FIRST DIVISION

G. R. No. 159636 - November 25, 2004

DECISION

YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the April 11, 2003 decision 1 of the Court of Appeals
in CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision 2 of the
Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for
breach of contract of carriage in Civil Case No. 5023.
The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie
Grace Pagulayan-Gammad,3was on board an air-conditioned Victory Liner bus bound for Tuguegarao,
Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine
somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace
and physical injuries to other passengers. 4
On May 14, 1996, respondent heirs of the deceased filed a complaint 5 for damages arising from culpa
contractual against petitioner. In its answer,6 the petitioner claimed that the incident was purely
accidental and that it has always exercised extraordinary diligence in its 50 years of operation.
After several re-settings,7 pre-trial was set on April 10, 1997. 8 For failure to appear on the said date,
petitioner was declared as in default. 9 However, on petitioners motion10 to lift the order of default, the
same was granted by the trial court.11
At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the
deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued
Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioners proposal to pay
P50,000.00.12
After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled
for November 17, 199713but moved to December 8, 1997,14 because the parties and the counsel failed
to appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed
to have waived right to cross-examine respondent Rosalito.15
Petitioners motion to reset the presentation of its evidence to March 25, 1998 16 was granted. However,
on March 24, 1998, the counsel of petitioner sent the court a telegram 17 requesting postponement but
the telegram was received by the trial court on March 25, 1998, after it had issued an order
considering the case submitted for decision for failure of petitioner and counsel to appear.18
On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive
portion of which reads:

WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor
of the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the
following:
1. Actual Damages -------------------- P 122,000.00
2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorneys Fees --------------------- 10% of the total amount granted
6. Cost of the Suit.
SO ORDERED.19
On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification
as follows:
[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby
adjudged in favor of plaintiffs-appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorneys fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary
damages herein adjudged.
The court a quos judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.
SO ORDERED.20
Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying
that the case be remanded to the trial court for cross- examination of respondents witness and for the
presentation of its evidence; or in the alternative, dismiss the respondents complaint. 21 Invoking APEX
Mining, Inc. v. Court of Appeals,22 petitioner argues, inter alia, that the decision of the trial court
should be set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing
to appear at the scheduled hearings and move for reconsideration of the orders declaring petitioner to
have waived the right to cross-examine respondents witness and right to present evidence, deprived
petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioners motion for reconsideration. 23
Hence, this petition for review principally based on the fact that the mistake or gross
negligence of its counsel deprived petitioner of due process of law. Petitioner also argues
that the trial courts award of damages were without basis and should be deleted.

The issues for resolution are: (1) whether petitioners counsel was guilty of gross
negligence; (2) whether petitioner should be held liable for breach of contract of carriage;
and (3) whether the award of damages was proper.
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. Consequently, the mistake or negligence of counsel may
result in the rendition of an unfavorable judgment against the client. However, the
application of the general rule to a given case should be looked into and adopted according
to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been
recognized by the court in cases where reckless or gross negligence of counsel deprives the
client of due process of law, or when its application will result in outright deprivation of the
clients liberty or property or where the interests of justice so require, and accord relief to
the client who suffered by reason of the lawyers gross or palpable mistake or negligence. 24
The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan
filed an Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty.
Paguirigan successfully moved for the setting aside of the order of default. In fact, petitioner was
represented by Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although
Atty. Paguirigan failed to file motions for reconsideration of the orders declaring petitioner to have
waived the right to cross-examine respondents witness and to present evidence, he nevertheless, filed
a timely appeal with the Court of Appeals assailing the decision of the trial court. Hence, petitioners
claim that it was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for
not appearing at the pre-trial, three notices (dated October 23, 1996, 25 January 30, 1997,26 and March
26, 1997,27) requiring attendance at the pre-trial were sent and duly received by petitioner. However,
it was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to
appear at the pre-trial when petitioner, through its finance and administrative manager, executed a
special power of attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent
petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault cannot
be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX,
the negligent counsel not only allowed the adverse decision against his client to become final and
executory, but deliberately misrepresented in the progress report that the case was still pending with
the Court of Appeals when the same was dismissed 16 months ago.29These circumstances are absent
in this case because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the
Court of Appeals.
In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or
not the client should bear the adverse consequences of its counsels negligence. In that case, Gold Line
Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was declared
as in default. After the plaintiffs presentation of evidence ex parte, the trial court rendered decision
ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final
and executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not
denied due process of law and is thus bound by the negligence of its lawyer, the Court held as follows
This leads us to the question of whether the negligence of counsel was so gross and reckless that
petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied
that the requirements of due process were observed in the instant case. Petitioner was never deprived
of its day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that
notices were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint,
an answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its
opportunity to participate in the trial of the case and to adduce evidence in its behalf because of
negligence.

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. Verily, as petitioner retained the services of counsel of its choice,
it should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its
plea that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval
nor sympathy.
To cater to petitioners arguments and reinstate its petition for relief from judgment would put a
premium on the negligence of its former counsel and encourage the non-termination of this case by
reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsels
act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter
be heard to complain that the result might have been different had his counsel proceeded differently.
The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new counsel could be hired every
time it is shown that the prior counsel had not been sufficiently diligent, experienced or learned. 31
Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with
dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis
of complainants evidence and was dismissed with forfeiture of all benefits and disqualification from
government service. Challenging the decision of the Ombudsman, the employee contended that the
gross negligence of his counsel deprived him of due process of law. In debunking his contention, the
Court said
Neither can he claim that he is not bound by his lawyers actions; it is only in case of gross or palpable
negligence of counsel when the courts can step in and accord relief to a client who would have
suffered thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal
knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no
end to controversy. Fundamental to our judicial system is the principle that every litigation must come
to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but
there must be a limit to it.
Viewed vis--vis the foregoing jurisprudence, to sustain petitioners argument that it was denied due
process of law due to negligence of its counsel would set a dangerous precedent. It would enable
every party to render inutile any adverse order or decision through the simple expedient of alleging
gross negligence on the part of its counsel. The Court will not countenance such a farce which
contradicts long-settled doctrines of trial and procedure. 33
Anent the second issue, petitioner was correctly found liable for breach of contract of
carriage. 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. Unless the presumption
is rebutted, the court need not even make an express finding of fault or negligence on the
part of the common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence. 34
In the instant case, there is no evidence to rebut the statutory presumption that the
proximate cause of Marie Graces death was the negligence of petitioner. Hence, the courts
below correctly ruled that petitioner was guilty of breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in
breach of its contract of carriage that results in the death of a passenger liable to pay the

following: (1) indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral
damages.
In the present case, respondent heirs of the deceased are entitled to indemnity for the
death of Marie Grace which under current jurisprudence is fixed at P50,000.00. 37
The award of compensatory damages for the loss of the deceaseds earning capacity should
be deleted for lack of basis. As a rule, documentary evidence should be presented to
substantiate the claim for damages for loss of earning capacity. By way of exception,
damages for loss of earning capacity may be awarded despite the absence of documentary
evidence when (1) the deceased is self-employed earning less than the minimum wage
under current labor laws, and judicial notice may be taken of the fact that in the deceaseds
line of work no documentary evidence is available; or (2) the deceased is employed as a
daily wage worker earning less than the minimum wage under current labor laws. 38
In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning
capacity was the bare testimony of the deceaseds wife that her husband was earning P8,000.00
monthly as a legal researcher of a private corporation. Finding that the deceased was neither selfemployed nor employed as a daily-wage worker earning less than the minimum wage under the labor
laws existing at the time of his death, the Court held that testimonial evidence alone is insufficient to
justify an award for loss of earning capacity.
Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the
circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the
testimony of their wives, no documentary proof about their income was presented by the prosecution.
Thus
The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were
not self-employed or employed as daily-wage workers earning less than the minimum wage under the
labor laws existing at the time of their death. Placido Agustin was a Social Security System employee
who received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and
Allied Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro
Jr. was a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of
P7,500. Clearly, these cases do not fall under the exceptions where indemnity for loss of earning
capacity can be given despite lack of documentary evidence. Therefore, for lack of documentary proof,
no indemnity for loss of earning capacity can be given in these cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss
of earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39
years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a
salary of P83,088.00 per annum when she died. 41 No other evidence was presented. The award is
clearly erroneous because the deceaseds earnings does not fall within the exceptions.
However, the fact of loss having been established, temperate damages in the amount of
P500, 000.00 should be awarded to respondents. 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 cannot, from the nature of the case, be proved with certainty.
In Pleno v. Court of Appeals,42 the Court sustained the trial courts award of P200,000.00 as
temperate damages in lieu of actual damages for loss of earning capacity because the
income of the victim was not sufficiently proven, thus
The trial court based the amounts of damages awarded to the petitioner on the following
circumstances:

...
"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur
and the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an
industrious and resourceful person with several projects in line, and were it not for the incident, might
have pushed them through. On the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income
however has not been sufficiently established so that this Court cannot award actual damages, but, an
award of temperate or moderate damages may still be made on loss or impairment of earning
capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also
suffers from double vision in his left eye is also established. Because of this, he suffers from some
inferiority complex and is no longer active in business as well as in social life. In similar cases as in
Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec.
29, 1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of
damages were given."
...
We rule that the lower courts awards of damages are more consonant with the factual circumstances
of the instant case. The trial courts findings of facts are clear and well-developed. Each item of
damages is adequately supported by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh 43 and People
v. Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning
capacity which was not substantiated by the required documentary proof.
Anent the award of moral damages, the same cannot be lumped with exemplary damages
because they are based on different jural foundations. 45 These damages are different in
nature and require separate determination.46 In culpa contractual or breach of contract,
moral damages may be recovered when the defendant acted in bad faith or was guilty of
gross negligence (amounting to bad faith) or in wanton disregard of contractual obligations
and, as in this case, when the act of breach of contract itself constitutes the tort that results
in physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil
Code, moral damages may also be awarded in case the death of a passenger results from a
breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered in contractual obligations if the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. 48
Respondents in the instant case should be awarded moral damages to compensate for the
grief caused by the death of the deceased resulting from the petitioners breach of contract
of carriage. Furthermore, the petitioner failed to prove that it exercised the extraordinary
diligence required for common carriers, it is presumed to have acted recklessly. 49 Thus, the
award of exemplary damages is proper. Under the circumstances, we find it reasonable to
award respondents the amount of P100,000.00 as moral damages and P100,000.00 as
exemplary damages. These amounts are not excessive.50
The actual damages awarded by the trial court reduced by the Court of Appeals should be
further reduced. In People v. Duban,51 it was held that only substantiated and proven
expenses or those that appear to have been genuinely incurred in connection with the
death, wake or burial of the victim will be recognized. A list of expenses (Exhibit "J"), 52 and
the contract/receipt for the construction of the tomb (Exhibit "F") 53 in this case, cannot be
considered competent proof and cannot replace the official receipts necessary to justify the
award. Hence, actual damages should be further reduced to P78,160.00, 54which was the
amount supported by official receipts.

Pursuant to Article 220855 of the Civil Code, attorneys fees may also be recovered in the
case at bar where exemplary damages are awarded. The Court finds the award of attorneys
fees equivalent to 10% of the total amount adjudged against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals, 56 it was held that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for payment of interest in the
concept of actual and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied).
In the instant case, petitioner should be held liable for payment of interest as damages for
breach of contract of carriage. Considering that the amounts payable by petitioner has been
determined with certainty only in the instant petition, the interest due shall be computed
upon the finality of this decision at the rate of 12% per annum until satisfaction, per
paragraph 3 of the aforecited rule.57
WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11,
2003 decision of the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision
of the Regional Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with
MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to pay respondents
the following: (1) P50,000.00 as indemnity for the death of Marie Grace PagulayanGammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as exemplary damages; (4)
P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10% of the
total amount as attorneys fees; and the costs of suit.
Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of
12% per annum computed from the finality of this decision until fully paid.
SO ORDERED.