Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17192

March 30, 1963

HONORIO M. BARRIOS, plaintiff-appellant,

vs.
CARLOS A. GO THONG & COMPANY, defendant-appellee.
Laput & Jardiel for plaintiff-appellant.
Quisumbing & Quisumbing for defendant-appellee.
BARRERA, J.:
From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs
his case against defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present
appeal.
The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:
The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of
the William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other
southern cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about
8:00 o'clock on the evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the
aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or distress signal by blinkers from the
MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on
and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain and/or
master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered the course
of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to
be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting slowly
southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate
easterly wind. At about 8:25 p.m. on the same day, May 1, 1958, the MV Henry I, under the command of
the plaintiff, succeeded in getting near the MV Don Alfredo in fact as near as about seven meters from
the latter ship and with the consent and knowledge of the captain and/or master of the MV Don Alfredo,
the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines from the
MV Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow and
proceeded towards the direction of Dumaguete City, as evidenced by a written certificate to this effect
executed and accomplished by the Master, the Chief Engineer, the Chief Officer, and the Second
Engineer, of the MV Don Alfredo, who were then on board the latter ship at the time of the occurrence
stated above (Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine
hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels
were approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister
ship of the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels,
reaching then fifteen minutes later, or at about 5:25 o'clock on that same morning. Thereupon, at the
request and instance of the captain and/or master of the MV Don Alfredo, the plaintiff caused the tow lines
to be released, thereby also releasing the MV Don Alfredo.
These are the main facts of the present case as to which plaintiff and defendant quite agree with each
other. As was manifested in its memorandum presented in this case on August 22, 1958, defendant thru
counsel said that there is, indeed, between the parties, no dispute as to the factual circumstances, but
counsel adds that where plaintiff concludes that they establish an impending sea peril from which salvage
of a ship worth more than P100,000.00, plus life and cargo was done, the defendant insists that the facts
made out no such case, but that what merely happened was only mere towage from which plaintiff cannot
claim any compensation or remuneration independently of the shipping company that owned the vessel
commanded by him.
On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:
Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, .....
In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a
derelict and, therefore, proper subject of salvage. A ship in a desperate condition, where persons
on board are incapable, by reason of their mental and physical condition, of doing anything for
their own safety, is a quasi-derelict and may, likewise, be the proper subject of salvage. Was the
MV Don Alfredo, on May 1, 1958, when her engine failed and, for that reason, was left drifting
without power on the high seas, a derelict or a quasi-derelict? In other words, was it a ship that
was lost or abandoned, or in a desperate condition, which could not be saved by reason of
incapacity or incapacity of its crew or the persons on board thereof? From all appearances and

from the evidence extant in the records, there can be no doubt, for it seems clear enough, that
the MV Don Alfredo was not a lost ship, nor was it abandoned. Can it be said that the said ship
was in a desperate condition, simply because S.O.S. signals were sent from it?.
From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already
lost power as early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the
sense that it could not move, it did not drift too far from the place where it was, at the time it had
an engine failure. The weather was fair in fact, as described by witnesses, the weather was
clear and good. The waves were small, too slight there were only ripples on the sea, and the
sea was quite smooth. And, during the night, while towing was going on, there was a moonlight.
Inasmuch as the MV Don Alfredo was drifting towards the open sea, there was no danger of
floundering. As testified to by one of the witnesses, it would take days or even weeks before the
ship could as much as approach an island. And, even then, upon the least indication, the anchor
could always be weighed down, in order to prevent the ship from striking against the rocks.
"There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition
of the weather, as described above. As a matter of fact, although the MV Don Alfredo had a motor
launch, and two lifeboats, there was no attempt, much less, was there occasion or necessity, to
lower anyone or all of them, in order to evacuate the persons on board; nor did the conditions
then obtaining require an order to jettison the cargo.
But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV
Don Alfredo, which was enough to establish the fact that it was exposed to imminent peril at sea.
It is admitted by the defendant that such S.O.S. signal was, in fact, sent by blinkers. However,
defendant's evidence shows that Captain Loresto of the MV Don Alfredo, did not authorize the
radio operator of the aforesaid ship to send an S.O.S. or distress signal, for the ship was never in
distress, nor was it exposed to a great imminent peril of the sea. What the aforesaid Captain told
the radio operator to transmit was a general call; for, at any rate, message had been sent to
defendant's office at Cebu City, which the latter had acknowledged, by sending back a reply
stating that help was on the way. However, as explained by the said radio operator, in spite of his
efforts to send a general call by radio, he did not receive any response. For this reason, the
Captain instructed him to send the general call by blinkers from the deck of the ship; but the call
by blinkers, which follows the dots and dashes method of sending messages, could not be easily
understood by deck officers who ordinarily are not radio operators. Hence, the only way by which
the attention of general officers on deck could be called, was to send an S.O.S. signal which can
be understood by all and sundry.
Be it as it may, the evidence further shows that when the two ships were already within hearing
distance (barely seven meters) of each other, there was a sustained conversation between
Masters and complement of the two vessels, by means of loud speakers and the radio; and, the
plaintiff must have learned of the exact nature and extent of the disability from which the MV Don
Alfredo had suffered that is, that the only trouble that the said vessel had developed was an
engine failure, due to the loss of its propellers..
It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members
of its crew would be incapable of doing anything to save passengers and cargo, and, for this
reason, it cannot be duly considered as a quasi-derelict; hence, it was not the proper subject of
salvage, and the Salvage Law, Act No. 2616, is not applicable.
Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the New Civil Code,
which reads as follows:
Certain lawful, voluntary and unilateral acts give to the juridical relation of quasi-contract
to the end that no one shall be unjustly enriched or benefited at the expense of another.
This does not find clear application to the case at bar, for the reason that it is not the William
Lines, Inc., owners of the MV Henry I which is claiming for damages or remuneration, because it
has waived all such claims, but the plaintiff herein is the Captain of the salvaging ship, who has
not shown that, in his voluntary act done towards and which benefited the MV Don Alfredo, he
had been unduly prejudiced by his employers, the said William Lines, Incorporated.
What about equity? Does not equity permit plaintiff to recover for his services rendered and
sacrifices made? In this jurisdiction, equity may only be taken into account when the
circumstances warrant its application, and in the absence of any provision of law governing the
matter under litigation. That is not so in the present case.
In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the
plaintiff; and inasmuch as the plaintiff has not been found to have brought the case maliciously,
the counterclaim of the defendant is, likewise, dismissed, without pronouncement as to costs.
SO ORDERED.

The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered
by plaintiff to defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from
defendant compensation for such service.
The pertinent provision of the Salvage Law (Act No. 2616), provides:
SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or
shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the
latter shall be entitled to a reward for the salvage.
Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from
shipwreck, shall be entitled to a like reward.
According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by
whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the
sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture."
(Blackwall v. Saucelito Tug Company, 10 Wall. 1, 12, cited in Erlanger & Galinger v. Swedish East Asiatic
Co., Ltd., 34 Phil. 178.) In the Erlanger & Galinger case, it was held that three elements are necessary to
a valid salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as an
existing duty or from a special contract, and (3) success in whole or in part, or that the service rendered
contributed to such success.1
Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant?
Like the trial court, we do not think there was. It appears that although the defendant's vessel in question
was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from
the place where it was. As found by the court a quo the weather was fair, clear, and good. The waves
were small and too slight, so much so, that there were only ripples on the sea, which was quite smooth.
During the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting
towards the open sea, there was no danger of it floundering or being stranded, as it was far from any
island or rocks. In case of danger of stranding, its anchor could released, to prevent such occurrence.
There was no danger that defendant's vessel would sink, in view of the smoothness of the sea and the
fairness of the weather. That there was absence of danger is shown by the fact that said vessel or its
crew did not even find it necessary to lower its launch and two motor boats, in order to evacuate its
passengers aboard. Neither did they find occasion to jettison the vessel's cargo as a safety measure.
Neither the passengers nor the cargo were in danger of perishing. All that the vessel's crew members
could not do was to move the vessel on its own power. That did not make the vessel a quasi-derelict,
considering that even before the appellant extended the help to the distressed ship, a sister vessel was
known to be on its way to succor it.
If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can
it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer
seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant
(through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of
"towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.
Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its
engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped
towline and stood by while ship proceeded to dock under own power, was entitled, in absence of
written agreement as to amount to be paid for services, to payment for towage services, and not
for salvage services. (Sause, et al. v. United States, et al., 107 F. Supp. 489)
If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to
the exclusion of the crew of the said vessel, may be entitled to remuneration.
It often becomes material too, for courts to draw a distinct line between salvage and towage, for the
reason that a reward ought sometimes to be given to the crew of the salvage vessel and to other
participants in salvage services; and such reward should not be given if the services were held to be
merely towage. (The Rebecca Shepherd, 148 F. 731.)
The master and members of the crew of a tug were not entitled to participate in payment by liberty ship
for services rendered by tug which were towage services and not salvage services. (Sause, et al. v.
United States, et al., supra.)
"The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the
following reasons: If the contract for towage is in fact towage, then the crew does not have any interest or
rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are of a
salvage nature, the crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel
for its share. (I Norris, The Law of Seamen, Sec. 222.)

And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation
for the towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon
and not separate from the interest of his employer, is not entitled to payment for such towage service.
Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There
being an express provision of law (Art. 2142, Civil Code) applicable to the relationship created in this
case, that is, that of a quasi-contract of towage where the crew is not entitled to compensation separate
from that of the vessel, there is no occasion to resort to equitable considerations.
WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is
hereby affirmed in all respects, with costs against the plaintiff-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala
and Makalintal, JJ., concur.
Footnotes
1

Citing the case of The Mayflower v. The Sabine, 101 U.S. 384.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6420

July 18, 1955

INSURANCE COMPANY OF NORTH AMERICA, plaintiff-appellant,

vs.
PHILIPPINE PORTS TERMINALS, INC., defendant-appellee.
Gibbs and Chuidian for appellant.
Perkins, Ponce Enrile and Contreras for appellee.
JUGO, J.:
This is an appeal by the plaintiff, Insurance Company of North America from the order of dismissal
entered by the Court of First Instance of Manila, dated June 30, 1952.
The facts of the case are as follows:
On May 28, 1952, the Insurance Company of North America filed a complaint against the Philippine Ports
Terminals, Inc., alleging, among other things, that: the defendant Philippine Ports Terminals, Inc., was the
contractor and operator of the arrastre service in the Port of Manila, and as such, was charged with the
custody and care of all cargoes discharged at the government piers at Manila with the duty to deliver
same to their respective owners upon presentation by the latter of release papers from the agents or
owners of vessels and the Bureau of Custom; that the plaintiff had been informed and therefore alleged
that in the month of September, 1949, the steamship "PRESIDENT VAN BUREN" discharged into the
custody of the Philippine Ports Terminals, Inc., one case of machine knives consigned to the Central Saw
Mill, valued at least P3,796.00 but said merchandise was never delivered by the defendant to said
consignee; that the defendant admits the non-delivery of the said merchandise to the consignee, Central
Saw Mills, Inc., and offered to pay P500.00 for said merchandise instead of its value P3,796.00 which
offer was refused; that the plaintiff Insurance Company of North America was subrogated to the rights of
the Central Saw Mill, Inc., by virtue of a receipt dated October 21, 1949; and that the defendant
corporation refused to pay said sum of P3,796.00. There is a claim by the plaintiff of P1,000.00 as
attorney's fees.
The defendant-appellee filed a motion for dismissal on the ground that the complaint was filed after one
year from the time that the cause of action accrued. The court below dismissed the complaint. The motion
of dismissal was based on the provisions of Public Act No. 521 of the 74th U.S. Congress more
commonly known as "Carriage of Goods by Sea Act". This Act was expressly made applicable to the
Philippines by Commonwealth Act No. 65 which was approved and took effect on October 22, 1936. The
pertinent provision of said "Carriage of Goods by Sea Act" regarding the time for bringing action reads as
follows:
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, That if a notice of loss or damage, either apparent
or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the delivery of the goods or the date when
the goods should have been delivered.
It is evident, however, that the defendant Philippine Ports Terminals, Inc., is not a carrier. Section 1 (a)
and (d) of "Carriage of Goods by Sea Act" defines the terms "carrier" and "ship" as follows:
The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a
shipper.
The term "ship" means any vessel used for the carriage of goods by sea.
The defendant-appellee, Philippine Ports Terminals, Inc., is neither a charterer nor a ship. Consequently
the "Carriage of Goods by Sea Act" does not apply to it. However, the ordinary period of four years fixed
by the Code of Civil Procedure will apply. The action in this case has been brought within that time.
In view of the foregoing, the order of the lower court dismissing the complaint is hereby reversed and the
case is remanded to the court of origin for further proceedings, with costs against the appellee. It is so
ordered.

Bengzon, Acting C. J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
Reyes, J.B.L., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6517

November 29, 1954

E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE COMPANY, petitioners,

vs.
COURT OF APPEALS, INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES and
ISTHMIAN STEAMSHIP COMPANY, respondents.
Gibbs and Chuidian for petitioners.
J. A. Wolfson for respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of Appeals which affirms that of court as origin
dismissing the complaint without pronouncement as to costs..
The facts, as found by the Court of Appeals, are:.
It appears that in the month of December, 1945 the goods specified in the Bill of Lading marked
as Annex A, were shipped on the 'S.S. Sea Hydra,' of Isthmian Steamship Company, from New
York to Manila, and were received by the consignee 'Udharam Bazar and Co.', except one case
of vanishing cream valued at P159.78. The goods were insured against damage or loss by the
'Atlantic Mutual Insurance Co.' `Udharam Bazar and Co.' Inc., who denied having received the
goods for custody, and the 'International Harvester Co. of the Philippines,' as agent for the
shipping company, who answer that the goods were landed and delivered to the Customs
authorities. Finally, 'Udaharam Bazar and Co.' claimed for indemnity of the loss from the insurer,
'Atlantic Mutual Insurance Co.', and was paid by the latter's agent 'E. E. Elser Inc.' the amount
involved, that is, P159.78..
As may be noted, the Court of Appeals held that petitioners have already lost their right to press their
claim against respondent because of their failure to serve notice thereof upon the carrier within 30 days
after receipt of the notice of loss or damage as required by clause 18 of the bill of lading which was issued
concerning the shipment of the merchandise which had allegedly disappeared. In this respect, the court
said that, "appellant unwittingly admitted that they were late in claiming the indemnity for the loss of the
case of the vanishing cream as their written claim was made on April 25, 1946, or more than 30 days after
they had been fully aware of said loss," and because of this failure, the Court said the action of petitioners
should, and must, fall. Petitioners now contend that this finding is erroneous in the light of the provisions
of the Carriage of Goods by Sea Act of 1936, which apply to this case, the same having been made an
integral part of the covenants agreed upon in the bill of lading.
There is merit in this contention. If this case were to be governed by clause 18 of the bill of lading
regardless of the provisions of the Carriage of Goods by Sea Act of 1936, the conclusion reached by the
Court of Appeals would indeed the correct, but in our opinion this Act cannot be ignored or disregard in
determining the equities of the parties it appearing that the same was made an integral part of the bill of
lading by express stipulation. It should be noted, in this connection, that the Carriage of Goods by Sea Act
of 1936 was accepted and adopted by our government by the enactment of Commonwealth Act No. 65
making said Act "applicable to all contracts for the carriage in foreign trade." And the pertinent provisions
of the Carriage of the Goods by Sea Act of 1936 are:
6. Unless notice of loss or damage and the general nature of such loss or damage be given in
writing to the carrier of his agent at the port of discharge or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
xxx xxx xxx
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: PROVIDED, That if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the
date when the goods should have been delivered. (Section 3; Emphasis supplied.).

It would therefore appear from the above that a carrier can only be discharged from liability in respect of
loss or damage if the suit is not brought within one year after the delivery of the goods or the date when
the goods should have been delivered, and that, even if a notice of loss or damage is not given as
required, "that fact shall not affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods." In other words, regardless of whether the notice of loss or damage has been
given, the shipper can still bring an action to recover said loss or damage within one year after the
delivery of the goods, and, as we have stated above, this is contrary to the provisions of clause 18 of the
bill of lading. The question that now rises is: Which of these two provisions should prevail? Is it that
contained in clause 18 of the bill of lading, or that appearing in the Carriage of Goods by Sea Act?.
The answer is not difficult to surmise. That clause 18 must of necessity yields to the provisions of the
Carriage of Goods by Sea Act in view of the proviso contained in the same Act which says: "any clause,
covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or
damage to or in connection with the goods . . . or lessening such liability otherwise than as provided in
this Act, shall be null and void and of no effect." (section 3.) This means that a carrier cannot limit its
liability in a manner contrary to what is provided for in said act. and so clause 18 of the bill of lading must
of necessity be null and void. This interpretation finds no support in a number of cases recently decided
by the American courts. Thus, in Balfour, Guthrie and Co., Ltd., et al., vs. American-West African Line, Inc.
and American-West African Line, Inc. vs. Balfour, Guthrie & Co., Ltd., et al., 136 F. 2d. 320, wherein the
bill of lading provided that the owner should not be liable for loss of cargo unless written notice thereof
was given within 30 days after the goods should have been delivered and unless written claim therefor
was given within six months after giving such written notice, the United States Circuit Court of Appeals,
Second Circuit, in a decision promulgated on August 2, 1943, made the following ruling:.
But the Act, section 3 (6), 45 U.S.A. section 1303 (6) provides that failure to give 'notice of loss or
damages' shall not prejudice the right of the shipper to bring suit within one year after the date
when the goods should have been delivered. to enforce a bill of lading provision conditioning a
ship owner's liability upon the filing of written claim of loss, which in turn requires and depends
upon the filing of a prior notice of loss, certainly would do violence to section 3(6) is that failure to
file written claim of loss in no event may prejudice right of suit within a year of the scheduled date
for cargo delivery. This is also to be concluded from section 3(8) 46 U.S. C. A. Section 1303
(8),that any clause in a bill of lading lessening the liability of the carrier otherwise than as
provided in the Act shall be null and void. A similar provision in the British Carriage of Goods by
Sea Act, 14 and 15 Geo. V. c.22, has been interpreted to nullify any requirement of written claim
as a condition to suit at any time. CF. Australian United Steam Navigation Co., Ltd., vs. Hunt
(1921) 2 A. C. 351; Conventry Sheppard and Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1
But respondents contend that while the United States Carriage of Goods by Sea Act of 1936 was
accepted and adopted by our government by virtue of Commonwealth Act No. 65, however, said Act does
not have any application to the present case because the shipment in question was made in December,
1945, and arrived in Manila in February, 1946 and at that time the Philippines was still a territory or
possession of the United States and, therefore it may be said that the trade then between the Philippines
and the United States was not a "foreign trade". In other words, it is contended that the Carriage of Goods
by Sea Act as adopted by our government is only applicable "to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade," and, therefore, it does not apply to the shipment in
question..
Granting arguendo that the Philippines was a territory or possession of the United States for the purposes
of said Act and that the trade between the Philippines and the United States before the advent of
independence was notforeign trade or can only be considered in a domestic sense, still we are of the
opinion that the Carriage of Goods by Sea Act of 1936 may have application to the present case it
appearing that the parties have expressly agreed to make and incorporate the provisions of said Act as
integral part of their contract of carriage. This is an exception to the rule regarding the applicability of said
Act. This is expressly recognized by section 13 of said Act which contains the following proviso:
Nothing in this Act shall be held to apply to contracts for carriage of gods by sea between any port
of the United States or its possessions, and any other port of the United States or its
possessions: Provided, however, That any bill of lading or similar document of title which
evidence of a contract for the carriage of goods by sea between such ports, containing an
express statement that it shall be subject to the provisions of this Act, shall be subjected hereto
as fully as if subject hereto by the express provisions of this Act. (Emphasis supplied.).
This is also recognized by the very authority cited by counsel for respondents, who, on this matter, has
made the following comment:
The Philippine Act of 1936 like the U.S. Act of 1936, applies propio vigore only to foreign
commerce to all contracts for the carriage of goods by sea and from Philippine ports in foreign
trade.
Prior to Philippine Independence on July 4, 1946, trade between the Philippines and other ports
and places under the American Flag, was not, by an ordinary definition, foreign commerce.
Hence, the U. S. and Philippine Acts did not apply to such trades, even though conducted under
foreign bottoms and under foreign flag, unless the carrier expressly exercised the option given by

section 13 of the U.S. Act to carry under the provisions of that Act. The fact that the U.S.
coastwise flag monopoly did not extend to the Philippine trade did not alter the fact that the U.S.
Trade with the Islands is domestic. (knaught, Ocean Bills of Lading, 1947 ed. p. 250 (Emphasis
supplied.).
Having reached the foregoing conclusion, it would appear clear that action of petitioners has not yet
lapsed or prescribed, as erroneously held by the Court of Appeals, it appearing that the present action
was brought within one year after the delivery of the shipment in question..
As regards the contention of respondents that petitioners have the burden of showing that the loss
complained of did not take place under after the goods left the possession or custody of the carrier
because they failed to give notice of their loss or damage as required by law, which failures gives rise to
the presumption that the goods were delivered in the bill of lading, suffice it to state that, according to the
Court of Appeals, the required notice was given by the petitioners to the carrier or its agent on April 25,
1946. That notice is sufficient to overcome the above presumption within the meaning of the law..
Wherefore the decision appealed from is reversed. Respondents, other than the Court of Appeals, are
hereby sentenced to pay to the petitioners the sum of P159.78, with legal interest thereon from the date of
the filing of the complaint, plus the costs of action..
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Concepcion and Reyes, J. B. L.,
JJ., concur.

Footnotes
1 This ruling was reiterated in Mackay, et al. vs. United States, et al., 83 F. Supp. 14, October 29, 1948 and Givaudan Dolawanna vs. The Blijdendijk, 91 F. Supp. 663,
June 8, 1950.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22491

January 27, 1967

DOMINGO ANG, plaintiff-appellant,

vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
Juan T. David and M.C. Ginigundo for plaintiff-appellant.
Ross, Salcedo, Del Rosario, Bito & Misa for defendant-appellee.

BENGZON, J.P., J.:

Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue agreed to sell 140
packages of galvanized steel durzinc sheets to one Herminio G. Teves (the date of said agreement is not
shown in the record here) for the sum of $32,458.26 (US). Said agreement was subject to the following
terms and arrangements: (a) the purchase price should be covered by a bank draft for the corresponding
amount which should be paid by Herminio G. Teves in exchange for the delivery to him of the
corresponding bill of lading to be deposited with a local bank, the Hongkong & Shanghai Bank of Manila
(b) upon arrival of the articles in Manila, Teves would be notified and he would have to pay the amount
called for in the corresponding demand draft, after which the bill of lading would be delivered to him; and
(c) Teves would present said bill of lading to the carrier's agent, American Steamship Agencies, Inc. which
would then issue the corresponding "Permit To Deliver Imported Articles" to be presented to the Bureau of
Customs to obtain the release of the articles.
Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan, shipped
the articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila, belonging to the
Nissho Shipping Co., Ltd. of Japan, of which the American Steamship Agencies, Inc. is the agent in the
Philippines, under a shipping agreement, Bill of Lading No. WM-2 dated April 30, 1961, consigned "to
order of the shipper with Herminio G. Teves as the party to be notified of the arrival of the 140 packages
of galvanized steel durzinc sheets in Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt
thereof, Yau Yue drew a demand draft together with the bill of lading against Herminio G. Teves, through
the Hongkong & Shanghai Bank.
When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified Teves,
the "notify party" under the bill of lading, of the arrival of the goods and requested payment of the demand
draft representing the purchase price of the articles. Teves, however, did not pay the demand draft,
prompting the bank to make the corresponding protest. The bank likewise returned the bill of lading and
demand draft to Yau Yue which indorsed the said bill of lading to Domingo Ang.
Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to obtain a
bank guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect that he
would surrender the original and negotiable bill of lading duly indorsed by Yau Yue. On the strength of this
guaranty, Teves succeeded in securing a "Permit To Deliver Imported Articles" from the carrier's agent,
which he presented to the Bureau of Customs which in turn released to him the articles covered by the bill
of lading.
Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by
presenting the indorsed bill of lading, but he was informed by the latter that it had delivered the articles to
Teves.
On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila against the
American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods
covered by the bill of lading belonging to plaintiff Ang, to the damage and prejudice of the latter.
On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause of action
has prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly
Section 3 (6), paragraph 4, which provides:
In any event, the carrier and the ship shall be discharged from all liability in respect to loss or
damage unless suit is brought within one year, after delivery of the goods or the date when the
goods should have been delivered.

It argued that the cargo should have been delivered to the person entitled to the delivery thereof
(meaning the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila, and that even
allowing a reasonable time (even one month) after such arrival within which to make delivery, still,
the action commenced on October 30, 1963 was filed beyond the prescribed period of one year.
By order dated December 21, 1963, copy of which was received by plaintiff on December 26, 1963, the
lower court dismissed the action on the ground of prescription. His motion for reconsideration dated
December 26, 1963 having been denied by the lower court in its order dated January 13, 1964, plaintiff
appealed directly to this Court on a question of law: Has plaintiff-appellant's cause of action prescribed
under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act?
The provision of law involved in this case speaks of "loss or damage". That there was no damage caused
to the goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved in order to determine the applicability of
the prescriptive period of one year to the case at bar is whether or not there was "loss" of the goods
subject matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the
Civil Code which provides in Article 18 thereof that, "In matters which are governed by the Code of
Commerce and special laws, their deficiency shall be supplied by the provisions of this Code."
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed with
the intention of suspending the efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which
later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is one involving
an obligation to give or to deliver the goods "to the order of shipper", that is, upon the presentation and
surrender of the bill of lading. This being so, said article can be applied to the present controversy, more
specifically paragraph 2 thereof which provides that, "... it is understood that a thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its existence unknown or it cannot
be recovered."
As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by Sea
Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of the goods
because the same had perished, gone out of commerce, or disappeared that their existence is unknown
or they cannot be recovered. It does not include a situation where there was indeed delivery but
delivery to the wrong person, or a misdelivery, as alleged in the complaint in this case.
The distinction between non-delivery and misdelivery has reference to bills of lading. As this Court shall
in Tan Pho vs. Hassamal Dalamal, 67 Phil. 555, 557-558:
Considering that the bill of lading covering the goods in question has been made to order, which
means that said goods cannot be delivered without previous payment of the value thereof, it is
evident that, the said goods having been delivered to Aldeguer without paying the price of the
same, these facts constitute misdelivery and not nondelivery, because their was in fact delivery of
merchandise. We do not believe it can be seriously and reasonably argued that what took place,
as contended of by the petitioner, is a case of misdelivery with respect to Aldeguer and at the
same time nondelivery with respect to the PNB who had the bill of lading, because the only thing
to consider in this question is whether Enrique Aldeguer was entitled to get the merchandise or
whether, on the contrary, the PNB is the one entitled thereto. Under the facts, the defendant
petitioner should not have delivered the goods to Aldeguer but to the Philippine National Bank.
Having made the delivery to Aldeguer, the delivery is a case of misdelivery. If the goods have
been delivered, it cannot at the same time be said that they have not been delivered.
According to the bill of lading which was issued in the case at bar to the order of the shipper, the
carrier was under a duty not to deliver the merchandise mentioned in the bill of lading except
upon presentation of the bill of lading duly endorsed by the shipper. (10 C.J., 259) Hence, the
defendant-petitioner Tan Pho having delivered the goods to Enrique Aldeguer without the
presentation by the latter of the bill of lading duly endorsed to him by the shipper, the said
defendant made a misdelivery and violated the bill of lading, because his duty was not only to
transport the goods entrusted to him safely, but to deliver them to the person indicated in the bill
of lading. (Emphasis supplied)
Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he thereby
hypothetically admits the truth of the allegations of fact contained in the complaint (Philippine National
Bank v. Hipolito, et al., L-16463, Jan. 30, 1965; Republic v. Ramos, L-15484, Jan. 31, 1963; Pascual v.
Secretary of Public Works & Communications, L-10405, Dec. 29, 1960; Pangan v. Evening News
Publishing Co., Inc., L-13308, Dec. 29, 1960). Thus, defendant-appellant having filed a motion to dismiss,
it is deemed to have admitted, hypothetically, paragraphs 6, 7 and 8 of the complaint, and these alleges:
6. That, when the said articles arrived in Manila, the defendant authorized the delivery thereof
to Herminio G. Teves, through the issuance of the corresponding Permit To Deliver Imported
Articles, without the knowledge and consent of the plaintiff, who is the holder in due course of

said bill of lading, notwithstanding the fact that the said Herminio G. Teves could not surrender
the corresponding bill of lading; .
7. That, without any evidence of the fact that Herminio G. Teves is the holder of the
corresponding bill of lading in due course; without the surrender of the bill of lading without the
knowledge and consent of the plaintiff, as holder thereof in due course, and in violation of the
provision on the bill of lading which requires that the articles are only to be delivered to the person
who is the holder in due course of the said bill of lading, or his order, the defendant issued the
corresponding 'Permit To Deliver Imported Articles' in favor of the defendant, without the
knowledge and consent of the plaintiff as holder in due course of said bill of lading, which,
originally was Yau Yue subsequently, the plaintiff Domingo Ang;
8. That, as a result of the issuance by the defendant of said permit, Herminio G. Teves was
able to secure the release of the articles from the Bureau of Customs, which is not legally
possible without the presentation of said permit to the said Bureau; ...
From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were delivered
to Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled to receive them,
or misdelivery, if he was not so entitled. It is not for Us now to resolve whether or not delivery of the goods
to Teves was proper, that is, whether or not there was rightful delivery or misdelivery.
The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery. Thus,
the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss or
damage to the goods, the aforequoted provision of the Carriage of Good by Sea Act stating that "In any
event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or the date when the goods should have been
delivered," does not apply. The reason is not difficult to see. Said one-year period of limitation is designed
to meet the exigencies of maritime hazards. In a case where the goods shipped were neither last nor
damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled
thereto, the situation is different, and the special need for the short period of limitation in cases of loss or
damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of
the goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for
breach of a written contract or four years for quasi-delict. (Arts. 1144[1], 1146, Civil Code) In either case,
plaintiff's cause of action has not vet prescribed, since his right of action would have accrued at the
earliest on May 9, 1961 when the ship arrived in Manila and he filed suit on October 30, 1963.
Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is
remanded to the court a quo for further proceedings. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 119571 March 11, 1998

MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES, INC., petitioner,
vs.
COURT OF APPEALS and LAVINE LOUNGEWEAR MFG. CORP., respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the January 25, 1995 decision of the Court of Appeals and its
resolution of March 22, 1995 denying petitioner's motion for reconsideration. The appellate court upheld
orders of Branch 68 (Pasig) of the Regional Trial Court, National Capital Judicial Region, denying
petitioner's motion to dismiss in the original action filed against petitioner by private respondent.
1

The facts are not in dispute.

Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent,
Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., an
international freight forwarder, with private respondent Lavine Loungewear Manufacturing Corporation to
transport goods of the latter from Manila to Le Havre, France. Petitioner undertook to deliver the goods to
France 28 days from initial loading. On July 24, 1991, petitioner's vessel loaded private respondent's
container van for carriage at the said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the
shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the
value of the said goods on the ground that they did not arrive in France until the "off season" in that
country. The remaining half was allegedly charged to the account of private respondent which in turn
demanded payment from petitioner through its agent.
As petitioner denied private respondent's claim, the latter filed a case in the Regional Trial Court on April
14, 1992. In the original complaint, private respondent impleaded as defendants Meister Transport, Inc.
and Magsaysay Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993,
it amended its complaint by impleading petitioner as defendant in lieu of its agent. The parties to the case
thus became private respondent as plaintiff, on one side, and Meister Transport Inc. and petitioner Mitsui
O.S.K. Lines Ltd. as represented by Magsaysay Agencies, Inc., as defendants on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of
Goods by Sea Act.
The Regional Trial Court, as aforesaid, denied petitioner's motion as well as its subsequent motion for
reconsideration. On petition for certiorari, the Court of Appeals sustained the trial court's orders. Hence
this petition containing one assignment of error:
THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW
IN RULING THAT PRIVATE RESPONDENT'S AMENDED COMPLAINT IS (sic) NOT
PRESCRIBED PURSUANT TO SECTION 3(6) OF THE CARRIAGE OF GOODS BY
SEA ACT.
The issue raised by the instant petition is whether private respondent's action is for "loss or damage" to
goods shipped, within the meaning of 3(6) of the Carriage of Goods by Sea Act (COGSA).
Section 3 provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier or his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall beprima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.

Said notice of loss or damage may be endorsed upon the receipt for the goods given by
the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered: Provided, that, if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that
fact shall not affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods.
In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of goods
which had been delivered to a party other than the consignee is for "loss or damage" within the meaning
of 3(6) of the COGSA. It was held that there was no loss because the goods had simply been
misdelivered. "Loss" refers to the deterioration or disappearance of goods.
3

As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act, "loss" contemplates merely a situation where no delivery at all was
made by the shipper of the goods because the same had perished, gone out of
commerce, or disappeared in such a way that their existence is unknown or they cannot
be recovered.
4

Conformably with this concept of what constitutes "loss" or "damage," this Court held in another case that
the deterioration of goods due to delay in their transportation constitutes "loss" or "damage" within the
meaning of 3(6), so that as suit was not brought within one year the action was barred:
5

Whatever damage or injury is suffered by the goods while in transit would result in loss or
damage to either the shipper or the consignee. As long as it is claimed, therefore, as it is
done here, that the losses or damages suffered by the shipper or consignee were due to
the arrival of the goods in damaged or deteriorated condition, the action is still basically
one for damage to the goods, and must be filed within the period of one year from
delivery or receipt, under the above-quoted provision of the Carriage of Goods by Sea
Act.
6

But the Court allowed that

There would be some merit in appellant's insistence that the damages suffered by him as
a result of the delay in the shipment of his cargo are not covered by the prescriptive
provision of the Carriage of Goods by Sea Act above referred to, if such damages were
due, not to the deterioration and decay of the goods while in transit, but to other causes
independent of the condition of the cargo upon arrival, like a drop in their market value. . .
.
7

The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. As this
Court held in Ang:
Said one-year period of limitation is designed to meet the exigencies of maritime hazards.
In a case where the goods shipped were neither lost nor damaged in transit but were, on
the contrary, delivered in port to someone who claimed to be entitled thereto, the situation
is different, and the special need for the short period of limitation in cases of loss or
damage caused by maritime perils does not obtain.
8

In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused by the
carrier's breach of contract. Whatever reduction there may have been in the value of the goods is not due
to their deterioration or disappearance because they had been damaged in transit.
Petitioner contends:
Although we agree that there are places in the section (Article III) in which the phrase
need have no broader meaning than loss or physical damage to the goods, we disagree
with the conclusion that it must so be limited wherever it is used. We take it that the
phrase has a uniform meaning, not merely in Section 3, but throughout the Act; and there
are a number of places in which the restricted interpretation suggested would be
inappropriate. For example Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the
carrier, the ship (sic), from liability "loss or damage" (sic) resulting from certain courses
beyond their control.
9

Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as
provided by 3(6) of the COGSA, but its liability under its contract of carriage with private
respondent as covered by laws of more general application.
Precisely, the question before the trial court is not the particular sense of "damages" as it refers to the
physical loss or damage of a shipper's goods as specifically covered by 3(6) of COGSA but petitioner's
potential liability for the damages it has caused in the general sense and, as such, the matter is governed
by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with
private respondent.
We conclude by holding that as the suit below is not for "loss or damage" to goods contemplated in 3(6),
the question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil Code
which provides for a prescriptive period of ten years.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Regalado, Melo, Puno and Martinez, JJ., concur.
Footnotes
1 Per Justice Emeterio C. Cui and concurred in by Justices Consuelo Yares-Santiago
and Conchita Carpio-Morales.
2 Rollo, pp. 20-24, 106 and 117.
3 19 SCRA 123 (1967). Accord Ang v. American Steamship Agencies, Inc., 19 SCRA 631
(1967
4 Id. at 127.
5 Tan Liao v. American President Lines, Ltd., 98 Phil. 203 (1956).
6 Id. at 208.
7 Id. at 210.
8 Supra note 3 at 129.
9 Rollo, p. 37, citing GANADA & KINDRED, MARINE CARGO DELAYS 21-22 (1990)
(emphasis added).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27798 June 15, 1977
UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.), plaintiff-appellant,
vs.
MANILA RAILROAD CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA PORT
SERVICE and AMERICAN STEAMSHIP AGENCIES, INC., defendants- appellees.
Solicitor General Antonio P. Barredo and Solicitor Buenaventura J. Guerrero for appellants.
Salcedo, Del Rosario, Bito & Misa for appellee.

AQUINO, J.:
This is an admiralty and arrastre case. On December 18, 1961 the vessel Daishin Maru arrived in Manila
with a cargo of 1,000 bags of synthetic resin consigned to General Base Metals, Inc. which later sold the
cargo to Union Carbide Philippines, Inc.
On the following day, December 19, that cargo was delivered to the Manila Port Service in good order and
condition except for twenty- five bags which were in bad order (Par. IV and Annexes C to C-25 of
Stipulation of Facts).
On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the
1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were
missing. The contents of twenty-five bags were damaged or pilfered while they were in the custody of the
arrastre operator (Par. XII and Annexes D and H of Stipulation of Facts All in all fifty bags out of the 898
bags were damaged (Annex D-5).
The 152 bags of resin (102 missing and 50 damaged) were valued at $12.65 a bag or a total value of
$1,992.80, which amount at the prevailing rate of exchange of P3.85 to the American dollar, is equivalent
to P7,402.78 (Annex I of Stipulation of Facts).
The consignee, through the customs broker, filed on January 3, 1962 with the Manila Port Service, as
arrastre operator, and the American Steamship Agencies, Inc., as agent of the carrier, a provisional claim
advising them that the shipment in question was "shorthanded, short delivered and/or landed in bad
order" (Annexes E and F of Stipulation of Facts).
Formal claims dated June 11, 1962 were made by the consignee with the arrastre operator and the agent
of the carrier (Annexes I and I-1 of Stipulation of Facts The claims were reiterated by the consignee's
lawyer in his letters dated September 26, 1962 which were received by the carrier's agent and the
arrastre operator on October 4, 1962 (Annexes J and J-1 of Stipulation of Facts).
As the claims were not paid, Union Carbide Philippines, Inc. filed a complaint on December 21, 1962 in
the Court of First Instance of Manila against the Manila Railroad Company, the Manila Port Service and
the American Steamship Agencies, Inc. for the recovery of damages amounting to P7,402.78 as the value
of the undelivered 102 bags of resin and the damaged 50 bags plus legal rate of interest from the filing of
the complaint and P1,000 as attorney's fees.
Union Carbide's complaint was a double-barrelled action or a joinder of two causes of action. One was an
action in admiralty under the Carriage of Goods by Sea Act against the carrier's agent for the recovery of
P1,217.56 as the value of twenty-five bags of resin which were damaged before they were landed (Annex
C-25).
The other was an action under the management contract between the Bureau of Customs and the Manila
Port Service, a subsidiary of the Manila Railroad Company, for the recovery of P6,185.22 as the value of
the undelivered 102 bags of resin and twenty-five bags, the contents of which were damaged or pilfered
while in the custody of the arrastre operator.
The case was submitted for decision on the basis of a stipulation of facts. The trial court in its decision of
January 15, 1964 dismissed the case as to the carrier's agent on the ground that the action had already
prescribed because it was not "brought within one year after delivery of the goods", as contemplated in
section 3(6) of the Carriage of Goods by Sea Act. The one-year period was counted from December 19,

1961 when the cargo was delivered to the arrastre operator. As above stated, the action was brought on
December 21, 196'2 or two days late, according to the trial court's reckoning (Civil Case No. 52562).
With respect to the consignee's claim against the arrastre operator, the trial court found that the
provisional claim was filed within the fifteen-day period fixed in paragraph 15 of the arrastre contract. Yet,
in spite of that finding, the trial court dismissed the action against the arrastre operator (p. 65, Record on
Appeal).
Union Carbide appealed to the Court of Appeals on questions of fact and of law, That Appellate Court
elevated the case to this Court because in its opinion the appeal raises only the legal issue of prescription
(Resolution of May 10, 1967 in CA-G. R. No. 33743-R).
Union Carbide contends that the trial court erred (1) in finding that its action was barred by the statute of
limitations and (2) in not holding that the carrier and the arrastre operator were liable for the value of the
undelivered and damaged cargo.
Claim against the carrier's agent.-There is no question that, as shown in the twenty-five tally sheets, 975
bags of resin were delivered by the carrier in good order to the arrastre operator and that only twenty-five
(25) bags were damaged while in the carrier's custody (Annexes C to C-25 and K-1 of Stipulation of
Facts).
The one-year period within which the consignee should sue the carrier is computed from "the delivery of
the goods or the date when the goods should have been delivered". The Carriage of Goods by Sea Act
provides:
RESPONSIBILITIES AND LIABILITIES
SEC. 3. xxx xxx xxx
(6) Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier or hi agent at the port of discharge before or at the time of
the removal of the goods into the custody of the person entitled to delivery thereof under
the contract of carriage, such removal shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by
the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or the date when the goods
should have been delivered.
In the case of any actual or apprehended loss or damage the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods.
(Commonwealth Act No. 65, adopting U.S. Public Act No. 521 of April 16,1936).
What is the meaning of "delivery" in section 3(6) of the Carriage of Goods by Sea Act The trial court
construed delivery as referring to the discharge or landing of the cargo.
Union Carbide contends that "delivery" does not mean the discharge of goods or the delivery thereof to
the arrastre operator but the actual delivery of the goods to the consignee by the customs broker.
The carrier contends that delivery means discharge from the vessel into the custody of the customs
arrastre operator because under sections 1201 and 1206 of the Tariff and Customs Code merchandise
cannot be directly delivered by the carrier to the consignee but should first pass through the customhouse
at a port of entry for the collection of customs duties.
The carrier cites the following provisions of the bill of lading to support its contention:
9. Delivery. The Carrier retains the option of delivery at all times from ship's side or from
craft, hulk, custom house, warehouse, wharf or quay at the risk of the shippers,

consignees or owners of the goods, and all expenses incurred by delivery otherwise than
from ship's side shall be borne by the shippers, consignee or owners of the goods.
11. Discharge of Goods. The goods may be discharge without notice, as soon as the ship
is ready to unload, continuously day and night, Sundays and holidays included, on to
wharf or quay or into warehouse, or into hulk, lazaretto or craft or on any other place and
be stored there at the risk and expense of the shippers, consignees or owners of the
goods, any custom of the port to the contrary notwithstanding. In any case, the Carrier's
liability is to cease as soon as the goods are lifted from ship's deck or leave the ship's
tackle, any custom of the port to the contrary notwithstanding. Consignees to pay
charges for sorting and stocking the goods on wharf or in shed.
If the consignees fail to take delivery of their goods immediately the ship is ready to
discharge them, the Carrier shall be at liberty to land and warehouse or discharge the
said goods into hulk or craft, or at any other place at the risk and expense of the
shippers, consignees or owners of the goods without notice.
15. Notice of Claim. Any claim for loss of or damage to the goods must be preferred in
writing to the Carrier's Agents at the place of delivery within 3 days after the
ship's discharge thereof, and before the goods are removed from the quay or ship's " or
place of discharge, and in the event of such claim not being preferred as above specified,
the claim shall be deemed as waived, and the Carrier shall be discharged therefrom.
Suit for the recovery of loss or damage shall not in any event be maintainable against the
Carrier or the ship unless instituted within one year after the delivery of the written notice
above specified. The amount of claim shall be restricted to the Cash Value of the goods
at the place and time of original shipment plus all charges actually paid thereon, and all
claims for either partial or total loss or damage shall be entertained and adjusted upon
this basis of value. (Annex B).
In this connection, it is pertinent to state that the Tarifff and Customs Code allows the delivery of imported
merchandise to the arrastre operator:
SEC. 1213. Receiving Handling Custody and Delivery of Articles. The Bureau of
Customs shall have "elusive supervision and control over the receiving, handling, custody
and delivery of articles on the wharves and piers at all ports of entry and in the exercise
of its functions it is hereby authorized to acquire, take over, operate and superintend such
plants and facilities as may be necessary for the receiving, handling, custody and delivery
of articles, and the convenience and comfort of passengers and the handling of baggage,
as well as to acquire fire protection equipment for use in the piers:
Provided, That whenever in his judgment the receiving, handling, custody and delivery of
articles can be carried on by private parties with greater efficiency, the Commissioner
may, after public bidding and subject to the approval of the department head, contract
with any private party for the service of receiving, handling, custody and delivery of
articles, and in such event, the contract may include the sale or lease of governmentowned equipment and facilities used in such service.
The sensible and practical interpretation is that delivery within the meaning of section 3(6) of the Carriage
of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by tally sheets
which show whether the goods were landed in good order or in bad order, a fact which the consignee or
shipper can easily ascertain through the customs broker.
To use as basis for computing the one-year period the delivery to the consignee would be unrealistic and
might generate confusion between the loss or damage sustained by the goods while in the carrier's
custody and the loss or damage caused to the goods while in the arrastre operator's possession.
Apparently, section 3(6) adheres to the common-law rule that the duty imposed water carriers was merely
to transport from wharf to wharf and that the carrier was not bound to deliver the goods at the warehouse
of the consignee (Tan Hi vs. United States, 94 Fed. Supp. 432,435).
In the Tan Hi case, it was held that a requirement of Philippine law that all cargo unloaded at Manila be
delivered to the consignee through the arrastre operator acting as customs' agent was not unreasonable.
The common-law requirements as to the proper delivery of goods by water carrier apply only when
customs regulations at the port of destination do not otherwise provide. The delivery must be in
accordance with the usages of the port in order that such delivery would discharge the carrier of
responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58 C. J. 372 note 24. See 70 Am. Jur 2nd 613, note 19).
Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court
from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the
cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year

period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was
barred by the statute of limitations.
Defendant American Steamship Agencies, Inc., as agent of the carrier, has no more liability to the
consignee's assignee, Union Carbide Philippines, Inc., in connection with the damaged twenty-five bags
of resin.
Prescription was duly pleaded by the said defendant in its answer and motion to dismiss. That defense
was correctly entertained by trial court.
Claim against the arrastre operator. The liability of the arrastre contractor has a factual and legal basis
different from that of the carrier's. The management contract between the Manila Port Service and the
Bureau of Customs provides:
15. ... ; in any event the CONTRACTOR hall be relieved and released of any and all
responsibility or liability for loss, damage, misdelivery, and/or non-delivery of goods,
unless suit in the court of proper jurisdiction is brought within a period of one (1) year
from the date of the discharge of the goods, or from the date when the claim for the value
of such goods have been rejected or denied by the CONTRACTOR, provided that such
claim shall have been filed with the CONTRACTOR within fifteen (15) days from the date
of discharge of the last package from the carrying vessel. ... (Annex A of Stipulation of
Facts
Under the foregoing contractual provisions, the action against the arrastre operator to enforce liability for
loss of the cargo or damage thereto should be filed within one year from the date of the discharge of the
goods or from the date when the claim for the value of such goods has been rejected or denied by the
arrastre operator.
However, before such action can be filed a condition precedent should be complied with and that is, that a
claim (provisional or final) shall have been previously filed with the arrastre operator within fifteen days
from the date of the discharge of the last package from the carrying vessel (Continental Insurance
Company vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).
In this case, the consignee's customs broker filed with the Manila Port Service as provisional claim
advising the latter that the cargo was "short, short delivered and/or landed in bad order". That claim was
filed on January 3, 1962 or on the fifteenth day following December 19, 1961, the date of the discharge of
the last package from the carrying vessel. That claim was never formally rejected or denied by the Manila
Port Service.
Having complied with the condition precedent for the filing of a claim within the fifteen- day period, Union
Carbide could file the court action within one year, either from December 19, 1961 or from December 19,
1962. This second date is regarded as the expiration of the period within which the Manila Port Service
should have acted on the claim (Philippine Education Co., Inc. vs. Manila Port Service, L-24091, 21
SCRA, 174, 178).
In other words, the claimant or consignee has a two-year prescriptive period, counted from the date of the
discharge of the goods, within which to file the action in the event that the arrastre contractor, as in this
case, has not rejected nor admitted liability (Continental Insurance Company vs. Manila Port
Service, supra. Philippine Education Company vs. Manila Port Service, L-23444, October 29, 1971, 42
SCRA 31).
Since the action in this case against the arrastre operator was filed on December 21, 1962, or within the
two-year period expiring on December 19, 1963, that action was filed on time. The trial court erred in
dismissing the action against the Manila Port Service and its principal, the Manila Railroad Company.
As shown in the statement of facts, the arrastre operator is responsible for the value of 102 bags of resin
which were not delivered, and twenty-five bags, which were damaged, or a total of one hundred twentyseven bags valued at P6,185.22.
The arrastre operator should pay attorney's fees to the plaintiff for not having satisfied its plainly valid, just
and demandable claim (Art. 2208, Civil Code). We fix the attorney's fees and the litigation expenses in the
sum of one thousand pesos.
WHEREFORE, the trial court's judgment is affirmed insofar as it dismissed plaintiff-appellant's claim
against defendant American Steamship Agencies, Inc. on the ground of prescription.
The trial court's decision is reversed insofar as it dismissed plaintiff's claim against the Manila Railroad
Company, as arrastre operator. The Philippine National Railways, as the successor of the Manila Railroad
Company (See. 22, Republic Act No. 4156), is hereby ordered to pay plaintiff Union Carbide Philippines,
Inc. the sum of P6,185.22, as the value of the 127 bags of resin (102 bags missing and 25 bags
damaged), with legal rate of interest from the filing of the complaint on December 21, 1962 up to the date
of payment, Plus P1,000 as attorney's fees and litigation expenses, and the costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61352 February 27, 1987
DOLE PHILIPPINES, INC., plaintiff-appellant,
vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.
Domingo E. de Lara & Associates for plaintiff-appellant.
Bito, Misa and Lozada Law Office for defendant-appellee.

NARVASA, J.:
This appeal, which was certified to the Court by the Court of Appeals as involving only questions of
law, 1 relates to a claim for loss and/or damage to a shipment of machine parts sought to be enforced by
the consignee, appellant Dole Philippines, Inc. (hereinafter caged Dole) against the carrier, Maritime
Company of the Philippines (hereinafter called Maritime), under the provisions of the Carriage of Goods
by Sea Act. 2
The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the relevant
portion of which reads:
xxx xxx xxx
Before the plaintiff started presenting evidence at today's trial at the instance of the Court
the lawyers entered into the following stipulation of facts:
1. The cargo subject of the instant case was discharged in Dadiangas unto the custody of
the consignee on December 18, 1971;
2. The corresponding claim for the damages sustained by the cargo was filed by the
plaintiff with the defendant vessel on May 4, 1972;
3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of Manila,
docketed therein as Civil Case No. 91043, embodying three (3) causes of action involving
three (3) separate and different shipments. The third cause of action therein involved the
cargo now subject of this present litigation;
4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No.
91043 dismissing the first two causes of action in the aforesaid case with prejudice and
without pronouncement as to costs because the parties had settled or compromised the
claims involved therein. The third cause of action which covered the cargo subject of this
case now was likewise dismissed but without prejudice as it was not covered by the
settlement. The dismissal of that complaint containing the three causes of action was
upon a joint motion to dismiss filed by the parties;
5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to the
third cause of action without prejudice, plaintiff instituted this present complaint on
January 6, 1975.
xxx xxx xxx 4
To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative
defense of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pre-trial,
moved for a preliminary hearing on said defense. 6 The Trial Court granted the motion, scheduling the
preliminary hearing on April 27, 1977. 7 The record before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977, Maritime filed a formal motion to dismiss invoking once
more the ground of prescription. 8 The motion was opposed by Dole 9 and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole sought a
reconsideration, which was denied, 11 and thereafter took the present appeal from the order of dismissal.

The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of actions
is interrupted by the making of an extrajudicial written demand by the creditor is applicable to actions
brought under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides that:
*** the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered; Provided, That, if a notice of loss or
damage, either apparent or conceded, is not given as provided for in this section, that
fact shall not affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods or the date when the goods should have been delivered.
xxx xxx xxx
Dole concedes that its action is subject to the one-year period of limitation prescribe in the above-cited
provision. 12The substance of its argument is that since the provisions of the Civil Code are, by express
mandate of said Code, suppletory of deficiencies in the Code of Commerce and special laws in matters
governed by the latter, 13 and there being "*** a patent deficiency *** with respect to the tolling of the
prescriptive period ***" provided for in the Carriage of Goods by Sea Act, 14 prescription under said Act is
subject to the provisions of Article 1155 of the Civil Code on tolling and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods
by Sea Act. To much the same effect is the further argument based on Article 1176 of the Civil Code which
provides that the rights and obligations of common carriers shag be governed by the Code of Commerce
and by special laws in all matters not regulated by the Civil Code.
These arguments might merit weightier consideration were it not for the fact that the question has already
received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire & Marine
Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual situation, where suit to
recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than two years after
the consignee's receipt of the cargo, this Court rejected the contention that an extrajudicial demand toiled
the prescriptive period provided for in the Carriage of Goods by Sea Act, viz:
In the second assignment of error plaintiff-appellant argues that it was error for the
court a quo not to have considered the action of plaintiff-appellant suspended by the
extrajudicial demand which took place, according to defendant's own motion to dismiss
on August 22, 1952. We notice that while plaintiff avoids stating any date when the goods
arrived in Manila, it relies upon the allegation made in the motion to dismiss that a protest
was filed on August 22, 1952 which goes to show that plaintiff-appellant's counsel has
not been laying the facts squarely before the court for the consideration of the merits of
the case. We have already decided that in a case governed by the Carriage of Goods by
Sea Act, the general provisions of the Code of Civil Procedure on prescription should not
be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May 27,
1953.) Similarly, we now hold that in such a case the general provisions of the new Civil
Code (Art. 1155) cannot be made to apply, as such application would have the effect of
extending the one-year period of prescription fixed in the law. It is desirable that matters
affecting transportation of goods by sea be decided in as short a time as possible; the
application of the provisions of Article 1155 of the new Civil Code would unnecessarily
extend the period and permit delays in the settlement of questions affecting
transportation, contrary to the clear intent and purpose of the law. * * *
Moreover, no different result would obtain even if the Court were to accept the proposition that a written
extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The demand in this
instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972. The effect of that
demand would have been to renew the one- year prescriptive period from the date of its making. Stated
otherwise, under Dole's theory, when its claim was received by Maritime, the one-year prescriptive period
was interrupted "tolled" would be the more precise term and began to run anew from May 4, 1972,
affording Dole another period of one (1) year counted from that date within which to institute action on its
claim for damage. Unfortunately, Dole let the new period lapse without filing action. It instituted Civil Case
No. 91043 only on June 11, 1973, more than one month after that period has expired and its right of
action had prescribed.
Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in legal
contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within the oneyear prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." 16 equates tolling with indefinite
suspension. It is clearly fallacious and merits no consideration.
WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the appellant, Dole
Philippines, Inc.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Footnotes
1 Rollo, pp. 32-34.
2 U.S. Public Act No. 521 which was made applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65
approved October 22, 1936.
3 In Civil Case No. 96353, CFI of Manila.
4 Record on Appeal, pp. 22-23.
5 Id., pp. 14-16.
6 Id., pp. 24-25.
7 Id., pp. 25-26.
8 Id., pp. 29-33.
9 Id., pp. 34-39.
10 Id., pp. 39-44.
11 Id., pp. 65-66.
12 Appellant's Brief, p. 11.
13 Art. 18, Civil Code.
14 Appellant's Brief, p. 12.
15 No. L-11081, April 30, 1958; 103 Phil. 1125 (unrep.).
16 Appellant's Brief, p. 18.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 124050 June 19, 1997

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER
INSURANCE CORPORATION, respondents.

PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of
Appeals dated December 14, 1995 1 and its Resolution dated February 22, 1996 2 in CA-G.R. CV No.
45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South
Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount
of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020,
1017 and 1022 with a total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is
a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to factory defects which are not
covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The
only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct
on the part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and
severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED. 5

Private respondents elevated the case to respondent Court of Appeals.

Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer.
However, it set aside the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since
it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the
vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been delivered." Respondent court ruled
that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance
Co., Inc. v. Alejandro. 6
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had
already prescribed on the mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint.

The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of
Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods
or the date when they should have been delivered. Under this provision, only the carrier's liability is
extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on the contract of insurance. A
close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between
the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines
the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship
between the shipper and the insurer. The latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9 cited therein does
not support respondent court's view that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the
amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than
one year after delivery of the goods on December 17, 1977. The court held that the insurer was already
barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after delivery of the goods or the date when the goods
should have been delivered. The court said that "the coverage of the Act includes the insurer of the
goods." 10
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case
at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all
risks" insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage
of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a
claim against the carrier beyond the one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the
insurance contract. An insurance contract is a contract whereby one party, for a consideration known as
the premium, agrees to indemnify another for loss or damage which he may suffer from a specified
peril. 11 An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent
act of the insured. 12 Thus, when private respondents issued the "all risks" policies to petitioner Mayer,
they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. 13
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision
of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.
Footnotes

1 Annex "A" of the Petition, Rollo, pp. 15-30.

2 Annex "B" of the Petition, Rollo, pp. 31-32.
3 Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of Justices
Buenaventura J. Guererro and Romeo A. Brawner.
4 The pipes and fittings covered by Invoice Nos. MSPC-1014 and MSPC-1017 were
loaded on August 24, 1983; those covered by Invoice No. MSPC-1015 were loaded on
August 31, 1983; those covered by Invoice Nos. MSPC-1020 and MSPC-1022 were
loaded on October 10, 1983; and those covered by Invoice No MSPC-1025 were loaded
on October 21, 1983.
5 Rollo, pp. 20-21.
6 145 SCRA 42 (1986).
7 Petition, Rollo, p. 10.
8 145 SCRA 42 (1986).
9 See Chua Kuy v. Everett Steamship Corporation (93 Phil 207) and Aetna Insurance Co.
v. Luzon Stevedoring Corporation ( 62 SCRA 11).
10 At p. 47.
11 43 American Jurisprudence 2d 74-75.
12 Filipino Merchants Insurance Co., Inc. v. Court of Appeals, 179 SCRA 638 (1989).
13 Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 145044

June 12, 2008

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,

vs.
NEPTUNE ORIENT LINES/OVERSEAS AGENCY SERVICES, INC., respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari1 of the Resolution of the Court of Appeals (CA) in CA-G.R. CV
No. 52855 promulgated on April 13, 2000 granting respondents' motion for reconsideration dated March
9, 2000. The Resolution held respondents liable for damages to petitioner subject to the limited-liability
provision in the bill of lading.
The facts are as follows:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong three sets of
warp yarn on returnable beams aboard respondent Neptune Orient Lines' vessel, M/V Baltimar Orion, for
transport and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of No. 7 Jasmin Street, AUV
Subdivision, Metro Manila.
The said cargoes were loaded in Container No. IEAU-4592750 in good condition under Bill of Lading No.
HKG-0396180. Fukuyama insured the shipment against all risks with petitioner Philippine Charter
Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the amount of P228,085.
During the course of the voyage, the container with the cargoes fell overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc. (Overseas Agency), the
agent of Neptune Orient Lines in Manila, and claimed for the value of the lost cargoes. However,
Overseas Agency ignored the claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the
insured value of the cargoes in the amount of P228,085, which claim was fully satisfied by PCIC.
On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to be
subrogated in its right to recover its losses from respondents.
PCIC demanded from respondents reimbursement of the entire amount it paid to Fukuyama, but
respondents refused payment.
On March 21, 1994, PCIC filed a complaint for damages against respondents with the Regional Trial
Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying liability. They alleged that during the
voyage, the vessel encountered strong winds and heavy seas making the vessel pitch and roll, which
caused the subject container with the cargoes to fall overboard. Respondents contended that the
occurrence was a fortuitous event which exempted them from any liability, and that their liability, if any,
should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower.
In a Decision dated January 12, 1996, the RTC held that respondents, as common carrier,2 failed to prove
that they observed the required extraordinary diligence to prevent loss of the subject cargoes in
accordance with the pertinent provisions of the Civil Code. 3 The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering the defendants, jointly and severally, to pay the
plaintiff the Peso equivalent as of February 17, 1994 of HK$55,000.00 or the sum
of P228,085.00, whichever is lower, with costs against the defendants. 4
Respondents' motion for reconsideration was denied by the RTC in an Order dated February 19, 1996.
Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the RTC Decision with modification,
thus:

WHEREFORE, the assailed decision is hereby MODIFIED. Appellants Neptune and Overseas
are hereby ordered to pay jointly and severally appellee PCIC P228,085.00, representing the
amount it paid Fukuyama. Costs against the appellants. 5
Respondents moved for reconsideration of the Decision of the CA arguing, among others, that their
liability was only US$1,500 or US$500 per package under the limited liability provision of the Carriage of
Goods by Sea Act (COGSA).
In its Resolution dated April 13, 2000, the CA found the said argument of respondents to be meritorious.
The dispositive portion of the Resolution reads:
WHEREFORE, the motion is partly granted in the sense that appellants shall be liable to pay
appellee PCIC the value of the three packages lost computed at the rate of US$500 per package
or a total of US$1,500.00.6
Hence, this petition raising this lone issue:
THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS DAMAGES SUBJECT TO
THE US$500 PER PACKAGE LIMITATION.
Petitioner contends that the CA erred in awarding damages to respondents subject to the US$500 per
package limitation since the vessel committed a "quasi deviation" which is a breach of the contract of
carriage when itintentionally threw overboard the container with the subject shipment during the voyage
to Manila for its own benefit or preservation based on a Survey Report 7 conducted by Mariner's
Adjustment Corporation, which firm was tasked by petitioner to investigate the loss of the subject cargoes.
According to petitioner, the breach of contract resulted in the abrogation of respondents' rights under the
contract and COGSA including the US$500 per package limitation. Hence, respondents cannot invoke the
benefit of the US$500 per package limitation and the CA erred in considering the limitation and modifying
its decision accordingly.
The contention lacks merit.
The facts as found by the RTC do not support the new allegation of facts by petitioner regarding the
intentional throwing overboard of the subject cargoes and quasi deviation. The Court notes that in
petitioner's Complaint before the RTC, petitioner alleged as follows:
xxx

xxx

xxx

2.03 In the course of the maritime voyage from Hongkong to Manila subject shipment fell
overboard while in the custody of the defendants and were never recovered; it was part of the
LCL cargoes packed by defendants in container IEAU-4592750 that fell overboard during the
voyage.8
Moreover, the same Survey Report cited by petitioner stated:
From the investigation conducted, we noted that Capt. S.L. Halloway, Master of MV "BALTIMAR
ORION" filed a Note of Protest in the City of Manila, and was notarized on 06 October 1993.
Based on Note of Protest, copy attached hereto for your reference, carrier vessel sailed from
Hongkong on 1st October 1993 carrying containers bound for Manila.
Apparently, at the time the vessel [was] sailing at about 2400 hours of 2 nd October 1993, she
encountered winds and seas such as to cause occasional moderate to heavy pitching and rolling
deeply at times. At 0154 hours, same day, while in position Lat. 20 degrees, 29 minutes North,
Long. 115 degrees, 49 minutes East, four (4) x 40 ft. containers were lost/fell overboard. The
numbers of these containers are NUSU-3100789, TPHU -5262138, IEAU-4592750, NUSU4515404.
xxx

xxx

xxx

Furthermore, during the course of voyage, high winds and heavy seas were encountered causing
the ship to roll and pitch heavily. The course and speed was altered to ease motion of the vessel,
causing delay and loss of time on the voyage.
xxx

xxx

xxx

SURVEYORS REMARKS:
In view of the foregoing incident, we are of the opinion that the shipment of 3 cases of Various
Warp Yarn on Returnable Beams which were containerized onto 40 feet LCL (no. IEAU-4592750)
and fell overboard the subject vessel during heavy weather is an "Actual Total Loss". 9

The records show that the subject cargoes fell overboard the ship and petitioner should not vary the facts
of the case on appeal. This Court is not a trier of facts, and, in this case, the factual finding of the RTC
and the CA, which is supported by the evidence on record, is conclusive upon this Court.
As regards the issue on the limited liability of respondents, the Court upholds the decision of the CA.
Since the subject cargoes were lost while being transported by respondent common carrier from Hong
Kong to the Philippines, Philippine law applies pursuant to the Civil Code which provides:
Art. 1753. The law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration.
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers
shall be governed by the Code of Commerce and by special laws.
The rights and obligations of respondent common carrier are thus governed by the provisions of the Civil
Code, and the COGSA,10 which is a special law, applies suppletorily.
The pertinent provisions of the Civil Code applicable to this case are as follows:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade, provides:
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with the transportation of goods in an amount exceeding $500 per package
lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be conclusive
on the carrier.
In this case, Bill of Lading No. 0396180 stipulates:
Neither the Carrier nor the vessel shall in any event become liable for any loss of or damage to or
in connection with the transportation of Goods in an amount exceeding US$500 (which is the
package or shipping unit limitation under U.S. COGSA) per package or in the case of Goods not
shipped in packages per shipping unit or customary freight, unless the nature and value of
such Goods have been declared by the Shipper before shipment and inserted in this Bill of
Lading and the Shipper has paid additional charges on such declared value. . . .
The bill of lading11 submitted in evidence by petitioner did not show that the shipper in Hong Kong
declared the actual value of the goods as insured by Fukuyama before shipment and that the said value
was inserted in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation in the bill
of lading that the carrier's liability shall not exceed US$500 per package applies.
Such stipulation in the bill of lading limiting respondents' liability for the loss of the subject cargoes is
allowed under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of the COGSA. Everett Steamship
Corporation v. Court of Appeals12 held:
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by
law, particularly Articles 1749 and 1750 of the Civil Code which provide:
'Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.'
'Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.'
Such limited-liability clause has also been consistently upheld by this court in a number of cases.
Thus, inSea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

'It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist,
the validity and binding effect of the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That said
stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and fairness of the law
itself.... But over and above that consideration, the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability
limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading.'
The CA, therefore, did not err in holding respondents liable for damages to petitioner subject to the
US$500 per package limited- liability provision in the bill of lading.
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals in CA-G.R. CV No. 52855
promulgated on April 13, 2000 is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno, C.J., Chairperson, Carpio, Corona, Leonardo-de Castro, JJ., concur.

Footnotes
1

Under Rule 45 of the Rules of Court.

Civil Code, Art. 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public.
2

Pertinent provisions of the Civil Code:

Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances
of each case.
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos. 1,2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in article 1733.

Records, p. 186.

Rollo, p. 35.

Id. at 40.

Exh. E, E-1, records, pp. 120-121.

Records, pp. 2-3.

Exhs. E, E-2, and E-3, records, pp. 122-123.

The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74 th Congress of the
United States, which was made applicable to all contracts for the carriage of goods by sea to and
from Philippine ports in foreign trade by Commonwealth Act No. 65, was approved on October 22,
1936.
10

11

Exh. "A," records, p. 116.

12

G.R. No. 122494, October 8, 1998, 297 SCRA 496, 501-502.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-29864

February 28, 1969

CHAMBER OF FILIPINO RETAILERS, INC., NATIONAL MARKET VENDORS ASSOCIATION INC.,

AMBROSIO ILAO, CRISPIN DE GUZMAN, JOSE J. LAPID, and FELICISIMO LAS, petitioners,
vs.
HON. ANTONIO J. VILLEGAS as City Mayor of Manila, The CITY TREASURER and The CITY OF
MANILA,respondents.
DIZON, J.:
Before Us is a motion for the reconsideration of our resolution of December 3, 1968 dismissing the
present action for prohibition "for lack of merit; appeal in due time is the remedy".
It appears that on August 14, 1968 petitioners filed Civil Case No. 73902 against Antonio J. Villegas, et al.
in the Court of First Instance of Manila to question the validity of Ordinance No. 6696 later superseded
by Ordinance No. 6767 increasing the rental fees of stalls in public markets in said city. A restraining
order was issued by said court but the same was lifted on November 3, 1968 when, after hearing the
parties, the court rendered judgement dismissing the case and declaring the questioned ordinance valid.
On November 16, 1968 the therein petitioners perfected their appeal to this Court (G.R. No. L-29819).
Petitioners now allege that upon the lifting of the restraining order mentioned heretofore, the respondents
in the case who are the same respondents in the present immediately sought to enforce the
provisions of Ordinance No. 6767 by making demands for the payment of the back differentials in market
rates together with the rentals at the new rates, with the threat that petitioners would be ejected
summarily from their respective stalls if they refused or failed to pay the rentals and back charges
demanded. After receiving such demand petitioners filed the present action for prohibition to restrain
collection of rentals and possible ejectment.
lawphi1.nt

Upon the above facts We reiterate our resolution dismissing the present action for prohibition and, as a
consequence, We deny the motion for reconsideration mentioned heretofore, for the reason that the relief
sought by herein petitioners could be properly secured from the lower court in accordance with the
provisions of Rule 41 of the Rules of Court, or from this Court in the appealed case G. R. L-29864. As
a matter of fact, petitioners' motion for reconsideration expressly states that on November 21, 1968 they
filed in the latter case a motion to reinstate the restraining order herein before mentioned or to issue a writ
of preliminary injunction pending appeal, which motion, however, was denied by this Court on the 26th of
the same month and year. It would appear, therefore, that the present action was filed as an attempt to
secure from this court the same relief that we had already denied to the same parties in G. R. No. L29819.
PREMISES CONSIDERED, the motion for reconsideration filed by petitioners on December 5, 1968 is
hereby denied.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano,
Teehankee and Barredo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation
and Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light
Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April
1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for
EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine
Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr.
is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while
private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit
system along EDSA and alleviate the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu
Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-OperateTransfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with
DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes,"
was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took
effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or BuildTransfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC,
on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496,
respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing
and implementation of the project The notice, advertising the prequalification of bidders, was published in
three newspapers of general circulation once a week for three consecutive weeks starting February 21,
1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to
April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings
Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT
Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers International,
Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and
Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group

of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F.
Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the
Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a)
Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; and (c) Financial
capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation
Rules and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of
the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points
per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points"
(Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines
and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters
dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III
project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate
with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations
of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the
DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid
proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp.
147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary
Orbos, informed Secretary Prado that the President could not grant the requested approval for the
following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of
the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of
the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract
in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of
priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time
the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated
the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties
[are] cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by
the President pursuant to the provisions of Executive Order No. 380 and that certain events [had]
supervened since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51).
On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private
respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their
respective rights and responsibilities" and to submit [the] Supplemental Agreement to the President, of the
Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo,
p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak
Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150
million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will
run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B.
Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised
and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and
one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo,
pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational
light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date

is 1,080 days or approximately three years from the implementation date of the contract inclusive of
mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p.
83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and
possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement,
Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private
respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be
determined by an independent and internationally accredited inspection firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings
of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and
DOTC shall have completed payment of the rentals, ownership of the project shall be transferred to the
latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled
"An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and for Other Purposes" was signed into law by the President. The law was published
in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May
28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL
AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION,
LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC
UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS
NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES
AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO.
6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT
CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE
TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT
(Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private
respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos
and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed
by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed
by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of
infrastructure projects.
III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by
the national government or government-owned or controlled corporations allegedly in contravention of the
law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240
[1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it
and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited
by the Constitution to Filipino citizens and domestic corporations, not foreign corporations
like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or
BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects under
the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III
was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing
under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is
constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the
system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a
public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks,
rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a
franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a
public utility. What constitutes a public utility is not their ownership but their use to serve the public (Iloilo
Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However,
it does not require a franchise before one can own the facilities needed to operate a public utility so long
as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . . (Emphasis
supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law or the concurrence with the rights of another
(Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point to
another point, their loading and unloading at designated places and the movement of the trains at pre-

scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149
[1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d
1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities used to serve the public. The devotion of property
to serve the public may be done by the owner or by the person in control thereof who may not necessarily
be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve
the public can be very well appreciated when we consider the transportation industry. Enfranchised airline
and shipping companies may lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits
that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p.
57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private
respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during
which period DOTC shall operate the same as a common carrier and private respondent shall provide
technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1
and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and
distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement,
Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash from
the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC
will work under the direction and control of private respondent only during training (Revised and Restated
Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of
the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ
personnel capable of undertaking training of all new and replacement personnel (Revised and Restated
Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon
commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own
and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project
cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a
reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common
carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in the operation or implementation of the system,
except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective
condition of equipment or facilities or the defective maintenance of such equipment facilities (Revised and
Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will
have no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC
and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture
agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor
obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a
nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same.
Upon due examination of the contract, the Court found that PGMC's participation was not confined to the
construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof,
becoming indispensable to the pursuit, conduct, administration and control of the highly technical and
sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which actually
operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence
and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S.
Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry
and beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal
Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).

Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as
one operating a public utility. The moment for determining the requisite Filipino nationality is when the
entity applies for a franchise, certificate or any other form of authorization for that purpose (People v.
Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in
the BOT Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the
contractor undertakes the construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor operates the facility
over a fixed term during which it is allowed to charge facility users appropriate tolls, fees,
rentals and charges sufficient to enable the contractor to recover its operating and
maintenance expenses and its investment in the project plus a reasonable rate of return
thereon. The contractor transfers the facility to the government agency or local
government unit concerned at the end of the fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing from foreign and/or
domestic sources and/or engage the services of a foreign and/or Filipino constructor [sic]:
Provided, That the ownership structure of the contractor of an infrastructure facility
whose operation requires a public utility franchise must be in accordance with the
Constitution: Provided, however, That in the case of corporate investors in the buildoperate-and-transfer corporation, the citizenship of each stockholder in the corporate
investors shall be the basis for the computation of Filipino equity in the said corporation:
Provided, further, That, in the case of foreign constructors [sic], Filipino labor shall be
employed or hired in the different phases of the construction where Filipino skills are
available: Provided, furthermore, that the financing of a foreign or foreign-controlled
contractor from Philippine government financing institutions shall not exceed twenty
percent (20%) of the total cost of the infrastructure facility or project: Provided, finally,
That financing from foreign sources shall not require a guarantee by the Government or
by government-owned or controlled corporations. The build-operate-and-transfer scheme
shall include a supply-and-operate situation which is a contractual agreement whereby
the supplier of equipment and machinery for a given infrastructure facility, if the interest of
the Government so requires, operates the facility providing in the process technology
transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and its
turnover after completion to the government agency or local government unit concerned
which shall pay the contractor its total investment expended on the project, plus a
reasonable rate of return thereon. This arrangement may be employed in the construction
of any infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing in infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The government, in
turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of return. If
payment is to be effected through amortization payments by the government infrastructure agency or
local government unit concerned, this shall be made in accordance with a scheme proposed in the bid
and incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply
with the citizenship requirement of the Constitution on the operation of a public utility. No such a
requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the
payment by the government of the project cost. The law must not be read in such a way as to rule out or
unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted to
anticipate and provide all the fine points and details for the multifarious and complex situations that may
be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v.
Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.

As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by
allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis
according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter
of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment
shall have been made to and received by private respondent, it shall transfer to DOTC, free from any lien
or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and
Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a
thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years
(Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period.
But if the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of
the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine
pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National
Economic and Development Authority as falling under the Investment Priorities Plan of Government
(Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529),
which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation
to wit, any obligation contracted in the Philippines which provisions purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency other
than Philippine currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no effect, and no
such provision shall be contained in, or made with respect to, any obligation hereafter
incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting highpriority economic projects for agricultural, industrial and power development as may be
determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation
and before congressional approval on January 22 and 23, 1992 of the List of National Projects to be
undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to
invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial
development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international public
bidding where qualified internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to
conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an
absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases.
Sections 4 of the said law reads as follows:
Bidding. Construction projects shall generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the essence,
or where there is lack of qualified bidders or contractors, or where there is conclusive
evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provision of laws and acts on the matter, subject to
the approval of the Minister of Public Works and Transportation and Communications, the
Minister of Public Highways, or the Minister of Energy, as the case may be, if the project
cost is less than P1 Million, and the President of the Philippines, upon recommendation
of the Minister, if the project cost is P1 Million or more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure
contracts may he made by negotiation. Presidential Decree No. 1594 is the general law on government

infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at
encouraging private sector participation in government infrastructure projects. The two laws are not
inconsistent with each other but are in pari materia and should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none
of the competing firms ever brought the matter before the PBAC, or intervened in this case before us
(cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive
Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA," there is nothing in our laws that prohibits parties to a contract from renegotiating and
modifying in good faith the terms and conditions thereof so as to meet legal, statutory and constitutional
requirements. Under the circumstances, to require the parties to go back to step one of the
prequalification process would just be an idle ceremony. Useless bureaucratic "red tape" should be
eschewed because it discourages private sector participation, the "main engine" for national growth and
development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is
authorized to finance and construct an infrastructure or development facility and upon its
completion turns it over to the government agency or local government unit concerned on
a lease arrangement for a fixed period after which ownership of the facility is
automatically transferred to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is
only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is
subsequently found by the agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for prequalification but only
one meets the prequalification requirements, after which it submits bid/proposal which is
found by the agency/local government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which is
found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found by
the agency/LGU to be complying. Provided, That, any of the disqualified prospective
bidder [sic] may appeal the decision of the implementing agency, agency/LGUs
prequalification bids and awards committee within fifteen (15) working days to the head of
the agency, in case of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was made known
to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs
concerned should act on the appeal within forty-five (45) working days from receipt
thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the
BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes
all government infrastructure agencies, government-owned and controlled corporations and local
government units to enter into contract with any duly prequalified proponent for the financing,
construction, operation and maintenance of any financially viable infrastructure or development facility
through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT (Developoperate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate)
(R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated
in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of
minimum government regulations and procedures and specific government undertakings in support of the
private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was
invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have
engendered and committed in entering into the questioned contracts, these have now been cured by R.A.
No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V.
Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because
the rental rates are excessive and private respondent's development rights over the 13 stations and the
depot will rob DOTC of the best terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a
period of 25 years, exclusive rights over the depot and the air space above the stations for development
into commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec.
11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay
DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the
Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94).
All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC
upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by
the proper administrative agencies and officials who have acquired expertise, specialized skills and
knowledge in the performance of their functions should be accorded respect absent any showing of grave
abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board
of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals
to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to
the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all
cases where a party enters into a contract with the government, he does so, not out of charity and not to
lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and administrative
entity of the Executive branch of government in the promotion, development and regulation of dependable
and coordinated networks of transportation and communications systems as well as in the fast, safe,
efficient and reliable postal, transportation and communications services (Administrative Code of 1987,
Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority
and technical expertise determine whether or not a specific transportation or communication project is
necessary, viable and beneficial to the people. The discretion to award a contract is vested in the
government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA
705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
Bellosillo and Kapunan, JJ., concur.
Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17459

September 29, 1962

DIWATA VARGAS, petitioner,

vs.
SALVADOR LANGCAY, CORAZON LANGCAY, HELEN LANGCAY and JOSE AGUAS, respondents.
Mary Concepcion for petitioner.
Jose R. Abalos and A. M. Ronquillo for respondents.

LABRADOR, J.:
This is a petition for review of the decision of the Court of Appeals finding petitioner subsidiarily liable for
damages under article 103 of the Revised Penal Code.
At about 8:00 o'clock in the morning of June 5, 1955, at Rizal Avenue, Manila, Corazon and Helen
Langcay, sisters, were hit and injured by a jeepney bearing plate No. AC-4859-Quezon City-1955, then
driven by Ramon B. Aguas. Criminally charged with physical injuries, the said Ramon B. Aguas was finally
sentenced by the Court of Appeals, in CA-G.R. No. 17900-R, to 3 months and 6 days of arresto mayor for
serious and slight physical injuries through reckless imprudence, caused to Corazon and Helen Langcay,
"without pronouncement with respect to the indemnity due to the aggrieved parties, because the action
therefor had been reserved."
Since the records of the Public Service Commission and the Motor Vehicles Office showed that Diwata
Vargas was, at the time of the accident, the owner and operator of the jeepney in question, the parents of
Corazon and Helen sued Diwata Vargas and the driver for damages. In spite of the defense of appellant
Diwata Vargas that prior to the accident, precisely on August 17, 1953, she had sold the vehicle to Jose
B. Aguas (father of the driver), so that at the time of the accident she was no longer the owner of the
jeepney, and that, further, Public Service Commission, on October 27, 1953, cancelled the certificate of
public convenience issued in her name, the defendants Diwata Vargas and Ramon B. Aguas were jointly
and severally sentenced to pay damages and attorneys fees by the Court of First Instance of Manila.
Diwata Vargas appealed to the Court of Appeals which affirmed, with modifications, the lower court's
decision.
Pertinent parts of the Appeals Court decision are hereby reproduced for a clearer understanding of the
issue involved in this appeal:
The order of cancellation and revocation of appellant certificate of public convenience, dated
October 27, 1953 (Exh. 4-D) does not relieve her of the liability established by above quoted legal
provisions as clearly and positively construed by the highest tribunal of the land. This order was
issued motu propio by the Commission in view of appellant failure to pay the P15.00 supervision
and regulation fee and its 50% surcharge, and not for the purpose of transferring the same
certificate to Jose B. Aguas. A copy of the above mentioned order was furnished appellant, so
that she cannot profess ignorance of what she termed the "anomalous operation" of the jeepney
she sold to Jose B. Aguas without the required authorization or approval of the Public Service
Commission. Appellant's failure to stop the operation of the vehicle in question and to surrender
to the Motor Vehicles Office the corresponding plates, as ordered by exhibit 4-D, Vargas
constitutes a violation of the Revised Motor Vehicle Law and Commonwealth No. 146, which
violation makes her liability and responsibility clearer and more inescapable.
xxx

xxx

xxx

. . . Appellant's liability stems from and is a form of punishment for her failure to comply with
section 20 (g) of Commonwealth Act 146 and with 5 of Act 3992. . . .
xxx

xxx

xxx

There is no question that appellees Corazon and Helen Langcay were not passengers of the
jeepney, the reckless operation of which resulted in their injuries. Therefore, the direct and
immediate liability of a common carrier as provided for by the Civil Code cannot be ascribed to
appellant. Accordingly, her liability should be based on article 103 of the Revised Penal Code. . . .

Therefore, appellant's responsibility is mere subsidiary, pursuant to the above cited article of the
Revised Penal Code.
xxx

xxx

xxx

. . . the judgment appealed from is hereby modified in the sense that should defendant Ramon B.
Aguas be found insolvent, appellant should pay appellees the sum of P953.00 as compensatory
damages, P4,000.00 and P500.00 as moral damages suffered by Corazon and Helen Langcay,
respectively, and P2,000.00 for attorney's fees. It is also ordered that this case be returned to the
court of origin not only for the execution of this decision once it becomes final, but also for further
proceedings against Jose B. Aguas, after proper summons, in the third party complaint above
mentioned. Without special pronouncement as to the payment of the costs.
Appellant-petitioner Diwata Vargas brought the case to this Court on a question of law, alleging that she
cannot be held liable under Art. 103 of the Revised Penal Code for whatever violation or offense she may
have committed under the Public Service Law and the Motor Vehicle Law and in the absence of a
showing that she employed the person (driver) who caused the damage, and that she was engaged in an
industry or a business, and where the evidence prove that the father (Jose B. Aguas ) of the person
primarily liable (Ramon Aguas) is his actual employer.
We hold that the Court of Appeals erred in considering appellant-petitioner Diwata Vargas only
subsidiarily liable under Article 103 of the Revised Penal Code. This Court, in previous decisions, has
always considered the registered owner/operator of a passenger vehicle, jointly and severally liable with
the driver for damages incurred by passengers or third persons as a consequence of injuries (or death)
sustained in the operation of said vehicles. (Montoya vs. Ignacio, G.R. No. L-5868, Dec. 29, 1953; Timbol
vs. Osias, G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, G.R. No. L-8194, July 11,
1956; Necesito vs. Paras, G.R. No. L-10605, June 30, 1955; Erezo vs. Jepte, G.R. No.
L-9605, Sept. 30, 1957; Tamayo vs. Aquino, G.R. No. L-12634, May 29, 1959; Rayos vs. Tamayo, G.R.
No. L-12720, May 29, 1959.) In the case of Erezo vs. Jepte, supra We held:
. . . In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damages caused . . . (Emphasis ours)
In the case of Tamayo vs. Aquino, supra We said:
. . . As Tamayo is the registered owner of the truck, his responsibility to the public or to any
passenger riding in the vehicle or truck must be direct . . . (Emphasis ours)
1awphl.nt

Petitioner argues that there was no showing that she employed the person (the driver) who caused the
injuries. On the contrary, she argues, the evidence show that J B. Aguas, the father of the driver, is his
actual employer. We believe that it is immaterial whether or not the driver was actually employed by the
operator of record. is even not necessary to prove who the actual owner of the vehicle and the employer
of the driver is. Granting that, in this case, the father of the driver is the act owner and that he is the actual
employer, following well-settled principle that the operator of record continues to be the operator of the
vehicle in contemplation of law, as regards the public and third persons, and such is responsible for the
consequences incident to its operation, we must hold and consider such owner-operation of record as the
employer, in contemplation of law, the driver. And, to give effect to this policy of law enunciated in the
above-cited decisions of this Court, must now extend the same and consider the actual operation and
employer as the agent of the operator of record. In the case of Tamayo vs. Aquino, supra, this Court said:
. . . In operating the truck without transfer thereof having been approved by the Public Service
Commission, the transferee acted merely as agent of the registered owner. . . (Emphasis our)
The purpose of the principles evolved by the decision in these matters will be defeated and thwarted if we
entertain the argument of petitioner that she is not liable because the actual owner and employer was
establish by the evidence. In the case of Erezo vs. Jepte, supra, the Court said:
. . . With the above policy in mind, the question that defendant-appellant poses is: Should not the
registered owner allowed at the trial to prove who the actual and real owner is, and in accordance
with such proof escape or evade responsibility and lay the same on the person actually owning
the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its
aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and
places upon him as an incident or consequence of registration. Were a registered owner allowed
to evade responsibility by proving who the supposed transferee or owner is, it would be easy for
him by collusion with others or otherwise, to escape said responsibility and transfer the same to
an indefinite person, or to one who possesses no property with which to respond financially for
the damage or injury done. A victim of recklessness on the public highways is without means to
discover or identify the person actually causing the injury or damage. He has no means other
than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner.
The protection that the law aims to extend to him would become illusory were the registered
owner given the opportunity to escape liability by disproving his ownership. If the policy of the law
is to be enforced and carried out, the registered owner should not be allowed to prove the

contrary to the prejudice of the person injured; that is, to prove that a third person or another has
become the owner, so that he may thereby be relieved of the responsibility to the injured person.
For the foregoing considerations, we hold that Article 103 is not the law applicable in this case; the
petitioner stands liable, however, on the basis of the settled principle that as the registered owner, she is
directly and primarily responsible and liable for damages sustained by passengers or third persons as a
consequence of the negligent or careless operation of the vehicle registered in her name. Petitioner does
not question the amounts of damages granted to respondents by the Court of Appeals and the same not
appearing to be excessive or unconscionable, they should be maintained.
WHEREFORE, the decision of the Court of Appeals is hereby modified, as above indicated. With costs.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., and Paredes, JJ., concur.
Concepcion, Barrera, Dizon , Regala and Makalintal, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9605

September 30, 1957

GAUDIOSO EREZO, ET AL., plaintiff-appellee,

vs.
AGUEDO JEPTE, defendant-appellant.
Gesolgon, Matti and Custodio for appellees.
Aguedo Y. Jepte in his own behalf.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay plaintiff
Gaudioso Erezo P3,000 on the death of Ernesto Erezo, son of plaintiff Gaudioso Erezo.
Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253. On August, 9,
1949, while the same was being driven by Rodolfo Espino y Garcia, it collided with a taxicab at the
intersection of San Andres and Dakota Streets, Manila. As the truck went off the street, it hit Ernesto
Erezo and another, and the former suffered injuries, as a result of which he died. The driver was
prosecuted for homicide through reckless negligence in criminal case No. 10663 of the Court of First
Instance of Manila. The accused pleaded guilty and was sentenced to suffer imprisonment and to pay the
heirs of Ernesto Erezo the sum of P3,000. As the amount of the judgment could not be enforced against
him, plaintiff brought this action against the registered owner of the truck, the defendant-appellant. The
circumstances material to the case are stated by the court in its decision.
The defendant does not deny at the time of the fatal accident the cargo truck driven by Rodolfo
Espino y Garcia was registered in his name. He, however, claims that the vehicle belonged to the
Port Brokerage, of which he was the broker at the time of the accident. He explained, and his
explanation was corroborated by Policarpio Franco, the manager of the corporation, that the
trucks of the corporation were registered in his name as a convenient arrangement so as to
enable the corporation to pay the registration fee with his backpay as a pre-war government
employee. Franco, however, admitted that the arrangement was not known to the Motor Vehicle
Office.
The trial court held that as the defendant-appellant represented himself to be the owner of the truck and
the Motor Vehicle Office, relying on his representation, registered the vehicles in his name, the
Government and all persons affected by the representation had the right to rely on his declaration of
ownership and registration. It, therefore, held that the defendant-appellant is liable because he cannot be
permitted to repudiate his own declaration. (Section 68 [a], Rule 123, and Art. 1431, New Civil Code.).
Against the judgment, the defendant has prosecuted this appeal claiming that at the time of the accident
the relation of employer and employee between the driver and defendant-appellant was not established, it
having been proved at the trial that the owner of the truck was the Port Brokerage, of which defendantappellant was merely a broker. We find no merit or justice in the above contention. In previous decisions,
We already have held that the registered owner of a certificate of public convenience is liable to the public
for the injuries or damages suffered by passengers or third persons caused by the operation of said
vehicle, even though the same had been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182,
50 Off. Gaz., 108; Roque vs. Malibay Transit Inc.,1 G. R. No. L- 8561, November 18,1955; Vda. de
Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.)The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law, the public has the right to
assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the
public to enforce the actions that they may have for injuries caused to them by the vehicles being
negligently operated if the public should be required to prove who the actual owner is. How would the
public or third persons know against whom to enforce their rights in case of subsequent transfers of the
vehicles? We do not imply by this doctrine, however, that the registered owner may not recover whatever
amount he had paid by virtue of his liability to third persons from the person to whom he had actually sold,
assigned or conveyed the vehicle.
Under the same principle the registered owner of any vehicle, even if not used for a public service, should
primarily be responsible to the public or to third persons for injuries caused the latter while the vehicle is
being driven on the highways or streets. The members of the Court are in agreement that the defendantappellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the
negligence of the driver even if the defendant-appellant was no longer the owner of the vehicle at the time
of the damage because he had previously sold it to another. What is the legal basis for his (defendantappellant's) liability?.

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the
registered owner in the Motor Vehicle Office. Should he not be allowed to prove the truth, that he had sold
it to another and thus shift the responsibility for the injury to the real and actual owner? The defendant
holds the affirmative of this proposition; the trial court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or
operated upon any public highway unless the same is properly registered. It has been stated that the
system of licensing and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians and
other travelers from the careless management of automobiles, and to furnish a means of ascertaining the
identity of persons violating the laws and ordinances, regulating the speed and operation of machines
upon the highways (2 R. C. L. 1176). Not only are vehicles to be registered and that no motor vehicles are
to be used or operated without being properly registered for the current year, but that dealers in motor
vehicles shall furnish the Motor Vehicles Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturer's serial number and motor number.
(Section 5 [c], Act. No. 3992, as amended.).
Registration is required not to make said registration the operative act by which ownership in vehicles is
transferred, as in land registration cases, because the administrative proceeding of registration does not
bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and
Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway
(section 5 [a], Act No. 3992, as amended).The main aim of motor vehicle registration is to identify the
owner so that if any accident happens, or that any damage or injury is caused by the vehicles on the
public highways, responsibility therefore can be fixed on a definite individual, the registered owner.
Instances are numerous where vehicles running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant
means of identification. It is to forestall those circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.
One of the principal purposes of motor vehicles legislation is identification of the vehicle and of
the operator, in case of accident; and another is that the knowledge that means of detection are
always available may act as a deterrent from lax observance of the law and of the rules of
conservative and safe operation. Whatever purpose there may be in these statutes, it is
subordinate at the last to the primary purpose of rendering it certain that the violator of the law or
of the rules of safety shall not escape because of lack of means to discover him." The purpose of
the statute is thwarted, and the displayed number becomes a "snare and delusion," if courts will
entertain such defenses as that put forward by appellee in this case. No responsible person or
corporation could be held liable for the most outrageous acts of negligence, if they should be
allowed to place a "middleman" between them and the public, and escape liability by the manner
in which they recompense their servants. (King vs. Brenham Automobile Co., 145 S. W. 278,279.)
With the above policy in mind, the question that defendant-appellant poses is: should not be registered
owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof
escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with
the trial court that the laws does not allow him to do so; the law, with its aim and policy in mind, does not
relieve him directly of the responsibility that the law fixes and places upon him as an incident or
consequence of registration. Were a registered owner allowed to evade responsibility by proving who the
supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to
escape said responsibility and transfer the same to an indefinite person, or to one who possesses no
property with which to respond financially for the damage or injury done. A victim of recklessness on the
public highways is usually without means to discover or identify the person actually causing the injury or
damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to
determine who is the owner. The protection that the law aims to extend to him would become illusory
were the registered owner given the opportunity to escape liability by disproving his ownership. If the
policy of the law is to be enforced and carried out, the registered owner should be allowed to prove the
contrary to the prejudice of the person injured that is, to prove that a third person or another has become
the owner, so that he may thereby be relieved of the responsibility to the injured person.
1wphl.nt

The above policy and application of the law may appear quite harsh and would seem to conflict with truth
and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has
the recourse to a third-party complaint, in the same action brought against him to recover for the damage
or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no
justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with
the registration that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible
for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to
be indemnified by the real or actual owner of the amount that he may be required to pay as damage for
the injury caused to the plaintiff-appellant.
1wphl.nt

Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.
Montemayor, J., concurs in the result.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 162267

July 4, 2008

PCI LEASING AND FINANCE, INC., petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking a
reversal of the Decision1 of the Court of Appeals (CA) dated December 12, 2003 affirming with
modification the Decision of the Regional Trial Court (RTC) of Makati City which ordered petitioner and
Renato Gonzaga (Gonzaga) to pay, jointly and severally, respondent the amount of P244,500.00 plus
interest; and the CA Resolution2 dated February 18, 2004 denying petitioner's Motion for Reconsideration.
The facts, as found by the CA, are undisputed:
On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate Number PHD-206
owned by United Coconut Planters Bank was traversing the Laurel Highway, Barangay
Balintawak, Lipa City. The car was insured with plantiff-appellee [UCPB General Insurance Inc.],
then driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank, was hit
and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737 and Trailer Plate No.
NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc. allegedly leased to and
operated by defendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its
employee, defendant appellant Renato Gonzaga.
The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the
rear part of the car. The driver and passenger suffered physical injuries. However, the driver
defendant-appellant Gonzaga continued on its [sic] way to its [sic] destination and did not bother
to bring his victims to the hospital.
Plaintiff-appellee paid the assured UCPB the amount of P244,500.00 representing the insurance
coverage of the damaged car.
As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were
made by plaintiff-appellee for the payment of the aforesaid amounts. However, no payment was
made. Thus, plaintiff-appellee filed the instant case on March 13, 1991. 3
PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could not be held liable for the
collision, since the driver of the truck, Gonzaga, was not its employee, but that of its co-defendant
Superior Gas & Equitable Co., Inc. (SUGECO).4 In fact, it was SUGECO, and not petitioner, that was the
actual operator of the truck, pursuant to a Contract of Lease signed by petitioner and
SUGECO.5 Petitioner, however, admitted that it was the owner of the truck in question. 6
After trial, the RTC rendered its Decision dated April 15, 1999, 7 the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff UCPB
General Insurance [respondent], ordering the defendants PCI Leasing and Finance, Inc.,
[petitioner] and Renato Gonzaga, to pay jointly and severally the former the following amounts:
the principal amount of P244,500.00 with 12% interest as of the filing of this complaint until the
same is paid; P50,000.00 as attorney's fees; andP20,000.00 as costs of suit.
SO ORDERED.8
Aggrieved by the decision of the trial court, petitioner appealed to the CA.
In its Decision dated December 12, 2003, the CA affirmed the RTC's decision, with certain modifications,
as follows:

WHEREFORE, the appealed decision dated April 15, 1999 is hereby AFFIRMED with
modification that the award of attorney's fees is hereby deleted and the rate of interest shall be six
percent (6%) per annum computed from the time of the filing of the complaint in the trial court
until the finality of the judgment. If the adjudged principal and the interest remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the
judgment becomes final and executory until it is fully satisfied.
SO ORDERED.9
Petitioner filed a Motion for Reconsideration which the CA denied in its Resolution dated February 18,
2004.
Hence, herein Petition for Review.
The issues raised by petitioner are purely legal:
Whether petitioner, as registered owner of a motor vehicle that figured in a quasi-delict may be
held liable, jointly and severally, with the driver thereof, for the damages caused to third parties.
Whether petitioner, as a financing company, is absolved from liability by the enactment of
Republic Act (R.A.) No. 8556, or the Financing Company Act of 1998.
Anent the first issue, the CA found petitioner liable for the damage caused by the collision since under the
Public Service Act, if the property covered by a franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continues to be responsible under the franchise in relation to the
operation of the vehicle, such as damage or injury to third parties due to collisions. 10
Petitioner claims that the CA's reliance on the Public Service Act is misplaced, since the said law applies
only to cases involving common carriers, or those which have franchises to operate as public utilities. In
contrast, the case before this Court involves a private commercial vehicle for business use, which is not
offered for service to the general public.11
Petitioner's contention has partial merit, as indeed, the vehicles involved in the case at bar are not
common carriers, which makes the Public Service Act inapplicable.
However, the registered owner of the vehicle driven by a negligent driver may still be held liable under
applicable jurisprudence involving laws on compulsory motor vehicle registration and the liabilities of
employers for quasi-delicts under the Civil Code.
The principle of holding the registered owner of a vehicle liable for quasi-delicts resulting from its use is
well-established in jurisprudence. Erezo v. Jepte,12 with Justice Labrador as ponente, wisely explained the
reason behind this principle, thus:
Registration is required not to make said registration the operative act by which ownership in
vehicles is transferred, as in land registration cases, because the administrative proceeding of
registration does not bear any essential relation to the contract of sale between the parties
(Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the
vehicle upon any public highway (section 5 [a], Act No. 3992, as amended.) The main aim of
motor vehicle registration is to identify the owner so that if any accident happens, or that any
damage or injury is caused by the vehicle on the public highways, responsibility therefor can be
fixed on a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other vehicles without
positive identification of the owner or drivers, or with very scant means of identification. It is to
forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons responsible for
damages or injuries caused on public highways.
"'One of the principal purposes of motor vehicles legislation is identification of the vehicle
and of the operator, in case of accident; and another is that the knowledge that means of
detection are always available may act as a deterrent from lax observance of the law and
of the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the
violator of the law or of the rules of safety shall not escape because of lack of means to
discover him.' The purpose of the statute is thwarted, and the displayed number becomes
a 'snare and delusion,' if courts would entertain such defenses as that put forward by
appellee in this case. No responsible person or corporation could be held liable for the
most outrageous acts of negligence, if they should be allowed to place a 'middleman'
between them and the public, and escape liability by the manner in which they
recompense their servants." (King vs. Brenham Automobile Co., 145 S.W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should not the
registered owner be allowed at the trial to prove who the actual and real owner is, and in
accordance with such proof escape or evade responsibility and lay the same on the person
actually owning the vehicle? We hold with the trial court that the law does not allow him to do so;
the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the
law fixes and places upon him as an incident or consequence of registration. Were a registered
owner allowed to evade responsibility by proving who the supposed transferee or owner is, it
would be easy for him, by collusion with others or otherwise, to escape said responsibility and
transfer the same to an indefinite person, or to one who possesses no property with which to
respond financially for the damage or injury done. A victim of recklessness on the public highways
is usually without means to discover or identify the person actually causing the injury or damage.
He has no means other than by a recourse to the registration in the Motor Vehicles Office to
determine who is the owner. The protection that the law aims to extend to him would become
illusory were the registered owner given the opportunity to escape liability by disproving his
ownership. If the policy of the law is to be enforced and carried out, the registered owner should
not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a
third person or another has become the owner, so that he may thereby be relieved of the
responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem to conflict
with truth and justice. We do not think it is so. A registered owner who has already sold or
transferred a vehicle has the recourse to a third-party complaint, in the same action brought
against him to recover for the damage or injury done, against the vendee or transferee of the
vehicle. The inconvenience of the suit is no justification for relieving him of liability; said
inconvenience is the price he pays for failure to comply with the registration that the law demands
and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendantappellant) has a right to be indemnified by the real or actual owner of the amount that he may be
required to pay as damage for the injury caused to the plaintiff-appellant. 13
The case is still good law and has been consistently cited in subsequent cases. 14 Thus, there is no good
reason to depart from its tenets.
For damage or injuries arising out of negligence in the operation of a motor vehicle, the registered owner
may be held civilly liable with the negligent driver either 1) subsidiarily, if the aggrieved party seeks relief
based on a delict or crime under Articles 100 and 103 of the Revised Penal Code; or 2) solidarily, if the
complainant seeks relief based on a quasi-delict under Articles 2176 and 2180 of the Civil Code. It is the
option of the plaintiff whether to waive completely the filing of the civil action, or institute it with the
criminal action, or file it separately or independently of a criminal action; 15 his only limitation is that he
cannot recover damages twice for the same act or omission of the defendant. 16
In case a separate civil action is filed, the long-standing principle is that the registered owner of a motor
vehicle is primarily and directly responsible for the consequences of its operation, including the
negligence of the driver, with respect to the public and all third persons. 17 In contemplation of law, the
registered owner of a motor vehicle is the employer of its driver, with the actual operator and employer,
such as a lessee, being considered as merely the owner's agent. 18 This being the case, even if a sale has
been executed before a tortious incident, the sale, if unregistered, has no effect as to the right of the
public and third persons to recover from the registered owner.19 The public has the right to conclusively
presume that the registered owner is the real owner, and may sue accordingly.20
In the case now before the Court, there is not even a sale of the vehicle involved, but a mere lease, which
remained unregistered up to the time of the occurrence of the quasi-delict that gave rise to the case.
Since a lease, unlike a sale, does not even involve a transfer of title or ownership, but the mere use or
enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the
law, which is to protect the unwitting public and provide it with a definite person to make accountable for
losses or injuries suffered in vehicular accidents.21 This is and has always been the rationale behind
compulsory motor vehicle registration under the Land Transportation and Traffic Code and similar laws,
which, as early as Erezo, has been guiding the courts in their disposition of cases involving motor
vehicular incidents. It is also important to emphasize that such principles apply to all vehicles in general,
not just those offered for public service or utility.22
The Court recognizes that the business of financing companies has a legitimate and commendable
purpose.23 In earlier cases, it considered a financial lease or financing lease a legal contract, 24 though
subject to the restrictions of the so-called Recto Law or Articles 1484 and 1485 of the Civil Code.25 In
previous cases, the Court adopted the statutory definition of a financial lease or financing lease, as:
[A] mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental

expenses and a margin of profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property, x x x but with no obligation or
option on his part to purchase the leased property from the owner-lessor at the end of the lease
contract. 26
Petitioner presented a lengthy discussion of the purported trend in other jurisdictions, which apparently
tends to favor absolving financing companies from liability for the consequences of quasi-delictual acts or
omissions involving financially leased property.27 The petition adds that these developments have been
legislated in our jurisdiction in Republic Act (R.A.) No. 8556, 28 which provides:
Section 12. Liability of lessors. - Financing companies shall not be liable for loss, damage or
injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased
to a third person or entity except when the motor vehicle, aircraft, vessel, equipment or other
property is operated by the financing company, its employees or agents at the time of the loss,
damage or injury.
1avvphi1

Petitioner's argument that the enactment of R.A. No. 8556, especially its addition of the new Sec. 12 to
the old law, is deemed to have absolved petitioner from liability, fails to convince the Court.
These developments, indeed, point to a seeming emancipation of financing companies from the obligation
to compensate claimants for losses suffered from the operation of vehicles covered by their lease. Such,
however, are not applicable to petitioner and do not exonerate it from liability in the present case.
The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or
repeal the law on compulsory motor vehicle registration. No part of the law expressly repeals Section 5(a)
and (e) of R.A. No. 4136, as amended, otherwise known as the Land Transportation and Traffic Code, to
wit:
Sec. 5. Compulsory registration of motor vehicles. - (a) All motor vehicles and trailer of any
type used or operated on or upon any highway of the Philippines must be registered with the
Bureau of Land Transportation (now the Land Transportation Office, per Executive Order No. 125,
January 30, 1987, and Executive Order No. 125-A, April 13, 1987) for the current year in
accordance with the provisions of this Act.
xxxx
(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other encumbrances of
motor vehicles,in order to be valid against third parties must be recorded in the Bureau (now
the Land Transportation Office). Voluntary transactions or voluntary encumbrances shall likewise
be properly recorded on the face of all outstanding copies of the certificates of registration of the
vehicle concerned.
Cancellation or foreclosure of such mortgages, attachments, and other encumbrances shall
likewise be recorded, and in the absence of such cancellation, no certificate of registration shall
be issued without the corresponding notation of mortgage, attachment and/or other
encumbrances.
x x x x (Emphasis supplied)
Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by implication is frowned upon,
unless there is clear showing that the later statute is so irreconcilably inconsistent and repugnant to the
existing law that they cannot be reconciled and made to stand together.29 There is nothing in R.A. No.
4136 that is inconsistent and incapable of reconciliation.
Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not registered
with the Land Transportation Office, still does not bind third persons who are aggrieved in tortious
incidents, for the latter need only to rely on the public registration of a motor vehicle as conclusive
evidence of ownership.30 A lease such as the one involved in the instant case is an encumbrance in
contemplation of law, which needs to be registered in order for it to bind third parties. 31 Under this policy,
the evil sought to be avoided is the exacerbation of the suffering of victims of tragic vehicular accidents in
not being able to identify a guilty party. A contrary ruling will not serve the ends of justice. The failure to
register a lease, sale, transfer or encumbrance, should not benefit the parties responsible, to the
prejudice of innocent victims.
The non-registration of the lease contract between petitioner and its lessee precludes the former from
enjoying the benefits under Section 12 of R.A. No. 8556.
This ruling may appear too severe and unpalatable to leasing and financing companies, but the Court
believes that petitioner and other companies so situated are not entirely left without recourse. They may
resort to third-party complaints against their lessees or whoever are the actual operators of their vehicles.
In the case at bar, there is, in fact, a provision in the lease contract between petitioner and SUGECO to
the effect that the latter shall indemnify and hold the former free and harmless from any "liabilities,

damages, suits, claims or judgments" arising from the latter's use of the motor vehicle. 32 Whether
petitioner would act against SUGECO based on this provision is its own option.
The burden of registration of the lease contract is minuscule compared to the chaos that may result if
registered owners or operators of vehicles are freed from such responsibility. Petitioner pays the price for
its failure to obey the law on compulsory registration of motor vehicles for registration is a pre-requisite for
any person to even enjoy the privilege of putting a vehicle on public roads.
WHEREFORE, the petition is DENIED. The Decision dated December 12, 2003 and Resolution dated
February 18, 2004 of the Court of Appeals are AFFIRMED.
Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

Footnotes
Penned by Associate Justice Eugenio S. Labitoria with the concurrence of Associate Justices
Mercedes Gozo-Dadole and Rosmari D. Carandang, rollo, pp. 41-47.
1

Id. at 49.

Rollo, p. 42.

Id. at 72.

Id. at 72-73.

Id. at 72.

Id. at 52-56.

Id. at 56.

Id. at 47.

10

Id. at 44-45.

11

Id. at 21-22.

12

102 Phil. 103 (1957).

13

Id. at 108-110.

Equitable Leasing Corp. v. Suyom, 437 Phil. 244, 256 (2002); Aguilar v. Commercial Savings
Bank, 412 Phil. 834, 841 (2001); Spouses Hernandez v. Spouses Dolor, 479 Phil. 593, 603
(2004).
14

15

Rules of Court, Rule 111, Sec. 1, par. (a), sub-par. 1.

16

Civil Code, Art. 2177.

Equitable Leasing Corp. v. Suyom, supra note 14, at 255; First Malayan Leasing and Finance
Corp. v. Court of Appeals, G.R. No. 91378, June 9, 1992, 209 SCRA 660, 663.
17

Equitable Leasing Corp. v. Suyom, supra 14, at 255, citing First Malayan Leasing and Finance
Corp. v. Court of Appeals, supra note 17; MYC-Agro-Industrial Corp. v. Camerino, 217 Phil. 11, 17
(1984); and Vargas v. Langcay, 116 Phil. 478, 481-482 (1962).
18

The only known exception to the rule is that enunciated in FGU Insurance Corp. v. Court of
Appeals, 351 Phil. 219, 225 (1998), where it was held that a rent-a-car company is not liable for
the damages caused by the negligence of its lessee, who drove the subject vehicle. Here, it was
established that between a rent-a-car company and a client who drove a leased vehicle, there
was a clear absence of vinculum juris as employer and employee.

Equitable Leasing Corp. v. Suyom, supra; note 14, at 255; First Malayan Leasing and Finance
Corp. v. Court of Appeals, supra note 17, at 664.
19

20

First Malayan Leasing and Finance Corp. v. Court of Appeals, supra note 17, at 664.

21

Erezo v. Jepte, supra note 12, at 108.

Erezo v. Jepte, supra note 12, at 107; Equitable Leasing Corp. v. Suyom, supra note 14, at
256; BA Finance Corp. v. Court of Appeals, G.R. No. 98275, November 13, 1992, 215 SCRA 715,
720.
22

PCI Leasing and Finance Inc. v. Giraffe-X Creative Imaging Inc. , G.R. No. 142618, July 12,
2007, 527 SCRA 405, 420-421.
23

24

Cebu Contractors Consortium Co. v. Court of Appeals, 454 Phil. 650, 656 (2003).

Elisco Tools Manufacturing Corp. v. Court of Appeals, 367 Phil. 242, 255 (1999); PCI Leasing
and Finance Inc. v. Giraffe-X Creative Imaging Inc., supra note 23, at 424-426.
25

Republic Act No. 5980 (1969), as amended by Republic Act No. 8556 (1998), Sec. 3 (d), quoted
in Cebu Contractors Consortium Co. v. Court of Appeals, supra note 24, at 657; PCI Leasing and
Finance, Inc. v. Giraffe-X Creative Imaging Inc., supra note 23, at 416.
26

27

Rollo, pp. 29-30.

28

Amending R.A. No. 5980, or the old Financing Company Act.

29

Agujetas v. Court of Appeals, 329 Phil. 721, 745 (1996).

30

First Malayan Leasing and Finance Corp. v. Court of Appeals, supra note 17, at 664.

Roxas v. Court of Appeals, G.R. No. 92245, June 26, 1991, 198 SCRA 541, 546; also Black's
Law Dictionary (abridged 5th edition) defines an encumbrance as "any right to, or interest in, land
which may subsist in another to diminution of its value, but consistent with the passing of the fee.
A claim, lien, charge, or liability attached to and binding real property; e.g. a mortgage; judgment
lien; mechanics' lien; lease; security interest; easement of right of way; accrued and unpaid
taxes". (Emphasis supplied.)
31

32

Exhibit "1-A", records, p. 359.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162272

April 7, 2009

SANTIAGO C. DIVINAGRACIA, Petitioner,

vs.
CONSOLIDATED BROADCASTING SYSTEM, INC. and PEOPLE'S BROADCASTING SERVICE,
INC.,Respondents.
DECISION
TINGA, J.:
Does the National Telecommunications Commission (NTC) have jurisdiction over complaints seeking the
cancellation of certificates of public convenience (CPCs) and other licenses it had issued to the holders of
duly-issued legislative franchises on the ground that the franchisees had violated the terms of their
franchises? The Court, in resolving that question, takes the opportunity to elaborate on the dynamic
behind the regulation of broadcast media in the Philippines, particularly the interrelationship between the
twin franchise and licensing requirements.
I.
Respondents Consolidated Broadcasting System, Inc. (CBS) and Peoples Broadcasting Service, Inc.
(PBS) were incorporated in 1961 and 1965, respectively. Both are involved in the operation of radio
broadcasting services in the Philippines, they being the grantees of legislative franchises by virtue of two
laws, Republic Act (R.A.) No. 7477 and R.A. No. 7582. R.A. No. 7477, enacted on 5 May 1992, granted
PBS a legislative franchise to construct, install, maintain and operate radio and television stations within
the Philippines for a period of 25 years. R.A. No. 7582, enacted on 27 May 1992, extended CBSs
previous legislative franchise1 to operate radio stations for another 25 years. The CBS and PBS radio
networks are two of the three networks that comprise the well-known "Bombo Radyo Philippines." 2
Section 9 of R.A. No. 7477 and Section 3 of R.A. No. 7582 contain a common provision predicated on the
"constitutional mandate to democratize ownership of public utilities." 3 The common provision states:
SEC. 9. Democratization of ownership. In compliance with the constitutional mandate to democratize
ownership of public utilities, the herein grantee shall make public offering through the stock exchanges of
at least thirty percent (30%) of its common stocks within a period of three (3) years from the date of
effectivity of this Act: Provided, That no single person or entity shall be allowed to own more than five
percent (5%) of the stock offerings.4
It further appears that following the enactment of these franchise laws, the NTC issued four (4)
Provisional Authorities to PBS and six (6) Provisional Authorities to CBS, allowing them to install, operate
and maintain various AM and FM broadcast stations in various locations throughout the nation. 5 These
Provisional Authorities were issued between 1993 to 1998, or after the enactment of R.A. No. 7477 and
R.A. No. 7582.
Petitioner Santiago C. Divinagracia6 filed two complaints both dated 1 March 1999 with the NTC,
respectively lodged against PBS7 and CBS.8 He alleged that he was "the actual and beneficial owner of
Twelve percent (12%) of the shares of stock" of PBS and CBS separately,9 and that despite the provisions
in R.A. No. 7477 and R.A. No. 7582 mandating the public offering of at least 30% of the common stocks
of PBS and CBS, both entities had failed to make such offering. Thus, Divinagracia commonly argued in
his complaints that the failure on the part of PBS and CBS "to comply with the mandate of their legislative
franchise is a misuse of the franchise conferred upon it by law and it continues to exercise its franchise in
contravention of the law to the detriment of the general public and of complainant who are unable to enjoy
the benefits being offered by a publicly listed company." 10 He thus prayed for the cancellation of all the
Provisional Authorities or CPCs of PBS and CBS on account of the alleged violation of the conditions set
therein, as well as in its legislative franchises.11
On 1 August 2000, the NTC issued a consolidated decision dismissing both complaints. 12 While the NTC
posited that it had full jurisdiction to revoke or cancel a Provisional Authority or CPC for violations or
infractions of the terms and conditions embodied therein, 13 it held that the complaints actually constituted
collateral attacks on the legislative franchises of PBS and CBS since the sole issue for determination was
whether the franchisees had violated the mandate to democratize ownership in their respective legislative
franchises. The NTC ruled that it was not competent to render a ruling on that issue, the same being more
properly the subject of an action for quo warranto to be commenced by the Solicitor General in the name
of the Republic of the Philippines, pursuant to Rule 66 of the Rules of Court. 14

After the NTC had denied Divinagracias motion for reconsideration, 15 he filed a petition for review under
Rule 43 of the Rules of Court with the Court of Appeals. 16 On 18 February 2004, the Court of Appeals
rendered a decision17upholding the NTC. The appellate court agreed with the earlier conclusion that the
complaints were indeed a collateral attack on the legislative franchises of CBS and PBS and that a quo
warranto action was the proper mode to thresh out the issues raised in the complaints.
Hence this petition, which submits as the principal issue, whether the NTC, with its retinue of regulatory
powers, is powerless to cancel Provisional Authorities and Certificates of Public Convenience it issued to
legislative franchise-holders. That central issue devolves into several narrower arguments, some of which
hinge on the authority of the NTC to cancel the very Provisional Authorities and CPCs which it is
empowered to issue, as distinguished from the legislative franchise itself, the cancellation of which
Divinagracia points out was not the relief he had sought from the NTC. Questions are raised as to
whether the complaints did actually constitute a collateral attack on the legislative franchises.
Yet this case ultimately rests to a large degree on fundamentals. Divinagracias case rotates on the
singular thesis that the NTC has the power to cancel Provisional Authorities and CPCs, or in effect, the
power to cancel the licenses that allow broadcast stations to operate. The NTC, in its assailed Decision,
expressly admits that it has such power even as it refrained from exercising the same. 18 The Court has yet
to engage in a deep inquiry into the question of whether the NTC has the power to cancel the operating
licenses of entities to whom Congress has issued franchises to operate broadcast stations, especially on
account of an alleged violation of the terms of their franchises. This is the opportune time to examine the
issue.
II.
To fully understand the scope and dimensions of the regulatory realm of the NTC, it is essential to review
the legal background of the regulation process. As operative fact, any person or enterprise which wishes
to operate a broadcast radio or television station in the Philippines has to secure a legislative franchise in
the form of a law passed by Congress, and thereafter a license to operate from the NTC.
The franchise requirement traces its genesis to Act No. 3846, otherwise known as the Radio Control Act,
enacted in 1931.19 Section 1 thereof provided that "[n]o person, firm, company, association or corporation
shall construct, install, establish, or operate x x x a radio broadcasting station, without having first
obtained a franchise therefor from the National Assembly x x x" 20 Section 2 of the law prohibited the
construction or installation of any station without a permit granted by the Secretary of Public Works and
Communication, and the operation of such station without a license issued by the same Department
Secretary.21 The law likewise empowered the Secretary of Public Works and Communication "to regulate
the establishment, use, and operation of all radio stations and of all forms of radio communications and
transmissions within the Philippine Islands and to issue such rules and regulations as may be
necessary."22
Noticeably, our Radio Control Act was enacted a few years after the United States Congress had passed
the Radio Act of 1927. American broadcasters themselves had asked their Congress to step in and
regulate the radio industry, which was then in its infancy. The absence of government regulation in that
market had led to the emergence of hundreds of radio broadcasting stations, each using frequencies of
their choice and changing frequencies at will, leading to literal chaos on the airwaves. It was the Radio Act
of 1927 which introduced a licensing requirement for American broadcast stations, to be overseen
eventually by the Federal Communications Commission (FCC). 23
This pre-regulation history of radio broadcast stations illustrates the continuing necessity of a government
role in overseeing the broadcast media industry, as opposed to other industries such as print media and
the Internet.24Without regulation, the result would be a free-for-all market with rival broadcasters able with
impunity to sabotage the use by others of the airwaves. 25 Moreover, the airwaves themselves the very
medium utilized by broadcastare by their very nature not susceptible to appropriation, much less be the
object of any claim of private or exclusive ownership. No private individual or enterprise has the physical
means, acting alone to actualize exclusive ownership and use of a particular frequency. That end,
desirable as it is among broadcasters, can only be accomplished if the industry itself is subjected to a
regime of government regulation whereby broadcasters receive entitlement to exclusive use of their
respective or particular frequencies, with the State correspondingly able by force of law to confine all
broadcasters to the use of the frequencies assigned to them.
Still, the dominant jurisprudential rationale for state regulation of broadcast media is more sophisticated
than a mere recognition of a need for the orderly administration of the airwaves. After all, a united
broadcast industry can theoretically achieve that goal through determined self-regulation. The key basis
for regulation is rooted in empiricism "that broadcast frequencies are a scarce resource whose use
could be regulated and rationalized only by the Government." This concept was first introduced in
jurisprudence in the U.S. case of Red Lion v. Federal Communications Commission.26
Red Lion enunciated the most comprehensive statement of the necessity of government oversight over
broadcast media. The U.S. Supreme Court observed that within years from the introduction of radio
broadcasting in the United States, "it became apparent that broadcast frequencies constituted a scarce
resource whose use could be regulated and rationalized only by the Government without government
control, the medium would be of little use because of the cacophony of competing voices, none of which

could be clearly and predictably heard." The difficulties posed by spectrum scarcity was concretized by
the U.S. High Court in this manner:
Scarcity is not entirely a thing of the past. Advances in technology, such as microwave transmission, have
led to more efficient utilization of the frequency spectrum, but uses for that spectrum have also grown
apace. Portions of the spectrum must be reserved for vital uses unconnected with human communication,
such as radio-navigational aids used by aircraft and vessels. Conflicts have even emerged between such
vital functions as defense preparedness and experimentation in methods of averting midair collisions
through radio warning devices. "Land mobile services" such as police, ambulance, fire department, public
utility, and other communications systems have been occupying an increasingly crowded portion of the
frequency spectrum and there are, apart from licensed amateur radio operators' equipment, 5,000,000
transmitters operated on the "citizens' band" which is also increasingly congested. Among the various
uses for radio frequency space, including marine, aviation, amateur, military, and common carrier users,
there are easily enough claimants to permit use of the whole with an even smaller allocation to broadcast
radio and television uses than now exists.(citations omitted) 27
After interrelating the premise of scarcity of resources with the First Amendment rights of
broadcasters, Red Lionconcluded that government regulation of broadcast media was a necessity:
Where there are substantially more individuals who want to broadcast than there are frequencies to
allocate, it is idle to posit an unabridgeable First Amendment right to broadcast comparable to the right of
every individual to speak, write, or publish. If 100 persons want broadcast [395 U.S. 367, 389] licenses
but there are only 10 frequencies to allocate, all of them may have the same "right" to a license; but if
there is to be any effective communication by radio, only a few can be licensed and the rest must be
barred from the airwaves. It would be strange if the First Amendment, aimed at protecting and furthering
communications, prevented the Government from making radio communication possible by requiring
licenses to broadcast and by limiting the number of licenses so as not to overcrowd the spectrum.
This has been the consistent view of the Court. Congress unquestionably has the power to grant and
deny licenses and to eliminate existing stations. No one has a First Amendment right to a license or to
monopolize a radio frequency; to deny a station license because "the public interest" requires it "is not a
denial of free speech."
By the same token, as far as the First Amendment is concerned those who are licensed stand no better
than those to whom licenses are refused. A license permits broadcasting, but the licensee has no
constitutional right to be the one who holds the license or to monopolize a radio frequency to the
exclusion of his fellow citizens. There is nothing in the First Amendment which prevents the Government
from requiring a licensee to share his frequency with others and to conduct himself as a proxy or fiduciary
with obligations to present those views and voices which are representative of his community and which
would otherwise, by necessity, be barred from the airwaves. 28
xxxx
Rather than confer frequency monopolies on a relatively small number of licensees, in a Nation of
200,000,000, the Government could surely have decreed that each frequency should be shared among
all or some of those who wish to use it, each being assigned a portion of the broadcast day or the
broadcast week. The ruling and regulations at issue here do not go quite so far. They assert that under
specified circumstances, a licensee must offer to make available a reasonable amount of broadcast time
to those who have a view different from that which has already been expressed on his station. The
expression of a political endorsement, or of a personal attack while dealing with a controversial public
issue, simply triggers this time sharing. As we have said, the First Amendment confers no right on
licensees to prevent others from broadcasting on "their" frequencies and no right to an unconditional
monopoly of a scarce resource which the Government has denied others the right to use.
In terms of constitutional principle, and as enforced sharing of a scarce resource, the personal attack and
political editorial rules are indistinguishable from the equal-time provision of 315, a specific enactment of
Congress requiring stations to set aside reply time under specified circumstances and to which the
fairness doctrine and these constituent regulations are important complements. That provision, which has
been part of the law since 1927, Radio Act of 1927, 18, 44 Stat. 1170, has been held valid by this Court
as an obligation of the licensee relieving him of any power in any way to prevent or censor the broadcast,
and thus insulating him from liability for defamation. The constitutionality of the statute under the First
Amendment was unquestioned.(citations omitted) 29
As made clear in Red Lion, the scarcity of radio frequencies made it necessary for the government to step
in and allocate frequencies to competing broadcasters. In undertaking that function, the government is
impelled to adjudge which of the competing applicants are worthy of frequency allocation. It is through
that role that it becomes legally viable for the government to impose its own values and goals through a
regulatory regime that extends beyond the assignation of frequencies, notwithstanding the free
expression guarantees enjoyed by broadcasters. As the government is put in a position to determine who
should be worthy to be accorded the privilege to broadcast from a finite and limited spectrum, it may
impose regulations to see to it that broadcasters promote the public good deemed important by the State,
and to withdraw that privilege from those who fall short of the standards set in favor of other worthy
applicants.

Such conditions are peculiar to broadcast media because of the scarcity of the airwaves. Indeed, any
attempt to impose such a regulatory regime on a medium that is not belabored under similar physical
conditions, such as print media, will be clearly antithetical to democratic values and the free expression
clause. This Court, which has adopted the "scarcity of resources" doctrine in cases such as Telecom. &
Broadcast Attys. of the Phils., Inc. v. COMELEC,30 emphasized the distinction citing Red Lion:
Petitioners complain that B.P. Blg. 881, 92 singles out radio and television stations to provide free air
time. They contend that newspapers and magazines are not similarly required as, in fact, in Philippine
Press Institute v. COMELEC we upheld their right to the payment of just compensation for the print space
they may provide under 90.
The argument will not bear analysis. It rests on the fallacy that broadcast media are entitled to the same
treatment under the free speech guarantee of the Constitution as the print media. There are important
differences in the characteristics of the two media, however, which justify their differential treatment for
free speech purposes. Because of the physical limitations of the broadcast spectrum, the government
must, of necessity, allocate broadcast frequencies to those wishing to use them. There is no similar
justification for government allocation and regulation of the print media.
In the allocation of limited resources, relevant conditions may validly be imposed on the grantees or
licensees. The reason for this is that, as already noted, the government spends public funds for the
allocation and regulation of the broadcast industry, which it does not do in the case of the print media. To
require the radio and television broadcast industry to provide free air time for the COMELEC Time is a fair
exchange for what the industry gets.31
Other rationales may have emerged as well validating state regulation of broadcast media, 32 but the reality
of scarce airwaves remains the primary, indisputable and indispensable justification for the government
regulatory role. The integration of the scarcity doctrine into the jurisprudence on broadcast media
illustrates how the libertarian ideal of the free expression clause may be tempered and balanced by
actualities in the real world while preserving the core essence of the constitutional guarantee. Indeed,
without government regulation of the broadcast spectrum, the ability of broadcasters to clearly express
their views would be inhibited by the anarchy of competition. Since the airwaves themselves are not
susceptible to physical appropriation and private ownership, it is but indispensable that the government
step in as the guardian of the spectrum.
Reference to the scarcity doctrine is necessary to gain a full understanding of the paradigm that governs
the state regulation of broadcast media. That paradigm, as it exists in the United States, is contextually
similar to our own, except in one very crucial regard the dual franchise/license requirements we impose.
III.
Recall that the Radio Control Act specifically required the obtention of a legislative franchise for the
operation of a radio station in the Philippines. When the Public Service Act was enacted in 1936, the
Public Service Commission (PSC) was vested with jurisdiction over "public services," including over "wire
or wireless broadcasting stations."33However, among those specifically exempted from the regulatory
reach of the PSC were "radio companies, except with respect to the fixing of rates." 34 Thus, following the
Radio Control Act, the administrative regulation of "radio companies" remained with the Secretary of
Public Works and Communications. It appears that despite the advent of commercial television in the
1950s, no corresponding amendment to either the Radio Control Act or the Public Service Act was
passed to reflect that new technology then.
Shortly after the 1972 declaration of martial law, President Marcos issued Presidential Decree (P.D.) No.
1, which allocated to the Board of Communications the authority to issue CPCs for the operation of radio
and television broadcasting systems and to grant permits for the use of radio frequencies for such
broadcasting systems. In 1974, President Marcos promulgated Presidential Decree No. 576-A, entitled
"Regulating the Ownership and Operation of Radio and Television Stations and for other Purposes."
Section 6 of that law reads:
Section 6. All franchises, grants, licenses, permits, certificates or other forms of authority to operate radio
or television broadcasting systems shall terminate on December 31, 1981. Thereafter, irrespective of any
franchise, grants, license, permit, certificate or other forms of authority to operate granted by any office,
agency or person, no radio or television station shall be authorized to operated without the authority of the
Board of Communications and the Secretary of Public Works and Communications or their successors
who have the right and authority to assign to qualified parties frequencies, channels or other means of
identifying broadcasting systems; Provided, however, that any conflict over, or disagreement with a
decision of the aforementioned authorities may be appealed finally to the Office of the President within
fifteen days from the date the decision is received by the party in interest.
A few years later, President Marcos promulgated Executive Order (E.O.) No. 546, establishing among
others the National Telecommunications Commission. Section 15 thereof enumerates the various
functions of the NTC.
Section 15. Functions of the Commission. The Commission shall exercise the following functions:

a. Issue Certificate of Public Convenience for the operation of communications utilities and
services, radio communications systems, wire or wireless telephone or telegraph systems, radio
and television broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service
communications; and determine and prescribe charges or rates pertinent to the operation of such
public utility facilities and services except in cases where charges or rates are established by
international bodies or associations of which the Philippines is a participating member or by
bodies recognized by the Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems
and radio communication systems including amateur radio stations and radio and television
broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications
Union to the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the
issued Certificate of Public Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities concerned with any
aspect involving communications with a view to continuously improve the communications service
in the country;
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage
a larger and more effective use of communications, radio and television broadcasting facilities,
and to maintain effective competition among private entities in these activities whenever the
Commission finds it reasonably feasible;
h. Supervise and inspect the operation of radio stations and telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.
These enactments were considered when in 2003 the Court definitively resolved that the operation of a
radio or television station does require a congressional franchise. In Associated Communications &
Wireless Services v. NTC,35 the Court took note of the confusion then within the broadcast industry as to
whether the franchise requirement first ordained in the 1931 Radio Control Act remained extant given the
enactment of P.D. No. 576-A in 1974 and E.O. No. 546 in 1979. Notably, neither law had specifically
required legislative franchises for the operation of broadcast stations. Nonetheless, the Court noted that
Section 1 of P.D. No. 576-A had expressly referred to the franchise requirement in stating that "[n]o radio
station or television channel may obtain a franchise unless it has sufficient capital on the basis of equity
for its operation for at least one year ."36 Section 6 of that law made a similar reference to the franchise
requirement.37 From those references, the Court concluded that the franchise requirement under the
Radio Control Act was not repealed by P.D. No. 576-A.38
Turning to E.O. No. 546, the Court arrived at a similar conclusion, despite a Department of Justice
Opinion stating that the 1979 enactment had dispensed with the congressional franchise requirement.
The Court clarified that the 1989 ruling in Albano v. Reyes, to the effect that "franchises issued by
Congress are not required before each and every public utility may operate" did not dispense with the
franchise requirement insofar as broadcast stations are concerned.
Our ruling in Albano that a congressional franchise is not required before "each and every public utility
may operate" should be viewed in its proper light. Where there is a law such as P.D. No. 576-A which
requires a franchise for the operation of radio and television stations, that law must be followed until
subsequently repealed. As we have earlier shown, however, there is nothing in the subsequent E.O. No.
546 which evinces an intent to dispense with the franchise requirement. In contradistinction with the case
at bar, the law applicable in Albano, i.e., E.O. No. 30, did not require a franchise for the Philippine Ports
Authority to take over, manage and operate the Manila International Port Complex and undertake the
providing of cargo handling and port related services thereat. Similarly, in Philippine Airlines, Inc. v. Civil
Aeronautics Board, et al., we ruled that a legislative franchise is not necessary for the operation of
domestic air transport because "there is nothing in the law nor in the Constitution which indicates that a
legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport
operator." Thus, while it is correct to say that specified agencies in the Executive Branch have the power
to issue authorization for certain classes of public utilities, this does not mean that the authorization or
CPC issued by the NTC dispenses with the requirement of a franchise as this is clearly required under
P.D. No. 576-A.39

The Court further observed that Congress itself had accepted it as a given that a legislative franchise is
still required to operate a broadcasting station in the Philippines.
That the legislative intent is to continue requiring a franchise for the operation of radio and television
broadcasting stations is clear from the franchises granted by Congress after the effectivity of E.O. No. 546
in 1979 for the operation of radio and television stations. Among these are: (1) R.A. No. 9131 dated April
24, 2001, entitled "An Act Granting the Iddes Broadcast Group, Inc., a Franchise to Construct, Install,
Establish, Operate and Maintain Radio and Television Broadcasting Stations in the Philippines"; (2) R.A.
No. 9148 dated July 31, 2001, entitled "An Act Granting the Hypersonic Broadcasting Center, Inc., a
Franchise to Construct, Install, Establish, Operate and Maintain Radio Broadcasting Stations in the
Philippines;" and (3) R.A. No. 7678 dated February 17, 1994, entitled "An Act Granting the Digital
Telecommunication Philippines, Incorporated, a Franchise to Install, Operate and Maintain
Telecommunications Systems Throughout the Philippines." All three franchises require the grantees to
secure a CPCN/license/permit to construct and operate their stations/systems. Likewise, the Tax Reform
Act of 1997 provides in Section 119 for tax on franchise of radio and/or television broadcasting companies
x x x 40
Associated Communications makes clear that presently broadcast stations are still required to obtain a
legislative franchise, as they have been so since the passage of the Radio Control Act in 1931. By virtue
of this requirement, the broadcast industry falls within the ambit of Section 11, Article XII of the 1987
Constitution, the one constitutional provision
concerned with the grant of franchises in the Philippines. 41 The requirement of a legislative franchise
likewise differentiates the Philippine broadcast industry from that in America, where there is no need to
secure a franchise from the U.S. Congress.
It is thus clear that the operators of broadcast stations in the Philippines must secure a legislative
franchise, a requirement imposed by the Radio Control Act of 1931 and accommodated under the 1987
Constitution. At the same time, the Court in Associated Communications referred to another form of
"permission" required of broadcast stations, that is the CPC issued by the NTC. What is the source of
such requirement?
The Radio Control Act had also obliged radio broadcast stations to secure a permit from the Secretary of
Commerce and Industry42 prior to the construction or installation of any station. 43 Said Department
Secretary was also empowered to regulate "the establishment, use and operation of all radio stations and
of all forms of radio communications and
transmission within the Philippines."44 Among the specific powers granted to the Secretary over radio
stations are the approval or disapproval of any application for the construction, installation, establishment
or operation of a radio station45 and the approval or disapproval of any application for renewal of station or
operation license.46
As earlier noted, radio broadcasting companies were exempted from the jurisdiction of the defunct Public
Service Commission except with respect to their rates; thus, they did not fall within the same regulatory
regime as other public services, the regime which was characterized by the need for CPC or CPCN.
However, following the Radio Control Act, it became clear that radio broadcast companies need to obtain
a similar license from the government in order to operate, at that time from the Department of Public
Works and Communications.
Then, as earlier noted, in 1972, President Marcos through P.D. No. 1, transferred to the Board of
Communications the function of issuing CPCs for the operation of radio and television broadcasting
systems, as well as the granting of permits for the use of radio frequencies for such broadcasting
systems. With the creation of the NTC, through E.O. No. 546 in 1979, that agency was vested with the
power to "[i]ssue certificate[s] of public convenience for the operation of radio and television
broadcasting system[s]."47 That power remains extant and undisputed to date.
This much thus is clear. Broadcast and television stations are required to obtain a legislative franchise, a
requirement imposed by the Radio Control Act and affirmed by our ruling in Associated Broadcasting.
After securing their legislative franchises, stations are required to obtain CPCs from the NTC before they
can operate their radio or television broadcasting systems. Such requirement while traceable also to the
Radio Control Act, currently finds its basis in E.O. No. 546, the law establishing the NTC.
From these same legal premises, the next and most critical question is whether the NTC has the power to
cancel the CPCs it has issued to legislative franchisees.
IV.
The complexities of our dual franchise/license regime for broadcast media should be understood within
the context of separation of powers. The right of a particular entity to broadcast over the airwaves is
established by law i.e., the legislative franchise and determined by Congress, the branch of
government tasked with the creation of rights and obligations. As with all other laws passed by Congress,
the function of the executive branch of government, to which the NTC belongs, is the implementation of

the law. In broad theory, the legal obligation of the NTC once Congress has established a legislative
franchise for a broadcast media station is to facilitate the operation by the franchisee of its broadcast
stations. However, since the public administration of the airwaves is a requisite for the operation of a
franchise and is moreover a highly technical function, Congress has delegated to the NTC the task of
administration over the broadcast spectrum, including the determination of available bandwidths and the
allocation of such available bandwidths among the various legislative franchisees. The licensing power of
the NTC thus arises from the necessary delegation by Congress of legislative power geared towards the
orderly exercise by franchisees of the rights granted them by Congress.
Congress may very well in its wisdom impose additional obligations on the various franchisees and
accordingly delegate to the NTC the power to ensure that the broadcast stations comply with their
obligations under the law. Because broadcast media enjoys a lesser degree of free expression protection
as compared to their counterparts in print, these legislative restrictions are generally permissible under
the Constitution. Yet no enactment of Congress may contravene the Constitution and its Bill of Rights;
hence, whatever restrictions are imposed by Congress on broadcast media franchisees remain
susceptible to judicial review and analysis under the jurisprudential framework for scrutiny of free
expression cases involving the broadcast media.
The restrictions enacted by Congress on broadcast media franchisees have to pass the mettle of
constitutionality. On the other hand, the restrictions imposed by an administrative agency such as the
NTC on broadcast media franchisees will have to pass not only the test of constitutionality, but also the
test of authority and legitimacy, i.e., whether such restrictions have been imposed in the exercise of duly
delegated legislative powers from Congress. If the restriction or sanction imposed by the administrative
agency cannot trace its origin from legislative delegation, whether it is by virtue of a specific grant or from
valid delegation of rule-making power to the administrative agency, then the action of such administrative
agency cannot be sustained. The life and authority of an administrative agency emanates solely from an
Act of Congress, and its faculties confined within the parameters set by the legislative branch of
government.
We earlier replicated the various functions of the NTC, as established by E.O. No. 546. One can readily
notice that even as the NTC is vested with the power to issue CPCs to broadcast stations, it is not
expressly vested with the power to cancel such CPCs, or otherwise empowered to prevent broadcast
stations with duly issued franchises and CPCs from operating radio or television stations.
1avvphi1

In contrast, when the Radio Control Act of 1931 maintained a similar requirement for radio stations to
obtain a license from a government official (the Secretary of Commerce and Industry), it similarly
empowered the government, through the Secretary of Public Works and Communications, to suspend or
revoke such license, as indicated in Section 3(m):
Section 3. The Secretary of Public Works and Communications is hereby empowered, to regulate the
construction or manufacture, possession, control, sale and transfer of radio transmitters or transceivers
(combination transmitter-receiver) and the establishment, use, the operation of all radio stations and of all
form of radio communications and transmissions within the Philippines. In addition to the above he shall
have the following specific powers and duties:
(m) He may, at his direction bring criminal action against violators of the radio laws or the regulations and
confiscate the radio apparatus in case of illegal operation; or simply suspend or revoke the offenders
station or operator licenses or refuse to renew such licenses; or just reprimand and warn the offenders; 48
Section 3(m) begets the question did the NTC retain the power granted in 1931 to the Secretary of
Public Works and Communications to "x x x suspend or revoke the offenders station or operator licenses
or refuse to renew such licenses"? We earlier adverted to the statutory history. The enactment of the
Public Service Act in 1936 did not deprive the Secretary of regulatory jurisdiction over radio stations,
which included the power to impose fines. In fact, the Public Service Commission was precluded from
exercising such jurisdiction, except with respect to the fixing of rates.
Then, in 1972, the regulatory authority over broadcast media was transferred to the Board of
Communications by virtue of P. D. No. 1, which adopted, approved, and made as part of the law of the
land the Integrated Reorganization Plan which was prepared by the Commission on
Reorganization.49 Among the cabinet departments affected by the plan was the Department of Public
Works and Communications, which was now renamed the Department of Public Works, Transportation
and Communication.50 New regulatory boards under the administrative supervision of the Department
were created, including the Board of Communications. 51
The functions of the Board of Communications were enumerated in Part X, Chapter I, Article III, Sec. 5 of
the Integrated Reorganization Plan.52 What is noticeably missing from these enumerated functions of the
Board of Communications is the power to revoke or cancel CPCs, even as the Board was vested the
power to issue the same. That same pattern held true in 1976, when the Board of Communications was
abolished by E.O. No. 546.53Said executive order, promulgated by then President Marcos in the exercise
of his legislative powers, created the NTC but likewise withheld from it the authority to cancel licenses and
CPCs, even as it was empowered to issue CPCs. Given the very specific functions allocated by law to the
NTC, it would be very difficult to recognize any intent to allocate to the Commission such regulatory

functions previously granted to the Secretary of Public Works and Communications, but not included in
the exhaustive list of functions enumerated in Section 15.
Certainly, petitioner fails to point to any provision of E.O. No. 546 authorizing the NTC to cancel licenses.
Neither does he cite any provision under P.D. No. 1 or the Radio Control Act, even if Section 3(m) of the
latter law provides at least, the starting point of a fair argument. Instead, petitioner relies on the power
granted to the Public Service Commission to revoke CPCs or CPCNs under Section 16(m) of the Public
Service Act.54 That argument has been irrefragably refuted by Section 14 of the Public Service Act, and by
jurisprudence, most especially RCPI v. NTC.55As earlier noted, at no time did radio companies fall under
the jurisdiction of the Public Service Commission as they were expressly excluded from its mandate
under Section 14. In addition, the Court ruled in RCPI that since radio companies, including broadcast
stations and telegraphic agencies, were never under the jurisdiction of the Public Service Commission
except as to rate-fixing, that Commissions authority to impose fines did not carry over to the NTC even
while the other regulatory agencies that emanated from the Commission did retain the previous authority
their predecessor had exercised.56 No provision in the Public Service Act thus can be relied upon by the
petitioner to claim that the NTC has the authority to cancel CPCs or licenses.
It is still evident that E.O. No. 546 provides no explicit basis to assert that the NTC has the power to
cancel the licenses or CPCs it has duly issued, even as the government office previously tasked with the
regulation of radio stations, the Secretary of Public Works and Communications, previously possessed
such power by express mandate of law. In order to sustain petitioners premise, the Court will be unable
to rely on an unequivocally current and extant provision of law that justifies the NTCs power to cancel
CPCs. Petitioner suggests that since the NTC has the power to issue CPCs, it necessarily has the power
to revoke the same. One might also argue that through the general rule-making power of the NTC, we
can discern a right of the NTC to cancel CPCs.
We must be mindful that the issue for resolution is not a run-of-the-mill matter which would be settled with
ease with the application of the principles of statutory construction. It is at this juncture that the
constitutional implications of this case must ascend to preeminence.
A.
It is beyond question that respondents, as with all other radio and television broadcast stations, find
shelter in the Bill of Rights, particularly Section 3, Article III of the Constitution. At the same time, as we
have labored earlier to point out, broadcast media stands, by reason of the conditions of scarcity, within a
different tier of protection from print media, which unlike broadcast, does not have any regulatory
interaction with the government during its operation.
Still, the fact that state regulation of broadcast media is constitutionally justified does not mean that its
practitioners are precluded from invoking Section 3, Article III of the Constitution in their behalf. Far from
it. Our democratic way of life is actualized by the existence of a free press, whether print media or
broadcast media. As with print media, free expression through broadcast media is protected from prior
restraint or subsequent punishment. The franchise and licensing requirements are mainly impositions of
the laws of physics which would stand to periodic reassessment as technology advances. The science of
today renders state regulation as a necessity, yet this should not encumber the courts from
accommodating greater freedoms to broadcast media when doing so would not interfere with the existing
legitimate state interests in regulating the industry.
In FCC v. League of Women Voters of California,57 the U.S. Supreme Court reviewed a law prohibiting
noncommercial broadcast stations that received funding from a public corporation from "engaging in
editorializing." The U.S. Supreme Court acknowledged the differentiated First Amendment standard of
review that applied to broadcast media. Still, it struck down the restriction, holding that "[the] regulation
impermissibly sweeps within its prohibition a wide range of speech by wholly private stations on topics
that do not take a directly partisan stand or that have nothing whatever to do with federal, state, or local
government."58 We are similarly able to maintain fidelity to the fundamental rights of broadcasters even
while upholding the rationale behind the regulatory regime governing them.
Should petitioners position that the NTC has the power to cancel CPCs or licenses it has issued to
broadcast stations although they are in the first place empowered by their respective franchise to exercise
their rights to free expression and as members of a free press, be adopted broadcast media would be
encumbered by another layer of state restrictions. As things stand, they are already required to secure a
franchise from Congress and a CPC from the NTC in order to operate. Upon operation, they are obliged
to comply with the various regulatory issuances of the NTC, which has the power to impose fees and
fines and other mandates it may deem fit to prescribe in the exercise of its rule-making power.
The fact that broadcast media already labors under this concededly valid regulatory framework
necessarily creates inhibitions on its practitioners as they operate on a daily basis. Newspapers are able
to print out their daily editions without fear that a government agency such as the NTC will be able to
suspend their publication or fine them based on their content. Broadcast stations do already operate with
that possibility in mind, and that circumstance ineluctably restrains its content, notwithstanding the
constitutional right to free expression. However, the cancellation of a CPC or license to operate of a
broadcast station, if we recognize that possibility, is essentially a death sentence, the most drastic means

to inhibit a broadcast media practitioner from exercising the constitutional right to free speech, expression
and of the press.
This judicial philosophy aligns well with the preferred mode of scrutiny in the analysis of cases with
dimensions of the right to free expression. When confronted with laws dealing with freedom of the mind or
restricting the political process, of laws dealing with the regulation of speech, gender, or race as well as
other fundamental rights as expansion from its earlier applications to equal protection, the Court has
deemed it appropriate to apply "strict scrutiny" when assessing the laws involved or the legal arguments
pursued that would diminish the efficacy of such constitutional right. The assumed authority of the NTC to
cancel CPCs or licenses, if sustained, will create a permanent atmosphere of a less free right to express
on the part of broadcast media. So that argument could be sustained, it will have to withstand the strict
scrutiny from this Court.
Strict scrutiny entails that the presumed law or policy must be justified by a compelling state or
government interest, that such law or policy must be narrowly tailored to achieve that goal or interest, and
that the law or policy must be the least restrictive means for achieving that interest. It is through that lens
that we examine petitioners premise that the NTC has the authority to cancel licenses of broadcast
franchisees.
B.
In analyzing the compelling government interest that may justify the investiture of authority on the NTC
advocated by petitioner, we cannot ignore the interest of the State as expressed in the respective
legislative franchises of the petitioner, R.A. No. 7477 and R. A. Act No. 7582. Since legislative franchises
are extended through statutes, they should receive recognition as the ultimate expression of State policy.
What the legislative franchises of respondents express is that the Congress, after due debate and
deliberation, declares it as State policy that respondents should have the right to operate broadcast
stations. The President of the Philippines, by affixing his signature to the law, concurs in such State policy.
Allowing the NTC to countermand State policy by revoking respondents vested legal right to operate
broadcast stations unduly gives to a mere administrative agency veto power over the implementation of
the law and the enforcement of especially vested legal rights. That concern would not arise if Congress
had similarly empowered the NTC with the power to revoke a franchisees right to operate broadcast
stations. But as earlier stated, there is no such expression in the law, and by presuming such right the
Court will be acting contrary to the stated State interest as expressed in respondents legislative
franchises.
If we examine the particular franchises of respondents, it is readily apparent that Congress has especially
invested the NTC with certain powers with respect to their broadcast operations. Both R.A. No. 7477 59 and
R.A. No. 758260require the grantee "to secure from the [NTC] the appropriate permits and licenses for its
stations," barring the private respondents from "using any frequency in the radio spectrum without having
been authorized by the [NTC]." At the same time, both laws provided that "[the NTC], however, shall not
unreasonably withhold or delay the grant of any such authority."
An important proviso is stipulated in the legislative franchises, particularly under Section 5 of R.A. No.
7477 and Section 3 of R.A. No. 7582, in relation to Section 11 of R.A. No. 3902.
Section 5. Right of Government. A special right is hereby reserved to the President of the Philippines,
in times of rebellion, public peril, calamity, emergency, disaster or disturbance of peace and order, to
temporarily take over and operate the stations of the grantee, temporarily suspend the operation of any
stations in the interest of public safety, security and public welfare, or authorize the temporary use and
operation thereof by any agency of the Government, upon due compensation to the grantee, for the use
of said stations during the period when they shall be so operated.
The provision authorizes the President of the Philippines to exercise considerable infringements on the
right of the franchisees to operate their enterprises and the right to free expression. Such authority finds
corollary constitutional justification as well under Section 17, Article XII, which allows the State "in times of
national emergency, when the public interest so requires x x x during the emergency and under
reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned
public utility or business affected with public interest." We do not doubt that the President or the State can
exercise such authority through the NTC, which remains an agency within the executive branch of
government, but such can be exercised only under limited and rather drastic circumstances. They still do
not vest in the NTC the broad authority to cancel licenses and permits.
These provisions granting special rights to the President in times of emergency are incorporated in our
understanding of the legislated state policy with respect to the operation by private respondents of their
legislative franchises. There are restrictions to the operation of such franchises, and when these
restrictions are indeed exercised there still may be cause for the courts to review whether said limitations
are justified despite Section 3, Article I of the Constitution. At the same time, the state policy as embodied
in these franchises is to restrict the governments ability to impair the freedom to broadcast of the stations
only upon the occurrence of national emergencies or events that compromise the national security.

It should be further noted that even the aforequoted provision does not authorize the President or the
government to cancel the licenses of the respondents. The temporary nature of the takeover or closure of
the station is emphasized in the provision. That fact further disengages the provision from any sense that
such delegated authority can be the source of a broad ruling affirming the right of the NTC to cancel the
licenses of franchisees.
With the legislated state policy strongly favoring the unimpeded operation of the franchisees stations, it
becomes even more difficult to discern what compelling State interest may be fulfilled in ceding to the
NTC the general power to cancel the franchisees CPCs or licenses absent explicit statutory
authorization. This absence of a compelling state interest strongly disfavors petitioners cause.
C.
Now, we shall tackle jointly whether a law or policy allowing the NTC to cancel CPCs or licenses is to be
narrowly tailored to achieve that requisite compelling State goal or interest, and whether such a law or
policy is the least restrictive means for achieving that interest. We addressed earlier the difficulty of
envisioning the compelling State interest in granting the NTC such authority. But let us assume for
arguments sake, that relieving the injury complained off by petitioner the failure of private respondents
to open up ownership through the initial public offering mandated by law is a compelling enough State
interest to allow the NTC to extend consequences by canceling the licenses or CPCs of the erring
franchisee.
There is in fact a more appropriate, more narrowly-tailored and least restrictive remedy that is afforded by
the law. Such remedy is that adverted to by the NTC and the Court of Appeals the resort to quo
warranto proceedings under Rule 66 of the Rules of Court.
Under Section 1 of Rule 66, "an action for the usurpation of a public office, position or franchise may be
brought in the name of the Republic of the Philippines against a person who usurps, intrudes into, or
unlawfully holds or exercises public office, position or franchise." 61 Even while the action is maintained in
the name of the Republic62 , the Solicitor General or a public prosecutor is obliged to commence such
action upon complaint, and upon good reason to believe that any case specified under Section 1 of Rule
66 can be established by proof.63
The special civil action of quo warranto is a prerogative writ by which the Government can call upon any
person to show by what warrant he holds a public office or exercises a public franchise. 64 It is settled that
"[t]he determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege
has been forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto, the
right to assert which, as a rule, belongs to the State upon complaint or otherwise, the reason being that
the abuse of a franchise is a public wrong and not a private injury." 65 A forfeiture of a franchise will have to
be declared in a direct proceeding for the purpose brought by the State because a franchise is granted by
law and its unlawful exercise is primarily a concern of Government. 66Quo warranto is specifically available
as a remedy if it is thought that a government corporation has offended against its corporate charter or
misused its franchise.67
The Court of Appeals correctly noted that in PLDT v. NTC,68 the Court had cited quo warranto as the
appropriate recourse with respect to an allegation by petitioner therein that a rival telecommunications
competitor had failed to construct its radio system within the ten (10) years from approval of its franchise,
as mandated by its legislative franchise.69 It is beyond dispute that quo warranto exists as an available
and appropriate remedy against the wrong imputed on private respondents.
Petitioners argue that since their prayer involves the cancellation of the provisional authority and CPCs,
and not the legislative franchise, then quo warranto fails as a remedy. The argument is artificial. The
authority of the franchisee to engage in broadcast operations is derived in the legislative mandate. To
cancel the provisional authority or the CPC is, in effect, to cancel the franchise or otherwise prevent its
exercise. By law, the NTC is incapacitated to frustrate such mandate by unduly withholding or canceling
the provisional authority or the CPC for reasons other than the orderly administration of the frequencies in
the radio spectrum.
What should occur instead is the converse. If the courts conclude that private respondents have violated
the terms of their franchise and thus issue the writs of quo warranto against them, then the NTC is obliged
to cancel any existing licenses and CPCs since these permits draw strength from the possession of a
valid franchise. If the point has not already been made clear, then licenses issued by the NTC such as
CPCs and provisional authorities are junior to the legislative franchise enacted by Congress. The
licensing authority of the NTC is not on equal footing with the franchising authority of the State through
Congress. The issuance of licenses by the NTC implements the legislative franchises established by
Congress, in the same manner that the executive branch implements the laws of Congress rather than
creates its own laws. And similar to the inability of the executive branch to prevent the implementation of
laws by Congress, the NTC cannot, without clear and proper delegation by Congress, prevent the
exercise of a legislative franchise by withholding or canceling the licenses of the franchisee.
And the role of the courts, through quo warranto proceedings, neatly complements the traditional
separation of powers that come to bear in our analysis. The courts are entrusted with the adjudication of

the legal status of persons, the final arbiter of their rights and obligations under law. The question of
whether a franchisee is in breach of the franchise specially enacted for it by Congress is one inherently
suited to a court of law, and not for an administrative agency, much less one to which no such function
has been delegated by Congress. In the same way that availability of judicial review over laws does not
preclude Congress from undertaking its own remedial measures by appropriately amending laws, the
viability of quo warranto in the instant cases does not preclude Congress from enforcing its own
prerogative by abrogating the legislative franchises of respondents should it be distressed enough by the
franchisees violation of the franchises extended to them.
Evidently, the suggested theory of petitioner to address his plaints simply overpowers the delicate balance
of separation of powers, and unduly grants superlative prerogatives to the NTC to frustrate the exercise of
the constitutional freedom speech, expression, and of the press. A more narrowly-tailored relief that is
responsive to the cause of petitioner not only exists, but is in fact tailor-fitted to the constitutional
framework of our government and the adjudication of legal and constitutional rights. Given the current
status of the law, there is utterly no reason for this Court to subscribe to the theory that the NTC has the
presumed authority to cancel licenses and CPCs issued to due holders of legislative franchise to engage
in broadcast operations.
V.
An entire subset of questions may arise following this decision, involving issues or situations not presently
before us. We wish to make clear that the only aspect of the regulatory jurisdiction of the NTC that we are
ruling upon is its presumed power to cancel provisional authorities, CPCs or CPCNs and other such
licenses required of franchisees before they can engage in broadcast operations. Moreover, our
conclusion that the NTC has no such power is borne not simply from the statutory language of E.O. No.
546 or the respective stipulations in private respondents franchises, but moreso, from the application of
the strict scrutiny standard which, despite its weight towards free speech, still involves the analysis of the
competing interests of the regulator and the regulated.
In resolving the present questions, it was of marked impact to the Court that the presumed power to
cancel would lead to utterly fatal consequences to the constitutional right to expression, as well as the
legislated right of these franchisees to broadcast. Other regulatory measures of less drastic impact will
have to be assessed on their own terms in the proper cases, and our decision today should not be
accepted or cited as a blanket shearing of the NTCs regulatory jurisdiction. In addition, considering our
own present recognition of legislative authority to regulate broadcast media on terms more cumbersome
than print media, it should not be discounted that Congress may enact amendments to the organic law of
the NTC that would alter the legal milieu from which we adjudicated today.
1avvphi1.zw+

Still, the Court sees all benefit and no detriment in striking this blow in favor of free expression and of the
press. While the ability of the State to broadly regulate broadcast media is ultimately dictated by physics,
regulation with a light touch evokes a democracy mature enough to withstand competing viewpoints and
tastes. Perhaps unwittingly, the position advocated by petitioner curdles a most vital sector of the press
broadcast media within the heavy hand of the State. The argument is not warranted by law, and it
betrays the constitutional expectations on this Court to assert lines not drawn and connect the dots
around throats that are free to speak.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
DANTE O. TINGAAssociate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairman

CONCHITA CARPIO MORALES

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

DIOSDADO M. PERALTA*
Associate Justice
ATTE S TATI O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairman, Second Division
C E R TI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
Additional member as replacement of Justice Arturo D. Brion who is on official leave per Special
Order No. 587.
*

Under Republic Act No. 3902.

See Rollo, p. 45.

See Constitution, Art. XII, Sec. 11, which provides in part: "The State shall encourage equity
participation in public utilities by the general public." Particular to mass media organizations, one
may also refer to Section 11(1), Article XVI, Constitution, which provides in part: "The Congress
shall regulate or prohibit monopolies in commercial mass media when the public interest so
requires. No combinations in restraint of trade or unfair competition therein shall be allowed."
3

See rollo, pp. 73, 75; citing Section 9, R.A. No. 7477 and Section 3, R.A. No. 7582. Even as the
above-cited provision is found in both sections, Section 9 of Rep. Act No. 7477 is captioned
"Democratization of Ownership;" while Section 3 of Rep. Act No. 7582 is captioned "Public
Ownership." Nonetheless, the variance in caption has no bearing for this Court, which
acknowledges the sameness of both provisions.
4

See id. at 92, 96. In the case of CBS, it was likewise granted a Provisional Authority to install,
operate and maintain a Cable Television System in Aroroy, Masbate. See id. at 96.
5

Petitioner died on 14 April 2004 and is now legally represented by his daughter, Elsa. See id. at
207.
6

Id. at 91-94, docketed as Adm. Case No. 99-022.

Id. at 95-98, docketed as Adm. Case No. 99-023.

Id. at 91, 95. In the complaint against CBS, petitioner stated that he was the actual and
beneficial owner of Twelve percent (12%) of the shares of stock "of PBS," id. at 95. This appears
to be a typographical error, petitioner intending to say therein "of CBS." This conclusion is borne
out by the fact that the present petition alleges petitioners ownership "of twelve (12%) percent of
the shares of stock of [PBS] and twelve (12%) percent of the shares of CBS," id. at 12, and also
by the narration of facts of the Court of Appeals which states that "[p]etitioner owns twelve (12%)
percent of the shares of stock of [CBS] and twelve (12%) percent of the shares of stock of [PBS],"
id. at 45.
9

10

Id. at 93, 97.

11

Id.

Id. at 100-106. Decision signed by Deputy Commissioners Aurelio M. Umali and Nestor
Dacanay.
12

13

Id. at 103.

14

Id. at 104-105.

15

Id. at 107-113.

16

Id. at 53-70.

Id. at 44-52. Penned by Associate Justice Regalado Maambong, concurred in by Associate

Justices Buenaventura Guerrero and Andres Reyes, Jr.
17

See id. at 103. "We [at the NTC] are cognizant that the Commission has full jurisdiction to
revoke or cancel a PA or even a CPC for violation or infractions of the terms and conditions
embodied therein."
18

"An Act Providing for the Regulation of Radio Stations and Radio Communications in the
Philippine Islands, And For Other Purposes." 27 Public Laws 294-297.
19

Mystifyingly, the official website of the National Telecommunications Commission has

published therein a "Republic Act No. 3846," purportedly enacted on 10 August 1963,
which has exactly the same title as Act No. 3846 of 1931.
(http://portal.ntc.gov.ph/wps/portal/!ut/p/
_s.7_0_A/7_0_LU/.cmd/ad/.ps/X/.c/6_0_FM/.ce/7_0_95U/.p/5_0_7DI/.d/0?
PC_7_0_95U_F=law3846.html#7_0_95U, last visited 24 November 2008) A similar
"Republic Act No. 3846" dated to 1963 is also published in the popular but unofficial
online compilation prepared by the Chan Robles Virtual Law Library
(http://www.chanrobles.com/republicacts/republicactno3846.html, last visited 24
November 2008). However, as confirmed by the Supreme Court Library, "Republic Act
No. 3846" is in fact a general appropriations law and not a statute governing the
regulation of radio stations in the Philippines.
See Act No. 3846 (1931), Sec. 1, as amended by Commonwealth Act No. 365, Commonwealth
Act No. 571 and Republic Act No. 584 (1950).
20

See Act No. 3846 (1931), Sec. 2 as amended by Republic Act No. 584 (1950). The Cabinet
Secretary originally designated in Sections 2 and 3 of the law was the Secretary of Commerce
and Communications.
21

22

See Act No. 3846 (1931), as amended by Republic Act No. 584 (1950).

23

With the passage of the Communications Act of 1934.

It has been entrenched in American constitutional law that the Internet enjoys the same degree
of constitutional protection as print media, in contrast to the lower level of First Amendment
protection guaranteed to broadcast media. See Reno v. ACLU, 521 U.S. 844 (1997);
24

"Although broadcasting is clearly a medium affected by a First Amendment interest, United

States v. Paramount Pictures, Inc., 334 U.S. 131, 166 (1948), differences in the characteristics of
new media justify differences in the First Amendment standards applied to them. Joseph Burstyn,
Inc. v. Wilson, 343 U.S. 495, 503 (1952). For example, the ability of new technology to produce
sounds more raucous than those of the human voice justifies restrictions on the sound level, and
on the hours and places of use, of sound trucks so long as the restrictions are reasonable and
applied without discrimination. Kovacs v. Cooper, 336 U.S. 77(1949). Just as the Government
may limit the use of sound-amplifying equipment potentially so noisy that it drowns out civilized
private speech, so may the Government limit the use of broadcast equipment. The right of free
speech of a broadcaster, the user of a sound truck, or any other individual does not embrace a
right to snuff out the free speech of others. Associated Press v. United States, 326 U.S. 1,
20 (1945).
25

When two people converse face to face, both should not speak at once if either is to be
clearly understood. But the range of the human voice is so limited that there could be
meaningful communications if half the people in the United States were talking and the
other half listening. Just as clearly, half the people might publish and the other half read.
But the reach of radio signals is [395 U.S. 367, 388] incomparably greater than the range
of the human voice and the problem of interference is a massive reality. The lack of
know-how and equipment may keep many from the air, but only a tiny fraction of those
with resources and intelligence can hope to communicate by radio at the same time if
intelligible communication is to be had, even if the entire radio spectrum is utilized in the
present state of commercially acceptable technology." Red Lion v. FCC, infra, at 386-387.
26

395 U.S. 367 (1969).

27

Id. at 396 -398.

28

Id. at 388-389.

29

Id. at 390-391.

30

352 Phil. 153 (1998).

31

Id. at 182-183.

32

See, e.g., Eastern Broadcasting Corp. (DYRE) v. Hon. Dans, Jr., 222 Phil. 151 (1985).

33

See Section 13(b), C.A. No. 146, as amended.

See Section 14, C.A. No. 146, as amended. This point was made especially clear in Radio
Communications of the Philippines, Inc. v. Santiago, G.R. Nos. L-29236 & 29247, 21 August
1974, 58 SCRA 493, 495-497; and Radio Communications of the Philippine, v. National
Telecommunications Commission, G.R. No. 93237, 6 November 1992, 215 SCRA 455.
34

35

445 Phil. 621 (2003).

36

See id. at 637.

37

Id.

38

Id. at 637-640.

39

Id. at 644.

40

Id. at 645.

41

The provision reads:

Section 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.

42

Earlier known as the Secretary of Commerce and Communications.

43

Act No. 3846 (1931), Sec. 2.

Act No. 3846 (1931), Sec. 3. That function later devolved to the Director, Telecommunication
Control Bureau of the Department of Public Works and Communications.
44

45

Act No. 3846 (1931), Sec. 3(k).

46

Act No. 3846 (1931), Sec. 3(m).

47

Executive Order No. 546 (1979), Sec. 15(a).

Act No. 3846 (1931), Sec. 3; See also Bolinao Electronics Corp., et al. v. Valencia and San
Andres, 120 Phil. 469 (1964).
48

49

See Presidential Decree No. 1 (1972).

50

See Integrated Reorganization Plan, Part X, Chapter I, Article II.

51

See Integrated Reorganization Plan, Part X, Chapter I, Article III, Sec. 1.

"5. The Board of Communications shall be composed of a full-time Chairman who shall be of
unquestioned integrity and recognized prominence in previous public and/or private employment;
two full-time members who shall be competent on all aspects of communications and preferably
one of whom shall be a lawyer and the other an economist; and the Director of the Radio Control
Office and a senior representative of the Institute of Mass Communication of the University of the
Philippines, as ex-officio members.
52

The functions of this Board are as follows:

a. Issue Certificates of Public Convenience for the operation of communications utilities

and services, radio communications systems, wire or wireless telephone or telegraph
systems, radio and television broadcasting systems and other similar public utilities;
b. Establish, prescribe and regulate routes, zones and/or areas of operation of particular
operator of public service communications; and determine, fix and/or prescribe charges
and/or rates pertinent to the operation of such public utility facilities and services except
in cases where charges or rates are established by international bodies or associations of
which the Philippines is a participating member or by bodies recognized by the Philippine
Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems, radio communications systems and radio and television broadcasting systems
including amateur radio stations;
d. Suballocate series of frequencies of bands allocated by the International
Telecommunications Union to the specific services;
e. Establish, fix and/or prescribe rules, regulations, standards, specifications in all cases
related to the Issued Certificates of Public Convenience and administer and enforce the
same through the Radio Control Office of the Department;
f. Promulgate rules requiring any operator of any public communications utilities to equip,
install and provide in such utilities and in their stations such devices, equipment, facilities
and operating procedures and techniques as may promote or insure the highest degree
of safety, protection, comfort and convenience to persons, and property in their charge as
well as the safety of persons and property within their areas of operation;
g. Coordinate and cooperate with government agencies and entities concerned with any
aspect involving communications with a view to continually improve the communications
service in the country;
h. Make such rules and regulations, as public interest may require, to encourage a larger
and more effective use of communications, radio and television broadcasting facilities,
and to maintain competition in these activities whenever the Board finds it reasonably
feasible;
i. Promulgate from time to time, such rules and regulations, and prescribe such
restrictions and conditions, not inconsistent with law, as public convenience, interest or
necessity may require; and
j. Exercise such other functions as may be prescribed by law."
53

See Section 14, E.O. No. 546 (1972)

54

Rollo, p. 32.

55

See note 34.

56

Id. at 460-461.

57

468 U.S. 364 (1984).

58

Id. at 395.

59

See R.A. No. 7477 (1992), Sec. 3.

60

See R.A. Act No. 3902 (1964) in relation with R.A. No. 7582 (1992), Sec. 2.

61

See Rules of Court, Sec. 1.

62

Id.

63

See Section 2, Rule 66.

O. Herrerra, III Remedial Law (1999 ed.), at 295; citing Newman v. U.S., 238 U.S. 537, 545, 56
L.Ed. 513, and Moran, Comments on the Rules of Court, Vol. 3, 1970 ed.
64

65

PLDT v. NTC, G.R. No. 88404, 18 October 1990, 190 SCRA 717, 730-731.

66

Id.

67

Kilosbayan v. Morato, 316 Phil. 652 (1995).

68

PLDT v. NTC, G.R. No. 88404, 18 October 1990, 190 SCRA 717.

69

Rollo, pp. 49-50.