (defendants) could still entertain new applications for special crop loans? At least, they then doubted their to grant new special crop loans and until that doubt was cleared up and determined by new instructions from their superiors, it was their bounden duty to stop granting new loans. Appellant Ferrer himself, in response to question asked by the trial court during the hearing, said that in case of doubt as to whether or not to disburse funds of the bank, he should consult and await instructions. Appellants asked for instructions as to whether or not they should grant new special crop loans. This

request for instructions is contained clearly in Bagamaspad's letter, Exhibit F, where in one paragraph he ask: "May we know if we could still entertain new applications on special crop loans?" And, in another paragraph he says? "We are again sending Asst. Agent B.M. Ferrer to Zamboanga . . . and wait there for further instructions that you may give . . . and whether we shall continue granting special crops loans or not." The trouble is that without waiting for said requested instructions, appellants proceeded to grant new special crop loans from November 26, 1946, to January 4, 1947.

Appellants not only granted new special crop loans after they were given to understand by the central office that they should no longer grant said loans and before appellants received instructions as to what they should do in that regard, but they also violated the express instructions of the Bank to the effect that funds received from the Zamboanga Agency should be utilized only to pay second installments on special crop loans. Of course, defendants contend that the total of P800,000 secured from the Zamboanga Agency were all used in paying second installments, but the contrary is amply established by Exhibit T, a statement prepared by Felicisimo Lopez, Chief Examiner of the Bank showing that out of the P500,000 secured from the Zamboanga Agency on or about November 18, 1946, the amount of P232,931.58 was paid on account of new special crop loans or first installments. The plaintiff-appellee Bank in its brief explains in details this use of part of the Zamboanga funds in paying first installments on new crop loans.

As to the alleged error committed by the trial court in finding and holding that the appellants were extremely lax, negligent and careless in granting new special crop loans, we quote with approval a portion of the well considered decision of the trial Judge, Hon. Arsenio Solidum, on this point:

From the evidence of record, one cannot help but be amazed at the extreme laxity, negligence and carelessness on the part of the defendants in the granting of the special crop loans. It seems that all precautions to protect the interest of the Philippine National Bank as the principal of the defendants were thrown overboard. From all appearances, the door of the Cotabato Agency was left wide open by the defendants as an invitation for all persons to come in secure from them special crop loans regardless of whether or not under the rules prescribed therefor they were rightfully entitled thereto. . . . (p. 165, Record on Appeal)

x x x x x x x x x

What really happened was that in those days of crop loan boom, the borrowers made a holiday of the funds of the Cotabato Agency of the Philippine National Bank with indulgence and tolerance of the defendants

as the managing officials of the Agency. And the saddest part of it all was that the money did not go to the farmers who needed it most but to unscrupulous persons, who, taking undue advantage of the laxity and looseness of the defendants in doling out these loans, secured special crop loan funds without the least idea of investing them in food production campaign for which they were primarily intended. Part of the booty went to the pockets of those who acted as intermediaries in the procurement of the loans under the very noses of the defendants fully knowing that such practice was prohibited by the rules and regulations of the Philippine National Bank governing the operation of the provincial agencies (Exhibits "W", "T-1", to "T-11", "U-1" to "U-2") . . . (pp. 176-177, Record on Appeal)

The lower court as may be seen, severely critcized and condemned the acts of laxity, negligence and carelessness of the appellants. But the severity of this criticism and condemnation would appear to be amply warranted by the evidence. Out of the numerous acts of laxity, negligence and carelessness established by the record, a few cases may be cited. Exhibit C and D which contain instructions and rules and regulations governing the granting of special crop loans, provide that before a crop is granted the Agent or Sub-Agent of the Bank must be satisfied that the applicant is either landowner well known to be possessing the particular property on which the crop is to be produced, the particular property on which the crop ids to be produced, or if the applicant be tenant he must be recommended by the landowner concerned or in the absence of said landowner must be properly identified that he is the bona fide tenant actually tilling the land from which the crop to mortgage would be harvested.

The evidence shows that in violation of these instructions and regulations, the defendants released large loans aggregating P348,768.22 to about 103 borrowers who were neither landowners or tenants but only public land sales applicants that is to say, persons who have merely filed applications to buy public lands. It is a well known fact that when a person desires to apply for the purchase of public lands usually containing trees, under brush, cogon or other wild vegetation, and never previously cultivated, he merely goes over the land, takes it out and then files his application, tries to determine the location of the land, its identity, proceeds to classify it to see if it is open to sale and if so, perhaps makes rough survey of it to establish its exact location and fix boundaries with respect to the entire area of the public domain. The application naturally carries no implication of occupancy, possession, much less cultivation and dominion. And yet, in spite of all this, the applicants who were neither landowners or tenants.

The record further shows that Mr. Villamarzo, District Land Officer for Cotabato with whom these sale applications had been filed, came to know that he had been issuing to the applicants, which were nothing but acknowledgements of the filing of

the applications, had been used by said applicants to secure special crop loans, and so he went to see the appellants as early as the middle of August of 1946 and advised them that those certificates were issued merely to show that applications had been filed with him but that it did not mean that said applications had already been investigated, much less that the lands covered by them had been surveyed. Then about the end of the same month Villamarzo accompanied by Almonte, a Division Land Inspector of the Bureau of Lands, again went to the defendants and repeated the advice and warning. Despite all these, as already stated, appellants granted new special crop loans to 103 of these public land sales applicants, knowing as they must have known that the borrowers were neither landowners nor tenants. Furthermore, it should be remembered that these special crop loans according to regulations were payable in ten (10) months, and were to be secured by chattel mortgages on the crops to be produced. A virgin land, especially if covered with trees or underbrush, needs to be cleared and placed in condition for cultivation before crops may produced. That work of clearing would take some time. A public land sale applicant, even assuming that he immediately began to clear the land applied for even before favorable action on his application is taken, is hardly in a position to meet the requirements of the regulations governing the granting of special crop loans, namely, to mortgage the crop he is going to produce, and pay the loan within ten months.

Appellants in their over-enthusiasm and seemingly inordinate desire to grant as many loans as possible and in amounts disproportionate to the needs of the borrowers, admitted and passed upon more loan applications than they could properly handle. From July, 1946 to March, 1947 the total amount of about eight and half (81/2) million pesos was released in the form of special crop loans to about 5,105 borrowers and this, in a relatively sparsely populated province like Cotabato. As a consequence of this big volume of business the bookkeeper of the Agency could not keep up with the posting of the daily transactions in his books and ledgers and he was several months behind. There were so many applications acted upon and accepted that they could not all be carefully examined and many of them do not even bear the initials or signatures of the appellants as required by regulations. Some of the chattel mortgages given to secure the payments of the loans, contrary to regulations, do not show the number of cavans of palay to be produced on the land and to be mortgaged in favor of the Bank.

Contrary to the Bank's rules and regulations regarding the granting of special crops loans, the defendants allowed intermediaries to intervene in the granting of special crop loans. Many lawyers, business agents and other persons intervened in the granting of the loans. We may have an idea of the of the part played by these intermediaries by referring to a portion of the report, Exhibit V, prepared by Mr. Lagdameo, one of the Assistant Managers of the Agencies and Branches

Department of the plaintiff Bank, sent to Cotabato to investigate the crop loan anomalies in the Cotabato Agency, which portion we quote below:

On top of this, were the heavy expenses incurred by the borrowers to secure crop loans. The rush was so unprecendented that applicants had to stay had to stay for weeks in hotels in Cotabato to lobby for the approval of their applications. They even went to the extent of engaging intermediaries who in the words of some borrowers were the best ones to fix things with the agency for the approval and immediate release of the loan. These intermediaries are government employees and business agents and particularly practicing attorneys who charged fees up to 5 per cent of the total loans approved. Instances have been shown that the Agency itself collected the attorney's fees and delivered them to the parties concerned. In other cases, the intermediaries themselves were the ones who received the proceeds of the loans and distributed them to the borrowers. It has also been found that loan papers including the preparation of promissory notes, debit tickets, etc., were prepared by said intermediaries and submitted to the Agency already executed. . . ..

There is evidence to the effect that sometimes the fees of these intermediaries were collected by the Agency itself and were later turned over to appellant Ferrer, perhaps to be later given by him to said intermediaries.

One of the provisions of the rules and regulations concerning the granting of loans is to the effect that loans to be released by a Provincial Agency like that of the appellant's should be approved by loan Board to be composed of the Agent, like defendant Bagamaspad; the Assistant Agent, like defendant Ferrer or the Inspector if there is no Assistant Agent; and the Municipal Treasurer where the borrower resides. The evidence, however, shows that many of the special crop loans released by the appellants have not been approved by this Board and others have not even been approved by anyone of them.

It will be remembered that in the letter of Vice President Buencamino, Exhibit G, dated November 19, 1946, speaking of the new special crop loan applications numbering about 1,000 mentioned by appellant Bagamaspad in his letter, Exhibit F, the plaintiff Bank wanted to know whether on that date, November 19th, the farmers in Cotabato had already planted their farms in which case there was no need for obtaining crop loans to meet the expenses of planting. Answering this query, the Cotabato Agency under the appellants, sent a telegram (Exhibit H) dated November 25, 1946, to the plaintiff Bank saying that the planting season for Cotabato for second crops ends in December. This was evidently intended to justify the granting of special crop loans even at the end of the year. The evidence however, belies the correctness of this statement and information. Mr. Aniceto

Padilla, Assistant Provincial Agricultural Supervisor, a graduate of the College of Agriculture of the University of the Philippines, told the court that his office, which is the Provincial Agricultural Station in Cotabato, has determined the proper period for planting crops raised in that province and that for upland palay, the planting season is during the months of March, April up to May; that for lowland palay is June and July; and that second crops may be planted in September even as late as October. From this, one may conclude that it is not true as the appellants informed the bank that the planting season for palay (second crop) in Cotabato ends in December. Whether this incorrect information was given deliberately or thru negligence and carelessness, we deem it unnecessary to determine.

To give a further idea of the confusion, lack of care and method with which the Cotabato Agency was managed by the appellants, the record shows that in January, 1947, Mr. Simeo