Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82040               August 27, 1991

BA FINANCE CORPORATION, petitioner, 
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila, Branch 43, MANUEL
CUADY and LILIA CUADY, respondents.

Valera, Urmeneta & Associates for petitioner.

Pompeyo L. Bautista for private respondents.

PARAS, J.:

This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the Court of
Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation, Plaintiff-Appellant, vs.
Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision of the Regional Trial Court of Manila,
Branch 43, which dismissed the complaint in Civil Case No. 82-10478, and (2) the resolution dated February 9,
1988 denying petitioner's motion for reconsideration.

As gathered from the records, the facts are as follows:

On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a credit of
P39,574.80, which amount covered the cost of one unit of Ford Escort 1300, four-door sedan. Said obligation was
evidenced by a promissory note executed by private respondents in favor of Supercars, Inc., obligating themselves
to pay the latter or order the sum of P39,574.80, inclusive of interest at 14% per annum, payable on monthly
installments of P1,098.00 starting August 16, 1977, and on the 16th day of the next 35 months from September 16,
1977 until full payment thereof. There was also stipulated a penalty of P10.00 for every month of late installment
payment. To secure the faithful and prompt compliance of the obligation under the said promissory note, the
Cuady spouses constituted a chattel mortage on the aforementioned motor vehicle. On July 25, 1977, Supercars,
Inc. assigned the promissory note, together with the chattel mortgage, to B.A. Finance Corporation. The Cuadys
paid a total of P36,730.15 to the B.A. Finance Corporation, thus leaving an unpaid balance of P2,344.65 as of July
18, 1980. In addition thereto, the Cuadys owe B.A. Finance Corporation P460.00 representing penalties or
surcharges for tardy monthly installments (Rollo, pp. 27-29).

Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the renewal of the
insurance coverage over the aforementioned motor vehicle for the year 1980 with Zenith Insurance Corporation,
when the Cuadys failed to renew said insurance coverage themselves. Under the terms and conditions of the said
insurance coverage, any loss under the policy shall be payable to the B.A. Finance Corporation (Memorandum for
Private Respondents, pp. 3-4).

On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged. The
unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance
Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total loss, and to claim from
the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account
and give them the surplus thereof, if any. But instead of heeding the request of the Cuadys, B.A. Finance
Corporation prevailed upon the former to just have the car repaired. Not long thereafter, however, the car bogged
down. The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue their prior instruction of
enforcing the total loss provision in the insurance coverage. When B.A. Finance Corporation did not respond
favorably to their request, the Cuadys stopped paying their monthly installments on the promissory note (Ibid., pp.
45).

On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note, B.A. Finance
Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the recovery of the said remaining
installments (Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference, the case was set for trial on the merits on April 25, 1984. B.A.
Finance Corporation's evidence was presented on even date and the presentation of Cuady's evidence was set on
August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion for postponement,
the reason being that the "handling" counsel, Atty. Ferdinand Macibay was temporarily assigned in Cebu City and
would not be back until after August 15, 1984. Said motion was, however, denied by the trial court on August 10,
1984. On August 15, 1984, the date of hearing, the trial court allowed private respondents to adduce evidence ex-
parte in the form of an affidavit to be sworn to before any authorized officer. B.A. Finance Corporation filed a
motion for reconsideration of the order of the trial court denying its motion for postponement. Said motion was
granted in an order dated September 26, 1984, thus:

The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense that plaintiff is
allowed to adduce evidence in the form of counter-affidavits of its witnesses, to be sworn to before any
person authorized to administer oaths, within ten days from notice hereof. (Ibid., pp. 1-2).

B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for the trial
court to render its decision on January 18, 1985, the dispositive portion of which reads as follows:

IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.

SO ORDERED. (Rollo, p. 143)

On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion of the said
decision reads as follows:

WHEREFORE, after consultation among the undersigned members of this Division, in compliance with the
provision of Section 13, Article VIII of the Constitution; and finding no reversible error in the judgment
appealed from, the same is hereby AFFIRMED, without any pronouncement as to costs. (Ibid., p. 33)

B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was denied by the
respondent appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).

Hence, this present recourse.

On July 11, 1990, this Court gave due course to the petition and required the parties to submit their respective
memoranda. The parties having complied with the submission of their memoranda, the case was submitted for
decision.

The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has waived its right to
collect the unpaid balance of the Cuady spouses on the promissory note for failure of the former to enforce the
total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage.

It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in the
insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate to extinguish
the unpaid balance on the promissory note, considering that the circumstances obtaining in the case at bar do not
fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations (Memorandum for
the Petitioner, p. 11).

On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the insurance
policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance proceeds on the mortgaged
motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant to the memorandum in the
insurance policy which states that the "LOSS: IF ANY, under this policy shall be payable to BA FINANCE CORP., as
their respective rights and interest may appear" (Rollo, p. 91) but also the remaining balance on the promissory
note (Memorandum for the Respondents, pp. 16-17).

The petition is devoid of merit.

B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when the latter
assigned the promissory note, together with the chattel mortgage constituted on the motor vehicle in question in
favor of the former. Consequently, B.A. Finance Corporation is bound by the terms and conditions of the chattel
mortgage executed between the Cuadys and Supercars, Inc. Under the deed of chattel mortgage, B.A. Finance
Corporation was constituted attorney-in-fact with full power and authority to file, follow-up, prosecute,
compromise or settle insurance claims; to sign execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to prove the claim, and to collect from the latter the
proceeds of insurance to the extent of its interests, in the event that the mortgaged car suffers any loss or damage
(Rollo, p. 89). In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A.
Finance Corporation is bound by its acceptance to carry out the agency, and is liable for damages which, through its
non-performance, the Cuadys, the principal in the case at bar, may suffer.

Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in question,
not to mention the amount equivalent to the unpaid balance on the promissory note, when B.A. Finance
Corporation steadfastly refused and refrained from proceeding against the insurer for the payment of a clearly
valid insurance claim, and continued to ignore the yearning of the Cuadys to enforce the total loss provision in the
insurance policy, despite the undeniable fact that Rea Auto Center, the auto repair shop chosen by the insurer itself
to repair the aforementioned motor vehicle, misrepaired and rendered it completely useless and unserviceable
(Ibid., p. 31).

Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court. In this
connection, the Court of Appeals said:

... Under the established facts and circumstances, it is unjust, unfair and inequitable to require the chattel
mortgagors, appellees herein, to still pay the unpaid balance of their mortgage debt on the said car, the
non-payment of which account was due to the stubborn refusal and failure of appellant mortgagee to avail
of the insurance money which became due and demandable after the insured motor vehicle was badly
damaged in a vehicular accident covered by the insurance risk. ... (Ibid.)

On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim for the damage
to the car was not supported by evidence, the records show that instead of acting on the instruction of the Cuadys
to enforce the total loss provision in the insurance policy, the petitioner insisted on just having the motor vehicle
repaired, to which private respondents reluctantly acceded. As heretofore mentioned, the repair shop chosen was
not able to restore the aforementioned motor vehicle to its condition prior to the accident. Thus, the said vehicle
bogged down shortly thereafter. The subsequent request of the Cuadys for the B.A. Finance Corporation to file a
claim for total loss with the insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance
on the promissory note (Memorandum for the Respondents, pp. 4-5).

Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of the
respondent appellate court. This, of course, the Court cannot and will not generally do. It is axiomatic that the
judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme
Court. The doctrine is, to be sure, subject to certain specific exceptions none of which, however, obtains in the
instant case (Luzon Brokerage Corporation v. Court of Appeals, 176 SCRA 483 [1989]).

Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of discretion in two
instances: First, when it denied the petitioner's motion for reconsideration praying that the counsel be allowed to
cross-examine the affiant, and; second, when it seriously considered the evidence adduced ex-parte by the Cuadys,
and heavily relied thereon, when in truth and in fact, the same was not formally admitted as part of the evidence
for the private respondents (Memorandum for the Petitioner, p. 10). This Court does not have to unduly dwell on
this issue which was only raised by B.A. Finance Corporation for the first time on appeal. A review of the records of
the case shows that B.A. Finance Corporation failed to directly raise or ventilate in the trial court nor in the
respondent appellate court the validity of the evidence adduced ex-parte by private respondents. It was only when
the petitioner filed the instant petition with this Court that it later raised the aforementioned issue. As ruled by this
Court in a long line of cases, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due
process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos
Realty & Development Corporation v. Court of Appeals, 157 SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals,
et al., 153 SCRA 712 [1987]; De la Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is AFFIRMED.

SO ORDERED.

THIRD DIVISION

[G.R. No. 121824. January 29, 1998]

BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE

AIRLINES, respondents.

DECISION
ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent Court
of Appeals[1] promulgated on September 7, 1995, which affirmed the award of damages and attorneys fees made by
the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani as well
as the dismissal of its third-party complaint against Philippine Airlines (PAL). [2]
The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained
the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a ticket from BA
where the following itinerary was indicated:[3]

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310Y 16 APR 1730 OK

HONGKONG HKG BA 20 M 16 APR 2100 OK
 BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and
upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing
his clothings and personal effects, confident that upon reaching Hongkong, the same would be transferred to the
BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon
inquiry from the BA representatives, he was told that the same might have been diverted to London. After patiently
waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing the Property
Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorneys
fees[5] against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim [6] to the complaint raising, as special and
affirmative defenses, that Mahtani did not have a cause of action against it.Likewise, on November 9, 1990, BA filed
a third-party complaint[7] against PAL alleging that the reason for the non-transfer of the luggage was due to the
latters late arrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtanis luggage to the BA
aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability,
arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong. Furthermore, the
transfer of the luggage to Hongkong authorities should be considered as transfer to BA. [8]
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of
Mahtani,[9] the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for
which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the value of
the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the contents of
plaintiffs luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent
(20%) of the total amount imposed against the defendant for attorneys fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of
cause of action.

SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in
accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs against defendant-
appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of Appeals decision.
In essence, BA assails the award of compensatory damages and attorneys fees, as well as the dismissal of its
third-party complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum
of P7,000.00 for the loss of Mahtanis two pieces of luggage was without basis since Mahtani in his
complaint[12] stated the following as the value of his personal belongings:
8. On said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
 2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the
ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and
additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the liability
limit is approximately U.S. $9.07 per pound (U.S. $20.00) per kilo for checked baggage and U.S. $400 per
passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airlines contract of
carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination and a
contract to transport passengers to their destination. A business intended to serve the travelling public primarily,
it is imbued with public interest, hence, the law governing common carriers imposes an exacting standard.
[14]
 Neglect or malfeasance by the carriers employees could predictably furnish bases for an action for damages. [15]
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.  Moreover, it is
indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of cases [16] we have
assessed the airlines culpability in the form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection to
defendants acts.[17]
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of
the alleged gifts for the members of his family in Bombay, the most that can be expected for compensation
of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or a combined value of Four
Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand
(P7,000.00) Pesos representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award for the
luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the luggage, [18] and
therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover a
greater amount. Article 22(1) of the Warsaw Convention, [19] provides as follows:

x x x x x x x x x

(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum
of 250 francs per kilogram, unless the consignor has made, at the time the package was handed over to the
carrier, a special declaration of the value at delivery 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 the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in excess
of the limits specified in the tariff which was filed with the proper authorities, such tariff being binding on the
passenger regardless of the passengers lack of knowledge thereof or assent thereto. [20] This doctrine is recognized
in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts
where the facts and circumstances justify that they should be disregarded. [22]
 In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier
failed to raise timely objections during the trial when questions and answers regarding the actual claims and
damages sustained by the passenger were asked.[23]
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited
liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his
luggage, without any objection. In this regard, we quote the pertinent transcript of stenographic notes of Mahtanis
direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the latter has the right to object.However, such right is a mere
privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest silence
when there is opportunity to speak may operate as a waiver of objections. [25] BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted
his own cross-examination as well.[26] In the early case of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the
admission of any evidence must be made at the proper time, and that if not so made it will be understood
to have been waived. The proper time to make a protest or objection is when, from the question
addressed to the witness, or from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great
respect.[28] Since the actual value of the luggage involved appreciation of evidence, a task within the competence of
the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a finding not reviewable
by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against PAL, the Court of Appeals justified its
ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants third-party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-
appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. When plaintiff
boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent of
BA. This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically
provided on the Conditions of Contract, paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several successive carriers is regarded as a single
operation.
 The rule that carriage by plane although performed by successive carriers is regarded as a single
operation and that the carrier issuing the passengers ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines  v.  Tempengko,[31] we expounded on the nature of a
third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a third party who is neither a party
nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of
court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a
right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiffs claim. The
third-party complaint is actually independent of and separate and distinct from the plaintiffs
complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and
separately from the original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in
respect of plaintiffs claim against a third-party in the original and principal case with the object of
avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in
one litigation the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract of
carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter naturally
denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively between
Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the formers journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of the Conditions of Contracts of the ticket [32] issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to
Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent
is also responsible for any negligence in the performance of its function [33] and is liable for damages which the
principal may suffer by reason of its negligent act. [34] Hence, the Court of Appeals erred when it opined that BA,
being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association
(IATA), wherein member airlines are regarded as agents of each other in the issuance of the tickets and other
matters pertaining to their relationship.[35] Therefore, in the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v. Court
of Appeals.[36] In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard
different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda to a specific
destination bumped him off.
An action for damages was filed against Lufthansa which, however, denied any liability, contending that its
responsibility towards its passenger is limited to the occurrence of a mishap on its own line. Consequently, when
Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from there on, it
merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with
Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed
 by various carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire
five-leg trip aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and not
PAL, since the latter was not a party to the contract. However, this is not to say that PAL is relieved from any
liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not exactly in point, the
case, however, illustrates the principle which governs this particular situation. In that case, we recognized that a
carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or omission in the
performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as between them, is without legal basis.  After all, such
proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same or
similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the
purpose of a third-party complaint is precisely to avoid delay and circuity of action and to enable the controversy
to be disposed of in one suit.[38] It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is
proven that the latters negligence was the proximate cause of Mahtanis unfortunate experience, instead of totally
absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309 dated
September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British Airways dated
November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.

THIRD DIVISION

[G.R. No. 125138. March 2, 1999]

NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE PHILIPPINE AIR LINES,

INC., respondent.

DECISION
PURISIMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals [1] in CA GR CV
No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air Lines Inc., affirming in totothe judgment of the trial
court dismissing petitioners complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner,
Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila, which
ticket expressly provided an expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of the
said plane ticket was in compliance with a Compromise Agreement entered into between the contending parties in
two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao City.[2]
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his arrival in
Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the PAL office, and
it was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he
would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San
Francisco instead of boarding in Los Angeles.
 On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to
board. The PAL personnel concerned marked the following notation on his ticket: TICKET NOT ACCEPTED DUE
EXPIRATION OF VALIDITY.
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed as
Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao City.  But the said
complaint was dismissed for lack of merit.[3]
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a
Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject ticket
extended the period of validity of petitioners ticket; (2) Whether or not the defense of lack of authority was
correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of
fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons.[4]
The facts of the case as found by the lower court [5] are, as follows:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid after March 27,
1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2) as follows:

"8. This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket,
in carriers tariffs, conditions of carriage, or related regulations. The fare for carriage hereunder is subject to change
prior to commencement of carriage. Carrier may refuse transportation if the applicable fare has not been paid. [6]

The question on the validity of subject ticket can be resolved in light of the ruling in the case of  Lufthansa vs.
Court of Appeals[7]. In the said case, the Tolentinos were issued first class tickets on April 3, 1982, which will be
valid until April 10,1983. On June 10, 1982, they changed their accommodations to economy class but the
replacement tickets still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets
be extended, which request was refused by the petitioner on the ground that the said tickets had already
expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract of
carriage against the petitioner. In ruling against the award of damages, the Court held that the ticket constitute the
contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of
the contracting parties, contracts are to be interpreted according to their literal meaning.
In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PALs agents
in Los Angeles and San Francisco changed the compromise agreement between the parties.
As aptly ruled by the appellate court:

xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he returned to the
Philippines. (pp. 320-321, Original Records)[8]

The question is: Did these two (2) employees, in effect , extend the validity or lifetime of the ticket in question?
The answer is in the negative. Both had no authority to do so. Appellant knew this from the very start when he
called up the Legal Department of appellee in the Philippines before he left for the United States of America. He had
first hand knowledge that the ticket in question would expire on March 27,1990 and that to secure an extension, he
would have to file a written request for extension at the PALs office in the Philippines (TSN, Testimony of Nicholas
Cervantes, August 2, 1991, pp 20-23).Despite this knowledge, appellant persisted to use the ticket in question. [9]
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send
a letter to the legal counsel of PAL for the extension of the period of validity of his ticket.
 Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to the
legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage.The said agents,
according to the Court of Appeals,[10] acted without authority when they confirmed the flights of the petitioner.
Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind
the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person (herein
petitioner) knows that the agent was acting beyond his power or authority, the principal cannot be held liable for
the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled
to recover damages from the agent, unless the latter undertook to secure the principals ratification. [12]
Anent the second issue, petitioners stance that the defense of lack of authority on the part of the PAL
employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is unsustainable.  Thereunder,
failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer
nor in the motion to dismiss. But records show that the question of whether there was authority on the part of the
PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and the
depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented.
The admission by Cervantes that he was told by PALs legal counsel that he had to submit a letter requesting
for an extension of the validity of subject tickets was tantamount to knowledge on his part that the PAL employees
had no authority to extend the validity of subject tickets and only PALs legal counsel was authorized to do so.
However, notwithstanding PALs failure to raise the defense of lack of authority of the said PAL agents in its
answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by the
testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:

Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not raised by the

pleadings are tried with express or implied consent of the parties, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. xxx

Thus, when evidence is presented by one party, with the express or implied consent of the adverse party, as to
issues not alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall be
treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when
the adverse party fails to object thereto.[13]
Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in bad
faith in refusing to allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately
injurious or the one responsible acted fraudulently or with malice or bad faith. [14] Petitioner knew there was a
strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his
departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner.  What the
employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner because he had a
back-up ticket should PAL refuse to accommodate him with the use of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example
or correction for the public good, and the existence of bad faith is established. The wrongful act must be
accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton,
fraudulent, reckless or malevolent manner. [15] Here, there is no showing that PAL acted in such a manner. An award
for attorneys fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
 FIRST DIVISION

[G.R. No. 150718. March 26, 2003]

BASILIO BORJA, SR., petitioner, vs. SULYAP, INC. and THE COURT OF APPEALS, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review assailing the April 20, 2001 Decision [1] of the Court of Appeals in CA-G.R. CV No.
62237, and its October 31, 2001 Resolution[2] denying petitioners motion for reconsideration.
The antecedent facts reveal that petitioner Basilio Borja, Sr., as lessor, and private respondent Sulyap Inc., as
lessee, entered into a contract of lease involving a one-storey office building owned by the petitioner and located at
12th Street, New Manila, Quezon City. Pursuant to the lease, private respondent paid, among others, advance
rentals, association dues and deposit for electrical and telephone expenses. Upon the expiration of their lease
contract, private respondent demanded the return of the said advance rentals, dues and deposit but the petitioner
refused to do so. Thus, on October 5, 1995, the former filed with the Regional Trial Court of Quezon City, Branch 80,
a complaint for sum of money against the petitioner. [3]Subsequently, the parties entered into and submitted to the
trial court a Compromise Agreement dated October 16, 1995. [4] On the basis thereof, the trial court, on October 24,
1995 rendered a decision[5] approving the compromise agreement. The full text of the said decision reads:

Parties thru counsel submitted the following compromise agreement:

1. That the parties agree that defendant is the LESSOR and owner of the premises subject of the herein complaint
and that herein plaintiff is the LESSEE thereof who is to vacate the leased premises peacefully on November 7,
1995;

2. That in the possession of defendant are the following amounts:

a) P20,000.00 deposited by plaintiff to defendant on June 7, 1994 for utilities;

b) 5,400.00 as returnable association dues to plaintiff;
c) 30,000.00 deposited by the plaintiff to defendant on August 30, 1994, for telephone
[expenses];
d) 55,000.00 [rental] deposit [to be applied as rental payment] for the period of October 7 to
November 7, 1995.

3. That likewise plaintiff paid for the 5% withholding taxes to the Bureau of Internal Revenue for the rentals which
is due from the defendant amounting to P25,175.00 covering the period from July 1994, to July of 1995, whereon
plaintiff is hereto attaching proof of payment or receipts as annexes A and B of said withholding taxes and had
been credited to the defendant entitling plaintiff to full reimbursement;

4. That it is expressly agreed that prior to or on November 7, 1995, defendant will reimburse to plaintiff the
withholding taxes paid to the Bureau of Internal Revenue in the name of defendant upon signing of the herein
compromise agreement plus the association dues of P5,400.00 or a total of P30,575.00;

5. That with the P55,000.00 consumed by way of rentals up to November 7, 1995, there will be left in the
possession of defendant of plaintiffs money in the amount of P50,000.00; said amount shall be turned over by
defendant to plaintiff within 5 days from arrival of billings for telephone, electrical and water charges only;
6. That the amount shall be subject to actual billings ending November 7, 1995 only and shall immediately as
stated, be hand[ed] over to plaintiff;

7. That it is expressly agreed that the parties shall comply in good faith to the terms of the herein compromise
agreement and that any amount due not paid within the period stated in this agreement shall earn 2%
interest per month until fully paid plus twenty five 25% attorneys fees of the amount collectible and that
writ of execution shall be issued as a matter of right. (Emphasis supplied)

WHEREFORE, in light of the above, it is respectfully prayed of this Honorable Court that judgment be rendered on
the basis of the above compromise agreement.

Manila for Quezon City

October 16, 1995.

Finding the foregoing compromise agreement to be not contrary to law, morals and public policy, the same is
hereby APPROVED.

WHEREFORE, judgment is hereby rendered in accordance with the terms and conditions set forth in the
compromise agreement and the parties are hereby enjoined to comply with and abide by the said terms and
conditions thereof.

SO ORDERED.[6]

Petitioner, however, failed to pay the amounts of P30,575.00 and P50,000.00 stated in the judicial
compromise. Hence, private respondent filed a motion for the issuance of a writ of execution for the total amounts
of P30,575.00 and P50,000.00 or a total of P102,733.12, inclusive of 2% interest and 25% attorneys fees. [7] The
trial court, in its February 7, 1996 order, [8]granted the motion over the opposition [9] of the petitioner. On May 24,
1996, the latter filed a motion to quash the writ of execution, contending that the penalty of 2% monthly interest
and 25% attorneys fees should not be imposed on him because his failure to pay the amounts of P30,575.00 and
P50,000.00 within the agreed period was due to private respondents fault. [10]
On February 20, 1997, petitioner filed another motion praying for the quashal of the writ of execution and
modification of the decision.[11] This time, he contended that there was fraud in the execution of the compromise
agreement. He claimed that 3 sets of compromise agreement were submitted for his approval. Among them, he
allegedly chose and signed the compromise agreement which contained no stipulation as to the payment of 2%
monthly interest and 25% attorneys fees in case of default in payment. He alleged that his former counsel, Atty.
Leonardo Cruz, who assisted him in entering into the said agreement, removed the page of the genuine
compromise agreement where he affixed his signature and fraudulently attached the same to the compromise
agreement submitted to the court in order to make it appear that he agreed to the penalty clause embodied
therein.
Private respondent, on the other hand, vehemently denied the contention of the petitioner. To refute the
latters claim, he presented Atty. Leonardo Cruz, who declared that the petitioner gave his consent to the inclusion
of the penalty clause of 2% monthly interest and 25% attorneys fees in the compromise agreement. He added that
the compromise agreement approved by the court was in fact signed by the petitioner inside the courtroom before
the same was submitted for approval. Atty. Cruz stressed that the penalty clause of 2% interest per month until full
payment of the amount due, plus 25% thereof as attorneys fees, in case of default in payment, was actually chosen
by the petitioner over another proposed more burdensome penalty clause which states That it is expressly agreed
that the parties shall comply in good faith to the terms of the herein compromise agreement and that any violation
thereof shall automatically entitle the aggrieved party to damages in the amount of P250,000.00 plus P50,000.00
attorneys fees.[12]
On October 26, 1998, the trial court issued the assailed order denying petitioners motion seeking to quash the
writ of execution and to modify the judgment on compromise. It gave credence to the testimony of Atty. Leonardo
Cruz that petitioner consented to the penalty clause in the compromise agreement. The court further noted that it
was only on February 20, 1997, or more than one year from receipt of the judgment on compromise on October 25,
1995, when he questioned the inclusion of the penalty clause in the approved compromise agreement despite
several opportunities to raise said objection. The dispositive portion of the said order states:

WHEREFORE, premises considered, and as earlier stated, the defendants motion to quash the writ of execution and
modification of judgment is denied.

SO ORDERED.[13]

On appeal by the petitioner to the Court of Appeals, the latter affirmed the challenged order of the trial court.
Hence, the instant petition.
Is the petitioner bound by the penalty clause in the compromise agreement?
The settled rule in criminal as well as in civil cases is that, in the matter of credibility of witnesses, the findings
of the trial courts are given great weight and highest degree of respect by the appellate court considering that the
latter is in a better position to decide the question, having heard the witnesses themselves and observed their
deportment and manner of testifying during the trial, unless it plainly overlooked certain facts of substance and
value that, if considered, might affect the result of the case.
In the case at bar, we are faced with the conflicting claim of the petitioner that the questioned penalty clause
was fraudulently added to the compromise agreement approved by the court, and the assertion of private
respondent that the petitioner consented to the inclusion thereof in the compromise agreement.  A scrutiny of the
records reveal that the trial court correctly sustained the claim of private respondent. While a judicial compromise
may be annulled or modified on the ground of vitiated consent or forgery, [14] we find that the testimony of the
petitioner failed to establish the attendance of fraud in the instant case. Indeed, the testimony of Atty. Leonardo
Cruz is worthy of belief and credence. We are inclined to believe that the petitioner had knowledge of and
consented to the penalty clause embodied in the agreement considering that the same is less burdensome than the
automatic imposition of the penalty of P250,000.00 and attorneys fees of P50,000.00 in case of violation of the
terms of the agreement or default in payment. Moreover, we see nothing irregular in the compromise agreement
approved by the trial court. No evidence was presented by petitioner other than his bare allegation that his former
counsel fraudulently attached the page of the genuine compromise agreement where he affixed his signature to the
compromise agreement submitted to the court.
What further militates against the claim of the petitioner is his conduct after receiving the judgment based on
the compromise agreement. From October 25, 1995, when he received the judgment reproducing the full text of
the compromise agreement, to February 19, 1997, he never raised the issue of the fraudulent inclusion of the
penalty clause in their agreement. We note that petitioner is a doctor of medicine. He must have read and
understood the contents of the judgment on compromise. In fact, on November 13, 1995, he filed, without the
assistance of counsel, a motion praying that the amounts of P50,000.00 and 37,575.00 be withheld from his total
obligation and instead be applied to the expenses for the repair of the leased premises which was allegedly
vandalized by the private respondent. [15] He did not question the penalty clause in the compromise
agreement. Even when the petitioner was already represented by his new counsel, Atty. Felixberto F. Abad, to
whom he allegedly confided his former counsels fraudulent inclusion of the penalty clause, the issue of fraud was
never brought to the trial courts attention. On January 31, 1996, when petitioner filed an opposition to the private
respondents motion for the issuance of a writ of execution, he likewise failed to mention the fraud complained
of. On May 24, 1996, petitioner filed a motion to quash the writ of execution but based on a different ground.  He
argued that the penalty of 2% monthly interest and 25% attorneys fees cannot be imposed on him considering that
his failure to pay on time was due to the fault of the private respondent. He allegedly refused to pay because the
person sent by private respondent to collect payment did not present a special power of attorney authorizing him
to receive said payment.[16] In effect, therefore, petitioner acknowledged the validity of the penalty clause.
Evidently, petitioner cannot feign ignorance of the existence of the penalty clause in the compromise
agreement approved by the court. Even assuming that Atty. Leonardo Cruz exceeded his authority in inserting the
penalty clause, the status of the said clause is not void but merely voidable, i.e., capable of being ratified.[17] Indeed,
petitioners failure to question the inclusion of the 2% monthly interest and 25% attorneys fees in the judicial
compromise despite several opportunities to do so was tantamount to ratification. Hence, he is estopped from
assailing the validity thereof.[18]
Finally, we find no merit in petitioners contention that the compromise agreement should be annulled because
Atty. Leonardo Cruz, who assisted him in entering into such agreement, was then an employee of the Quezon City
government, and is thus prohibited from engaging in the private practice of his profession.  Suffice it to state that
the isolated assistance provided by Atty. Cruz to the petitioner in entering into a compromise agreement does not
constitute a prohibited private practice of law by a public official. Private practice of a profession, specifically the
law profession does not pertain to an isolated court appearance; rather, it contemplates a succession of acts of the
same nature habitually or customarily holding ones self to the public as a lawyer. [19] Such was never established in
the instant case.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 62237, which sustained the trial courts denial of petitioners motion to quash the writ of
execution and to modify the compromise judgment, is AFFIRMED.
SO ORDERED.