Victory Liner, Inc. vs. Gammad

The negligence of counsel binds the client, and the exceptions for gross or reckless negligence that deprives the client of due process or causes outright deprivation of liberty or property are not present where counsel filed an answer and pre-trial brief, secured the lifting of a default order, attended pre-trial, and timely appealed, and the client itself was contributorily negligent. A common carrier is presumed at fault or negligent when a passenger dies or is injured in a contract of carriage, and may overcome the presumption only by evidence of extraordinary diligence.

Victory Liner, Inc. is a common carrier, while Marie Grace Pagulayan-Gammad was the wife of Rosalito Gammad and mother of the other respondents. The dispute concerns the statutory obligations of a common carrier under a contract of carriage and the Civil Code rules on damages for death caused by a breach of that contract, including the effect of counsel’s negligence on a party’s right to due process.

Victory Liner, Inc. operated as a common carrier. Marie Grace Pagulayan-Gammad was the wife of respondent Rosalito Gammad and the mother of respondents April Rossan P. Gammad, Roi Rozano P. Gammad, and Diana Frances P. Gammad. On March 14, 1996, Marie Grace was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., while the bus was running at a high speed, it fell into a ravine in Barangay Baliling, Sta. Fe, Nueva Vizcaya. Marie Grace died, and other passengers suffered physical injuries.

On May 14, 1996, the respondent heirs filed a complaint for damages arising from culpa contractual against Victory Liner. In its answer, Victory Liner claimed that the incident was purely accidental and that it had always exercised extraordinary diligence in its 50 years of operation. Pre-trial was repeatedly reset. On April 10, 1997, Victory Liner was declared in default for failure to appear, but the trial court granted its motion to lift the order of default. At the pre-trial on May 6, 1997, Victory Liner refused to admit the proposed stipulation that the deceased was a passenger of the Victory Liner bus that fell into the ravine and that she was issued Passenger Ticket No. 977785. The respondents, for their part, did not accept Victory Liner’s proposal to pay P50,000.00.

After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for November 17, 1997 but was moved to December 8, 1997 because the parties and counsel failed to appear. On December 8, 1997, Victory Liner’s counsel was absent despite due notice and was deemed to have waived the right to cross-examine Rosalito. Victory Liner’s motion to reset the presentation of its evidence to March 25, 1998 was granted. On March 24, 1998, its counsel sent the court a telegram requesting postponement, but the telegram was received on March 25, 1998, after the trial court had issued an order considering the case submitted for decision because Victory Liner and its counsel failed to appear.

The trial court found in favor of the respondents and held Victory Liner liable for breach of contract of carriage. It awarded actual damages of P122,000.00, death indemnity of P50,000.00, exemplary and moral damages of P400,000.00, compensatory damages of P1,500,000.00, attorney’s fees equivalent to 10% of the total amount granted, and costs. On appeal, the Court of Appeals affirmed with modification, reducing actual damages to P88,270.00 and compensatory damages to P1,135,536,10, while retaining moral and exemplary damages of P400,000.00, attorney’s fees of 10% of the sum of actual, compensatory, moral, and exemplary damages, and costs.

The lower courts’ factual findings relevant to the Supreme Court’s analysis included that Rosalito testified that the deceased was 39 years old and a Section Chief of the Bureau of Internal Revenue, Tuguegarao District Office, with a salary of P83,088.00 per annum when she died, and that no other evidence was presented to prove her income. The expenses for the death, wake, or burial were supported in part by a list of expenses and a contract/receipt for the construction of the tomb, but the official receipts supported only P78,160.00. No evidence was presented to rebut the statutory presumption that the proximate cause of Marie Grace’s death was Victory Liner’s negligence.

• Gross Negligence of Counsel / Due Process: Petitioner argued that the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear at scheduled hearings and to move for reconsideration of the orders declaring that petitioner had waived the right to cross-examine respondents’ witness and to present evidence, deprived petitioner of its day in court and due process; it invoked APEX Mining, Inc. vs. Court of Appeals.
• Remand or Dismissal: Petitioner prayed that the case be remanded to the trial court for cross-examination of respondents’ witness and presentation of its evidence, or in the alternative that respondents’ complaint be dismissed.
• Damages: Petitioner argued that the trial court’s award of damages was without basis and should be deleted.

• Gross Negligence of Counsel: Whether petitioner’s counsel was guilty of gross negligence.
• Breach of Contract of Carriage: Whether petitioner should be held liable for breach of contract of carriage.
• Award of Damages: Whether the award of damages was proper.

• Gross Negligence of Counsel: No. The negligence of counsel binds the client; the exceptions for gross or reckless negligence depriving due process or causing outright deprivation of liberty or property are absent. Petitioner had the opportunity to be heard and was itself contributorily negligent.
• Breach of Contract of Carriage: Yes. A common carrier is presumed at fault or negligent when a passenger dies or is injured in a contract of carriage, and the presumption may be overcome only by evidence of extraordinary diligence. Victory Liner presented no such evidence.
• Award of Damages: Partly. The award is modified: compensatory damages for loss of earning capacity are deleted for lack of documentary proof; P500,000.00 temperate damages, P100,000.00 moral damages, P100,000.00 exemplary damages, P78,160.00 actual damages, P50,000.00 death indemnity, 10% attorney’s fees, costs, and 12% interest from finality are awarded.

• Gross Negligence of Counsel: The general rule is that the negligence of counsel binds the client because acts within counsel’s general or implied authority are regarded as acts of the client; the mistake or negligence of counsel may result in an unfavorable judgment. Exceptions exist where reckless or gross negligence of counsel deprives the client of due process, where application of the rule results in outright deprivation of liberty or property, or where the interests of justice require relief. The exceptions are not present. Atty. Paguirigan filed an Answer and Pre-trial Brief, successfully moved to set aside the default order, represented petitioner at pre-trial and proposed a P50,000.00 settlement, and timely appealed the trial court’s decision to the Court of Appeals. Petitioner was also not blameless: three notices dated October 23, 1996, January 30, 1997, and March 26, 1997 were sent and received, yet petitioner executed a special power of attorney only on April 27, 1997, after the April 10, 1997 default order. Petitioner was at least contributorily negligent. APEX Mining, Inc. vs. Court of Appeals is not on all fours because there the negligent counsel allowed the adverse decision to become final and misrepresented the case’s status; here, a timely appeal was filed. Gold Line Transit, Inc. vs. Ramos and Macalalag vs. Ombudsman confirm that due process requires an opportunity to be heard, not success, and that litigation must end; Producers Bank of the Philippines vs. Court of Appeals warns against making every adverse order reversible by alleging counsel’s gross negligence. Thus, no denial of due process.
• Breach of Contract of Carriage: A common carrier is bound to carry passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all circumstances. In a contract of carriage, fault or negligence of the common carrier is presumed when a passenger dies or is injured; no express finding of fault is needed unless the presumption is rebutted. The presumption may be overcome only by evidence that the carrier exercised extraordinary diligence. No evidence was presented to rebut the statutory presumption that the proximate cause of Marie Grace’s death was Victory Liner’s negligence. The lower courts correctly ruled that Victory Liner was guilty of breach of contract of carriage.
• Award of Damages: Article 1764 in relation to Article 2206 of the Civil Code makes a common carrier in breach of contract of carriage that results in a passenger’s death liable for (1) indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral damages. The heirs are entitled to P50,000.00 death indemnity under current jurisprudence. The compensatory damages for loss of earning capacity should be deleted for lack of basis: documentary evidence is required to substantiate loss of earning capacity, and the exceptions apply only when the deceased was self-employed earning less than the minimum wage and no documentary evidence is available, or was a daily-wage worker earning less than the minimum wage. The deceased was 39 years old and a Section Chief of the Bureau of Internal Revenue, Tuguegarao District Office, with a salary of P83,088.00 per annum; testimonial evidence alone was insufficient, as in People vs. Oco and People vs. Caraig. Because the fact of loss was established but its amount could not be proved with certainty, temperate damages of P500,000.00 are awarded under Article 2224, consistent with Pleno vs. Court of Appeals, People vs. Singh, and People vs. Almedilla. Moral and exemplary damages cannot be lumped because they rest on different jural foundations. In culpa contractual, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence amounting to bad faith or wanton disregard of contractual obligations, and by Article 1764 in relation to Article 2206 when a passenger’s death results from breach of carriage; exemplary damages may be recovered in contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Victory Liner failed to prove extraordinary diligence and is presumed to have acted recklessly; P100,000.00 moral damages and P100,000.00 exemplary damages are reasonable. Actual damages must be substantiated by official receipts; the list of expenses and contract/receipt for the tomb cannot replace them, so actual damages are reduced to P78,160.00, the amount supported by official receipts, as in People vs. Duban. Attorney’s fees equivalent to 10% of the total amount are recoverable under Article 2208 because exemplary damages are awarded. Under Eastern Shipping Lines, Inc. vs. Court of Appeals, because the amounts were determined with certainty only in the instant petition, interest is computed at 12% per annum from the finality of the decision until satisfaction.

• Negligence of counsel binds the client — The general rule is that any act performed by counsel within the scope of general or implied authority is regarded as an act of the client; the mistake or negligence of counsel may result in an unfavorable judgment. Exceptions are recognized where reckless or gross negligence of counsel deprives the client of due process of law, where application of the rule results in outright deprivation of the client’s liberty or property, or where the interests of justice so require. In this case, the exceptions did not apply because counsel filed an Answer and Pre-trial Brief, secured the lifting of the default order, attended pre-trial, and timely appealed; petitioner was also contributorily negligent.
• Due process as opportunity to be heard — Due process safeguards against denial of the opportunity to be heard, not lack of previous notice; the question is not whether the party succeeded in defending its rights but whether it had the opportunity to present its side. Petitioner received notices, filed pleadings, was represented at pre-trial, and appealed, so it was not denied due process.
• Common carrier’s extraordinary diligence and presumption of fault — A common carrier must carry passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons. In a contract of carriage, the carrier is presumed at fault or negligent when a passenger dies or is injured; the presumption may be overcome only by evidence of extraordinary diligence. Victory Liner presented no such evidence, so it was liable for breach.
• Damages for death in breach of contract of carriage — Under Article 1764 in relation to Article 2206 of the Civil Code, a common carrier in breach of contract of carriage resulting in a passenger’s death is liable for indemnity for death, indemnity for loss of earning capacity, and moral damages. The Court awarded P50,000.00 death indemnity but deleted loss-of-earning-capacity damages for lack of documentary proof.
• Documentary evidence for loss of earning capacity; exceptions — Documentary evidence is required to substantiate loss of earning capacity. Exceptions allow recovery despite absence of documentary evidence when the deceased was self-employed earning less than the minimum wage and no documentary evidence is available, or was a daily-wage worker earning less than the minimum wage. The deceased’s position and salary did not fall within the exceptions, and testimonial evidence alone was insufficient.
• Temperate damages under Article 2224 — Temperate or moderate damages, more than nominal but less than compensatory, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot be proved with certainty. Because the fact of loss was established but the deceased’s income was not sufficiently proven, P500,000.00 temperate damages were awarded in lieu of loss-of-earning-capacity damages.
• Moral and exemplary damages are distinct — Moral and exemplary damages are based on different jural foundations and require separate determination. In culpa contractual, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence amounting to bad faith or wanton disregard of contractual obligations, and by Article 1764 in relation to Article 2206 when death of a passenger results from breach of carriage; exemplary damages may be recovered in contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The Court awarded P100,000.00 moral and P100,000.00 exemplary damages separately.
• Actual damages require substantiation — Only substantiated and proven expenses, or those genuinely incurred in connection with death, wake, or burial, are recognized. A list of expenses and a contract/receipt for tomb construction cannot replace official receipts. Actual damages were reduced to P78,160.00, the amount supported by official receipts.
• Attorney’s fees when exemplary damages are awarded — Under Article 2208 of the Civil Code, attorney’s fees may be recovered when exemplary damages are awarded. The Court found 10% of the total amount adjudged reasonable.
• Interest on damages under Eastern Shipping Lines — When an obligation is breached, interest may be imposed as actual and compensatory damages under the rules in Eastern Shipping Lines, Inc. vs. Court of Appeals. Because the amounts were determined with certainty only in the instant petition, the total amount adjudged earns 12% interest per annum from finality until fully paid.

• "It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed by a counsel within the scope of his general or implied authority is regarded as an act of his client." — States the general rule on counsel’s negligence and explains why petitioner could not avoid the adverse judgment on due process grounds.
• "In the application of the principle of due process, what is sought to be safeguarded against is not the lack of previous notice but the denial of the opportunity to be heard. The question is not whether petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to present its side of the controversy." — Defines the due process standard applied to reject petitioner’s claim that its counsel’s negligence deprived it of due process.
• "A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured." — States the controlling rule on common carrier liability and the presumption of fault in a contract of carriage.
• "Under Article 2224 of the Civil Code, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with certainty." — Provides the basis for awarding P500,000.00 temperate damages in lieu of unproven loss-of-earning-capacity damages.

• APEX Mining, Inc. vs. Court of Appeals, 377 Phil. 482 (1999) — Invoked by petitioner; distinguished because the negligent counsel there allowed the adverse decision to become final and misrepresented the case’s status, whereas Victory Liner’s counsel timely filed an appeal.
• Gold Line Transit, Inc. vs. Ramos, 415 Phil. 492 (2001) — Cited to support the rule that a client is bound by counsel’s negligence and that due process is satisfied when the party had the opportunity to be heard.
• Macalalag vs. Ombudsman, G.R. No. 147995, 4 March 2004 — Cited for the principle that only gross or palpable negligence of counsel may justify relief and that litigation must come to an end.
• Producers Bank of the Philippines vs. Court of Appeals, 430 Phil. 812, 830 (2002) — Cited to warn that sustaining a due process claim based on counsel’s negligence would set a dangerous precedent and render every adverse order reversible.
• Baliwag Transit, Inc. vs. Court of Appeals, 326 Phil. 762, 768 (1996) — Cited for the common carrier’s duty of extraordinary diligence and the presumption of fault when a passenger dies or is injured.
• People vs. Oco, G.R. Nos. 137370-71, 29 September 2003, 412 SCRA 190 — Cited to hold that testimonial evidence alone is insufficient to justify an award for loss of earning capacity.
• People vs. Caraig, G.R. Nos. 116224-27, 28 March 2003, 400 SCRA 67 — Cited to deny loss-of-earning-capacity damages where the deceased did not fall within the recognized exceptions and no documentary proof of income was presented.
• Pleno vs. Court of Appeals, G.R. No. L-56505, 9 May 1988, 161 SCRA 208 — Cited to sustain an award of temperate damages in lieu of actual damages for loss of earning capacity when income was not sufficiently established.
• People vs. Singh, 412 Phil. 842 (2001) — Cited as a recent application of Article 2224 to justify temperate damages in place of unsubstantiated loss-of-earning-capacity damages.
• People vs. Almedilla, G.R. No. 150590, 21 August 2003, 409 SCRA 428 — Cited for the same principle that temperate damages may substitute for loss-of-earning-capacity damages not supported by documentary proof.
• People vs. Duban, G.R. No. 141217, 26 September 2003, 412 SCRA 131 — Cited to require substantiated and proven expenses or those genuinely incurred in connection with death, wake, or burial for actual damages.
• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78 — Cited for the rules on interest as actual and compensatory damages; the Court applied 12% per annum from finality.
• Tiu vs. Arriesgado, G.R. No. 138060, 1 September 2004 — Cited for the death indemnity fixed at P50,000.00 under current jurisprudence.
• Expertravel & Tours, Inc. vs. Court of Appeals, 368 Phil. 444 (1999) — Cited for the award of moral damages in culpa contractual.
• Yobido vs. Court of Appeals, 346 Phil. 1 (1997) — Cited for the award of exemplary damages in contractual obligations where the defendant acted recklessly.

• Article 1764, Civil Code — Provides that damages in cases covered by the section shall be awarded in accordance with Title XVIII of the Civil Code, and that Article 2206 shall also apply to the death of a passenger caused by breach of contract by a common carrier. Applied to hold Victory Liner liable for death indemnity, loss-of-earning-capacity damages, and moral damages.
• Article 2206, Civil Code — Provides the amount of damages for death caused by a crime or quasi-delict, including loss of earning capacity and moral damages. Applied in relation to Article 1764 to award P50,000.00 death indemnity and to assess moral damages.
• Article 2224, Civil Code — Allows temperate or moderate damages, more than nominal but less than compensatory, when some pecuniary loss has been suffered but its amount cannot be proved with certainty. Applied to award P500,000.00 temperate damages in lieu of unproven loss-of-earning-capacity damages.
• Article 2208, Civil Code — Allows attorney’s fees and expenses of litigation, other than judicial costs, when exemplary damages are awarded. Applied to sustain attorney’s fees equivalent to 10% of the total amount adjudged.
• Article 1169, Civil Code — Referenced in the Eastern Shipping Lines rules quoted by the Court as the basis for when interest begins to run from judicial or extrajudicial demand. The Court ultimately computed interest from finality because the amounts were determined with certainty only in the instant petition.

Justices Quisumbing, Carpio, and Azcuna concurred. Chief Justice Davide, Jr., the Chairman, was on official leave.