SECOND DIVISION [G.R. No. 148496.

March 19, 2002] VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent. DECISION MENDOZA, J.: This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of damaged cargo handled by petitioner, 25% thereof as attorneys fees, and the cost of the suit. The facts are as follows: Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc. On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft liner board were likewise torn. The damage was placed at P93,112.00. SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the shipment. The trial court held: It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report (Exh. F) with entries appearing therein, classified as TED and TSN, which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the damaged condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which provides among others that: . . . we opine that damages sustained by shipment is attributable to improper handling in transit presumably whilst in the custody of the broker . . . . is a finding which cannot be traversed and overturned. The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not liable. Defendant by reason of the nature of [her] business should have devised ways and means in order to prevent the damage to the cargoes which it is under obligation to take custody of and to forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she] performed to prevent [the] said incident, hence the presumption is that the moment the defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the cargo. . . . . Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove

that they have observed the extraordinary diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent with its liability. (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.) Defendant, being a customs brother, warehouseman and at the same time a common carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of and received by the carrier for transportation until the same are delivered actually or constructively by the carrier to the consignee or to the person who has the right to receive the same.[3] Accordingly, the trial court ordered petitioner to pay the following amounts 1. The sum of P93,112.00 plus interest; 2. 25% thereof as lawyers fee; 3. Costs of suit.[4] The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari. Petitioner contends that: I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE. II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5] It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common carrier, although both the trial court and the Court of Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her, would require.[6] Consequently, any damage to the cargo she agrees to transport cannot be presumed to have been due to her fault or negligence. Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common carrier but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her services out to the public but only offers the same to select parties with whom she may contract in the conduct of her business. The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a similar contention and held the party to be a common carrier, thus The Civil Code defines common carriers in the following terms: Article 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. The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732

distinguish between a carrier offering its services to the general public, i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1732 deliberately refrained from making such distinctions. So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly with the notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, public service includes: x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. x x x [8] There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an integral part of her business. To uphold petitioners contention would be to deprive those with whom she contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for her customers, as already noted, is part and parcel of petitioners business. Now, as to petitioners liability, Art. 1733 of the Civil Code provides: 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. . . . In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in the vigilance over goods was explained thus: The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires. In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the spoilage or wettage took place while the goods were in the custody of either the carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit: MAXU-2062880 ICSU-363461-3 PERU-204209-4 TOLU-213674-3 MAXU-201406-0 ICSU-412105-0 rain gutter deformed/cracked left side rubber gasket on door distorted/partly loose with pinholes on roof panel right portion wood flooring we[t] and/or with signs of water soaked

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no personal knowledge on whether the container vans were first stored in petitioners warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita, Manila, which is a mere thirtyminute drive from the Port Area where the cargo came from. Thus, the damage to the cargo could not have taken place while these were in her custody.[11] Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors indicates that when the shipper transferred the cargo in question to the arrastre operator, these were covered by clean Equipment Interchange Report (EIR) and, when petitioners employees withdrew the cargo from the arrastre operator, they did so without exception or protest either with regard to the condition of container vans or their contents. The Survey Report pertinently reads Details of Discharge: Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were deemed to have [been] received in good condition. . . . . Transfer/Delivery: On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by Transorient Container Services, Inc. . . . without exception. [The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12] As found by the Court of Appeals: From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-appellant from the arrastre still in good order and condition as the same were received by the former without exception, that is, without any report of damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the consignee or make an exception on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the shipment in good order and condition and delivered the same to the consignee damaged. We can only conclude that the damages to the cargo occurred while it was in the possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No proof was proffered to rebut this legal presumption and the presumption of negligence attached to a common carrier in case of loss or damage to the goods.[13] Anent petitioners insistence that the cargo could not have been damaged while in her custody as she immediately delivered the containers to SMCs compound, suffice it to say that to prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used all reasonable means to ascertain the nature and characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to do this. Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides

with dent/crack on roof panel rubber gasket on left side/door panel partly detached loosened.[10] 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: . . . .

(4) The character of the goods or defects in the packing or in the containers. . . . . For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting therefrom.[14] In this case, petitioner accepted the cargo without exception despite the apparent defects in some of the container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art. 1735[15] holds. WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED. SO ORDERED. Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Accordingly, the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods during transport under 1735 of the Civil Code is not availing. Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and contract of the Civil Code as well as the law on quasi delicts. Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi delict provides for some presumption of negligence but only upon the attendance of some circumstances. Thus, Article 2185 provides: Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation. Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence, the presumption of negligence is not obtaining. Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendants driver was the one negligent, defendant cannot be made liable for the damages of the subject cargoes.[2]

FIRST DIVISION [G.R. No. 141910. August 6, 2002] FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, respondents. DECISION VITUG, J.: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental. The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining thusly: Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his own affirmative allegation, xxx. In the instant case, plaintiff did not present any single evidence that would prove that defendant is a common carrier. x x x x x x xxx

The subsequent motion for reconsideration having been denied,[3] plaintiff interposed an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee corporation was not a common carrier defined under the law and existing jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence. The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its decision of 10 June 1999, [4] discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a common carrier. Should the appellant fail to prove that the appellee is a common carrier, the presumption would not arise; consequently, the appellant would have to prove that the carrier was negligent. "x x x x x x xxx

"Because it is the appellant who insists that the appellees can still be considered as a common carrier, despite its `limited clientele, (assuming it was really a common carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side is superior to that of the other. (Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs complaint by the trial court is justified. "x x x x x x xxx

"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no choice but to comply with the directive of its principal, the inevitable conclusion is that the appellee is a private carrier. "x x x x x x xxx

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x. "Finally, We advert to the long established rule that conclusions and findings of fact of a trial court are entitled to great weight on appeal and should not be disturbed unless for strong and valid reasons."[5]

Petitioner's motion for reconsideration was likewise denied;[6] hence, the instant petition,[7] raising the following issues: I WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE. II WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION. III WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE. On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or entity, cannot be considered a common carrier. 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 hire or compensation, offering their services to the public,[8] whether to the public in general or to a limited clientele in particular, but never on an exclusive basis.[9] The true test of a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its transportation service for a fee. [10] Given accepted standards, GPS scarcely falls within the term common carrier. The above conclusion nothwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.[11] The law, recognizing the obligatory force of contracts,[12] will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.[13] A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promisee that may include his expectation interest, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party.[14] Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action.[15] The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation[16] unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing liability. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioners principal and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position.[17] Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioners

civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant.[18] A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing which caused the injury complained of is shown to be under the latters management and the accident is such that, in the ordinary course of things, cannot be expected to happen if those who have its management or control use proper care. It affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care.[19] It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of going forward with the proof.[20] Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the plaintiff.[21] Thus, it is not applicable when an unexplained accident may be attributable to one of several causes, for some of which the defendant could not be responsible.[22] Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from the nature of the relation of the parties.[23] Nevertheless, the requirement that responsible causes other than those due to defendants conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him. If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to have waived the right to present evidence.[24] Thus, respondent corporation may no longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the trial court. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur. FIRST DIVISION [G.R. No. 153563. February 07, 2005] NATIONAL TRUCKING AND FORWARDING CORPORATION, petitioner, vs. LORENZO SHIPPING CORPORATION, respondent. DECISION QUISUMBING, J.: For review on certiorari are the Decision[1] dated January 16, 2002, of the Court of Appeals, in CA-G.R. CV No. 48349, and its Resolution,[2] of May 13, 2002, denying the motion for reconsideration of herein petitioner National Trucking and Forwarding Corporation (NTFC). The impugned decision affirmed in toto the judgment[3] dated November 14, 1994 of the Regional Trial Court (RTC) of Manila, Branch 53, in Civil Case No. 90-52102. The undisputed facts, as summarized by the appellate court, are as follows:

On June 5, 1987, the Republic of the Philippines, through the Department of Health (DOH), and the Cooperative for American Relief Everywhere, Inc. (CARE) signed an agreement wherein CARE would acquire from the United States government donations of non-fat dried milk and other food products from January 1, 1987 to December 31, 1989. In turn, the Philippines would transport and distribute the donated commodities to the intended beneficiaries in the country. The government entered into a contract of carriage of goods with herein petitioner National Trucking and Forwarding Corporation (NTFC). Thus, the latter shipped 4,868 bags of non-fat dried milk through herein respondent Lorenzo Shipping Corporation (LSC) from September to December 1988. The consignee named in the bills of lading issued by the respondent was Abdurahman Jama, petitioners branch supervisor in Zamboanga City. On reaching the port of Zamboanga City, respondents agent, Efren Ruste[4] Shipping Agency, unloaded the 4,868 bags of non-fat dried milk and delivered the goods to petitioners warehouse. Before each delivery, Rogelio Rizada and Ismael Zamora, both delivery checkers of Efren Ruste Shipping Agency, requested Abdurahman to surrender the original bills of lading, but the latter merely presented certified true copies thereof. Upon completion of each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery receipts. However, at times when Abdurahman had to attend to other business before a delivery was completed, he instructed his subordinates to sign the delivery receipts for him. Notwithstanding the precautions taken, the petitioner allegedly did not receive the subject goods. Thus, in a letter dated March 11, 1989, petitioner NTFC filed a formal claim for non-delivery of the goods shipped through respondent. In its letter of April 26, 1989, the respondent explained that the cargo had already been delivered to Abdurahman Jama. The petitioner then decided to investigate the loss of the goods. But before the investigation was over, Abdurahman Jama resigned as branch supervisor of petitioner. Noting but disbelieving respondents insistence that the goods were delivered, the government through the DOH, CARE, and NTFC as plaintiffs filed an action for breach of contract of carriage, against respondent as defendant, with the RTC of Manila. After trial, the RTC resolved the case as follows: WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiffs, dismissing the latters complaint, and ordering the plaintiffs, pursuant to the defendants counterclaim, to pay, jointly and solidarily, to the defendant, actual damages in the amount of P50,000.00, and attorneys fees in the amount of P70,000.00, plus the costs of suit. SO ORDERED.[5] Dissatisfied with the foregoing ruling, herein petitioner appealed to the Court of Appeals. It faulted the lower court for not holding that respondent failed to deliver the cargo, and that respondent failed to exercise the extraordinary diligence required of common carriers. Petitioner also assailed the lower court for denying its claims for actual, moral, and exemplary damages, and for awarding actual damages and attorneys fees to the respondent.[6] The Court of Appeals found that the trial court did not commit any reversible error. It dismissed the appeal, and affirmed the assailed decision in toto. Undaunted, petitioner now comes to us, assigning the following errors: I THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE AND APPLY THE LEGAL STANDARD OF EXTRAORDINARY DILIGENCE IN THE SHIPMENT AND DELIVERY OF GOODS TO THE RESPONDENT AS A COMMON CARRIER, AS WELL AS THE ACCOMPANYING LEGAL PRESUMPTION OF FAULT OR NEGLIGENCE ON THE PART OF THE COMMON CARRIER, IF THE GOODS ARE LOST, DESTROYED OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.

II THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE BASELESS AND ARBITRARY AWARD OF ACTUAL DAMAGES AND ATTORNEYS FEES INASMUCH AS THE ORIGINAL COMPLAINT WAS FILED IN GOOD FAITH, WITHOUT MALICE AND WITH THE BEST INTENTION OF PROTECTING THE INTEREST AND INTEGRITY OF THE GOVERNMENT AND ITS CREDIBILITY AND RELATIONSHIP WITH INTERNATIONAL RELIEF AGENCIES AND DONOR STATES AND ORGANIZATION.[7] The issues for our resolution are: (1) Is respondent presumed at fault or negligent as common carrier for the loss or deterioration of the goods? and (2) Are damages and attorneys fees due respondent? Anent the first issue, petitioner contends that the respondent is presumed negligent and liable for failure to abide by the terms and conditions of the bills of lading; that Abdurahman Jamas failure to testify should not be held against petitioner; and that the testimonies of Rogelio Rizada and Ismael Zamora, as employees of respondents agent, Efren Ruste Shipping Agency, were biased and could not overturn the legal presumption of respondents fault or negligence. For its part, the respondent avers that it observed extraordinary diligence in the delivery of the goods. Prior to releasing the goods to Abdurahman, Rogelio and Ismael required the surrender of the original bills of lading, and in their absence, the certified true copies showing that Abdurahman was indeed the consignee of the goods. In addition, they required Abdurahman or his designated subordinates to sign the delivery receipts upon completion of each delivery. We rule for respondent. Article 1733[8] of the Civil Code demands that a common carrier observe extraordinary diligence over the goods transported by it. Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property or rights.[9] This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. Hence, in case of loss of goods in transit, the common carrier is presumed under the law to have been at fault or negligent.[10] However, the presumption of fault or negligence, may be overturned by competent evidence showing that the common carrier has observed extraordinary diligence over the goods. In the instant case, we agree with the court a quo that the respondent adequately proved that it exercised extraordinary diligence. Although the original bills of lading remained with petitioner, respondents agents demanded from Abdurahman the certified true copies of the bills of lading. They also asked the latter and in his absence, his designated subordinates, to sign the cargo delivery receipts. This practice, which respondents agents testified to be their standard operating procedure, finds support in Article 353 of the Code of Commerce: ART. 353. . . . After the contract has been complied with, the bill of lading which the carrier has issued shall be returned to him, and by virtue of the exchange of this title with the thing transported, the respective obligations and actions shall be considered cancelled, . In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier, because of its loss or of any other cause, he must give the latter a receipt for the goods delivered, this receipt producing the same effects as the return of the bill of lading. (Emphasis supplied) Conformably with the aforecited provision, the surrender of the original bill of lading is not a condition precedent for a common carrier to be discharged of its contractual obligation. If surrender of the original bill of lading is not possible, acknowledgment of the delivery by signing the delivery receipt suffices. This is what respondent did. We also note that some delivery receipts were signed by Abdurahmans subordinates and not by Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael testified that Abdurahman was always present

at the initial phase of each delivery, although on the few occasions when Abdurahman could not stay to witness the complete delivery of the shipment, he authorized his subordinates to sign the delivery receipts for him. This, to our mind, is sufficient and substantial compliance with the requirements. We further note that, strangely, petitioner made no effort to disapprove Abdurahmans resignation until after the investigation and after he was cleared of any responsibility for the loss of the goods. With Abdurahman outside of its reach, petitioner cannot now pass to respondent what could be Abdurahmans negligence, if indeed he were responsible. On the second issue, petitioner submits there is no basis for the award of actual damages and attorneys fees. It maintains that its original complaint for sum of money with damages for breach of contract of carriage was not fraudulent, in bad faith, nor malicious. Neither was the institution of the action rash nor precipitate. Petitioner avers the filing of the action was intended to protect the integrity and interest of the government and its relationship and credibility with international relief agencies and donor states. On the other hand, respondent maintains that petitioners suit was baseless and malicious because instead of going after its absconding employee, petitioner wanted to recoup its losses from respondent. The trial court and the Court of Appeals were justified in granting actual damages and reasonable attorneys fees to respondent. On this point, we agree with petitioner. The right to litigate should bear no premium. An adverse decision does not ipso facto justify an award of attorneys fees to the winning party.[11] When, as in the instant case, petitioner was compelled to sue to protect the credibility of the government with international organizations, we are not inclined to grant attorneys fees. We find no ill motive on petitioners part, only an erroneous belief in the righteousness of its claim. Moreover, an award of attorneys fees, in the concept of damages under Article 2208 of the Civil Code,[12] requires factual and legal justifications. While the law allows some degree of discretion on the part of the courts in awarding attorneys fees and expenses of litigation, the discretion must be exercised with great care approximating as closely as possible, the instances exemplified by the law.[13] We have searched but found nothing in petitioners suit that justifies the award of attorneys fees. Respondent failed to show proof of actual pecuniary loss, hence, no actual damages are due in favor of respondent. [14] WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 48349 dated January 16, 2002 and May 13, 2002 respectively, denying petitioners claim for actual, moral and exemplary damages are AFFIRMED. The award of actual damages and attorneys fees to respondent pursuant to the latters counterclaim in the trial court is DELETED. SO ORDERED. Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 84458 November 6, 1989

M.R. Villaluz Law Office for private respondent.

REGALADO, J.: In this appeal by certiorari, petitioner Aboitiz Shipping Corporation seeks a review of the decision 1 of respondent Court of Appeals, dated July 29, 1988, the decretal portion of which reads: WHEREFORE, the judgment appealed from as modified by the order of October 27, 1982, is hereby affirmed with the modification that appellant Aboitiz Shipping is hereby ordered to pay plaintiff-appellees the amount of P30,000.00 for the death of Anacleto Viana; actual damages of P9,800.00; P150,000.00 for unearned income; P7,200.00 as support for deceased's parents; P20,000.00 as moral damages; P10,000.00 as attorney's fees; and to pay the costs. The undisputed facts of the case, as found by the court a quo and adopted by respondent court, are as follows: . The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by defendant, at the port at San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket (No. 117392) in the sum of P23.10 (Exh. 'B'). On May 12, 1975, said vessel arrived at Pier 4, North Harbor, Manila, and the passengers therein disembarked, a gangplank having been provided connecting the side of the vessel to the pier. Instead of using said gangplank Anacleto Viana disembarked on the third deck which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of Agreement dated July 26, 1975 (Exh. '2') between the third party defendant Pioneer Stevedoring Corporation and defendant Aboitiz Shipping Corporation. The crane owned by the third party defendant and operated by its crane operator Alejo Figueroa was placed alongside the vessel and one (1) hour after the passengers of said vessel had disembarked, it started operation by unloading the cargoes from said vessel. While the crane was being operated, Anacleto Viana who had already disembarked from said vessel obviously remembering that some of his cargoes were still loaded in the vessel, went back to the vessel, and it was while he was pointing to the crew of the said vessel to the place where his cargoes were loaded that the crane hit him, pinning him between the side of the vessel and the crane. He was thereafter brought to the hospital where he later expired three (3) days thereafter, on May 15, 1975, the cause of his death according to the Death Certificate (Exh. "C") being "hypostatic pneumonia secondary to traumatic fracture of the pubic bone lacerating the urinary bladder" (See also Exh. "B"). For his hospitalization, medical, burial and other miscellaneous expenses, Anacleto's wife, herein plaintiff, spent a total of P9,800.00 (Exhibits "E", "E-1", to "E-5"). Anacleto Viana who was only forty (40) years old when he met said fateful accident (Exh. 'E') was in good health. His average annual income as a farmer or a farm supervisor was 400 cavans of palay annually. His parents, herein plaintiffs Antonio and Gorgonia Viana, prior to his death had been recipient of twenty (20) cavans of palay as support or P120.00 monthly. Because of Anacleto's death, plaintiffs suffered mental anguish and extreme worry or moral damages. For the filing of the instant case, they had to hire a lawyer for an agreed fee of ten thousand (P10,000.00) pesos. 2 Private respondents Vianas filed a complaint 3 for damages against petitioner corporation (Aboitiz, for brevity) for breach of contract of carriage. In its answer. 4 Aboitiz denied responsibility contending that at the time of the accident, the vessel was completely under the control of respondent Pioneer Stevedoring Corporation (Pioneer, for short) as the exclusive stevedoring contractor of Aboitiz, which handled the unloading of cargoes from the vessel of Aboitiz. It is also averred that since the crane operator was not an employee of Aboitiz, the latter cannot be held liable under the fellow-servant rule. Thereafter, Aboitiz, as third-party plaintiff, filed a third-party complaint 5 against Pioneer imputing liability thereto for Anacleto Viana's death as having been allegedly caused by the negligence of the crane operator who was an employee of Pioneer under its exclusive control and supervision. Pioneer, in its answer to the third-party complaint, 6 raised the defenses that Aboitiz had no cause of action against Pioneer considering that Aboitiz is being sued by the Vianas for breach of contract of carriage to which Pioneer is not a party; that Pioneer had observed the diligence of a good father of a family both in the selection and supervision of

ABOITIZ SHIPPING CORPORATION, petitioner, vs. HON. COURT OF APPEALS, ELEVENTH DIVISION, LUCILA C. VIANA, SPS. ANTONIO VIANA and GORGONIA VIANA, and PIONEER STEVEDORING CORPORATION, respondents. Herenio E. Martinez for petitioner.

its employees as well as in the prevention of damage or injury to anyone including the victim Anacleto Viana; that Anacleto Viana's gross negligence was the direct and proximate cause of his death; and that the filing of the thirdparty complaint was premature by reason of the pendency of the criminal case for homicide through reckless imprudence filed against the crane operator, Alejo Figueroa. In a decision rendered on April 17, 1980 by the trial court, 7 Aboitiz was ordered to pay the Vianas for damages incurred, and Pioneer was ordered to reimburse Aboitiz for whatever amount the latter paid the Vianas. The dispositive portion of said decision provides: WHEREFORE, judgment is hereby rendered in favor of the plantiffs: (1) ordering defendant Aboitiz Shipping Corporation to pay to plaintiffs the sum of P12,000.00 for the death of Anacleto Viana P9,800.00 as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan; P10,000.00 as attorney's fees; F 5,000.00, value of the 100 cavans of palay as support for five (5) years for deceased (sic) parents, herein plaintiffs Antonio and Gorgonia Viana computed at P50.00 per cavan; P7,200.00 as support for deceased's parents computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages, and costs; and (2) ordering the third party defendant Pioneer Stevedoring Corporation to reimburse defendant and third party plaintiff Aboitiz Shipping Corporation the said amounts that it is ordered to pay to herein plaintiffs. Both Aboitiz and Pioneer filed separate motions for reconsideration wherein they similarly raised the trial court's failure to declare that Anacleto Viana acted with gross negligence despite the overwhelming evidence presented in support thereof. In addition, Aboitiz alleged, in opposition to Pioneer's motion, that under the memorandum of agreement the liability of Pioneer as contractor is automatic for any damages or losses whatsoever occasioned by and arising from the operation of its arrastre and stevedoring service. In an order dated October 27, 1982, 8 the trial court absolved Pioneer from liability for failure of the Vianas and Aboitiz to preponderantly establish a case of negligence against the crane operator which the court a quo ruled is never presumed, aside from the fact that the memorandum of agreement supposedly refers only to Pioneer's liability in case of loss or damage to goods handled by it but not in the case of personal injuries, and, finally that Aboitiz cannot properly invoke the fellow-servant rule simply because its liability stems from a breach of contract of carriage. The dispositive portion of said order reads: WHEREFORE, judgment is hereby modified insofar as third party defendant Pioneer Stevedoring Corporation is concerned rendered in favor of the plaintiffs-,: (1) Ordering defendant Aboitiz Shipping Corporation to pay the plaintiffs the sum of P12,000.00 for the death of Anacleto Viana; P9,000.00 (sic) as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan; P10,000.00 as attorney's fees; P5,000.00 value of the 100 cavans of palay as support for five (5) years for deceased's parents, herein plaintiffs Antonio and Gorgonia Viana,computed at P50.00 per cavan; P7,200.00 as support for deceased's parents computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages, and costs; and (2) Absolving third-party defendant Pioneer Stevedoring Corporation for (sic) any liability for the death of Anacleto Viana the passenger of M/V Antonia owned by defendant third party plaintiff Aboitiz Shipping Corporation it appearing that the negligence of its crane operator has not been established therein. Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to respondent Court of Appeals which affirmed the findings of of the trial court except as to the amount of damages awarded to the Vianas. Hence, this petition wherein petitioner Aboitiz postulates that respondent court erred: (A) In holding that the doctrine laid down by this honorable Court in La Mallorca vs. Court of Appeals, et al. (17 SCRA 739, July 27, 1966) is applicable to the case in the face of the undisputable fact that the factual situation under the La Mallorca case is radically different from the facts obtaining in this case;

(B) In holding petitioner liable for damages in the face of the finding of the court a quo and confirmed by the Honorable respondent court of Appeals that the deceased, Anacleto Viana was guilty of contributory negligence, which, We respectfully submit contributory negligence was the proximate cause of his death; specifically the honorable respondent Court of Appeals failed to apply Art. 1762 of the New Civil Code; (C) In the alternative assuming the holding of the Honorable respondent Court of Appears that petitioner may be legally condemned to pay damages to the private respondents we respectfully submit that it committed a reversible error when it dismissed petitioner's third party complaint against private respondent Pioneer Stevedoring Corporation instead of compelling the latter to reimburse the petitioner for whatever damages it may be compelled to pay to the private respondents Vianas. 9 At threshold, it is to be observed that both the trial court and respondent Court of Appeals found the victim Anacleto Viana guilty of contributory negligence, but holding that it was the negligence of Aboitiz in prematurely turning over the vessel to the arrastre operator for the unloading of cargoes which was the direct, immediate and proximate cause of the victim's death. I. Petitioner contends that since one (1) hour had already elapsed from the time Anacleto Viana disembarked from the vessel and that he was given more than ample opportunity to unload his cargoes prior to the operation of the crane, his presence on the vessel was no longer reasonable e and he consequently ceased to be a passenger. Corollarily, it insists that the doctrine in La Mallorca vs. Court of Appeals, et al. 10 is not applicable to the case at bar. The rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner's dock or premises. 11 Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier's conveyance or had a reasonable opportunity to leave the carrier's premises. All persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. 12 The carrier-passenger relationship is not terminated merely by the fact that the person transported has been carried to his destination if, for example, such person remains in the carrier's premises to claim his baggage. 13 It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was enunciated, to wit: It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the station platform is considered still a passenger. So also, where a passenger has alighted at his destination and is proceeding by the usual way to leave the company's premises, but before actually doing so is halted by the report that his brother, a fellow passenger, has been shot, and he in good faith and without intent of engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger entitled as such to the protection of the railroad company and its agents. In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they alighted from the bus. Racquel, the child that she was, must have followed the father. However, although the father was still on the running board of the bus waiting for the conductor to hand him the bag or bayong, the bus started to run, so that even he (the father) had to jump down from the moving vehicle. It was at this instance that the child, who must be near the bus, was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had exercised the 'utmost diligence' of a 'very cautious person' required by Article 1755 of the Civil Code to be observed by a common carrier in the discharge of its obligation to transport safely its passengers. ... The presence of said passengers near the bus was not unreasonable and they are, therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract of carriage. 14 It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact of the passenger's reasonable presence within the carrier's premises. That reasonableness of time should be made to depend on the attending circumstances of the case, such as the kind of common carrier, the nature of its business,

the customs of the place, and so forth, and therefore precludes a consideration of the time element per se without taking into account such other factors. It is thus of no moment whether in the cited case of La Mallorca there was no appreciable interregnum for the passenger therein to leave the carrier's premises whereas in the case at bar, an interval of one (1) hour had elapsed before the victim met the accident. The primary factor to be considered is the existence of a reasonable cause as will justify the presence of the victim on or near the petitioner's vessel. We believe there exists such a justifiable cause. It is of common knowledge that, by the very nature of petitioner's business as a shipper, the passengers of vessels are allotted a longer period of time to disembark from the ship than other common carriers such as a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load, such vessels are capable of accommodating a bigger volume of both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time. Verily, petitioner cannot categorically claim, through the bare expedient of comparing the period of time entailed in getting the passenger's cargoes, that the ruling in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the doctrine enunciated therein to the instant petition, we cannot in reason doubt that the victim Anacleto Viana was still a passenger at the time of the incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he had every right to do, from petitioner's vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely to their destination but also to afford them a reasonable time to claim their baggage. It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked from the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as to the minimum time of one (1) hour allowed for the passengers to disembark, it may be presumed that the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioner's premises was not without cause. The victim had to claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly standard procedure in the case of petitioner's vessels that the unloading operations shall start only after that time. Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the time of his tragic death. II. Under the law, common carriers are, from the nature of their business and for reasons of public policy, 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. 15 More particularly, a common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. 16 Thus, where a passenger dies or is injured, the common carrier is presumed to have been at fault or to have acted negligently. 17 This gives rise to an action for breach of contract of carriage where all that is required of plaintiff is to prove the existence of the contract of carriage and its non-performance by the carrier, that is, the failure of the carrier to carry the passenger safely to his destination, 18 which, in the instant case, necessarily includes its failure to safeguard its passenger with extraordinary diligence while such relation subsists. The presumption is, therefore, established by law that in case of a passenger's death or injury the operator of the vessel was at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it to rebut the same. This is in consonance with the avowed policy of the State to afford full protection to the passengers of common carriers which can be carried out only by imposing a stringent statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a rigid posture in the application of the law by exacting the highest degree of care and diligence from common carriers, bearing utmost in mind the welfare of the passengers who often become hapless victims of indifferent and profit-oriented carriers. We cannot in reason deny that petitioner failed to rebut the presumption against it. Under the facts obtaining in the present case, it cannot be gainsaid that petitioner had inadequately complied with the required degree of diligence to prevent the accident from happening. As found by the Court of Appeals, the evidence does not show that there was a cordon of drums around the perimeter of the crane, as claimed by petitioner. It also adverted to the fact that the alleged presence of visible warning signs in the vicinity was disputable and not indubitably established. Thus, we are not inclined to accept petitioner's explanation that the victim and other passengers were sufficiently warned that merely venturing into the area in question was fraught with serious peril. Definitely, even assuming the existence of the supposed cordon of drums loosely placed around the unloading area and the guard's admonitions against entry therein, these were at

most insufficient precautions which pale into insignificance if considered vis-a-vis the gravity of the danger to which the deceased was exposed. There is no showing that petitioner was extraordinarily diligent in requiring or seeing to it that said precautionary measures were strictly and actually enforced to subserve their purpose of preventing entry into the forbidden area. By no stretch of liberal evaluation can such perfunctory acts approximate the "utmost diligence of very cautious persons" to be exercised "as far as human care and foresight can provide" which is required by law of common carriers with respect to their passengers. While the victim was admittedly contributorily negligent, still petitioner's aforesaid failure to exercise extraordinary diligence was the proximate and direct cause of, because it could definitely have prevented, the former's death. Moreover, in paragraph 5.6 of its petition, at bar, 19 petitioner has expressly conceded the factual finding of respondent Court of Appeals that petitioner did not present sufficient evidence in support of its submission that the deceased Anacleto Viana was guilty of gross negligence. Petitioner cannot now be heard to claim otherwise. No excepting circumstance being present, we are likewise bound by respondent court's declaration that there was no negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the trial court's finding to that effect, hence our conformity to Pioneer's being absolved of any liability. As correctly observed by both courts, Aboitiz joined Pioneer in proving the alleged gross negligence of the victim, hence its present contention that the death of the passenger was due to the negligence of the crane operator cannot be sustained both on grounds, of estoppel and for lack of evidence on its present theory. Even in its answer filed in the court below it readily alleged that Pioneer had taken the necessary safeguards insofar as its unloading operations were concerned, a fact which appears to have been accepted by the plaintiff therein by not impleading Pioneer as a defendant, and likewise inceptively by Aboitiz by filing its third-party complaint only after ten (10) months from the institution of the suit against it. Parenthetically, Pioneer is not within the ambit of the rule on extraordinary diligence required of, and the corresponding presumption of negligence foisted on, common carriers like Aboitiz. This, of course, does not detract from what we have said that no negligence can be imputed to Pioneer but, that on the contrary, the failure of Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale for our finding on its liability. WHEREFORE, the petition is DENIED and the judgment appealed from is hereby AFFIRMED in toto. SO ORDERED. Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 95582 October 7, 1991

DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y MALECDAN, petitioners, vs. COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY, FERNANDO CUDLAMAT, MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA CUDIAMAT, all Heirs of the late Pedrito Cudiamat represented by Inocencia Cudiamat, respondents. Francisco S. Reyes Law Office for petitioners. Antonio C. de Guzman for private respondents.

REGALADO, J.:p

On May 13, 1985, private respondents filed a complaint 1 for damages against petitioners for the death of Pedrito Cudiamat as a result of a vehicular accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet. Among others, it was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a passenger bus belonging to petitioner corporation in a reckless and imprudent manner and without due regard to traffic rules and regulations and safety to persons and property, it ran over its passenger, Pedrito Cudiamat. However, instead of bringing Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and without regard to the welfare of the victim, first brought his other passengers and cargo to their respective destinations before banging said victim to the Lepanto Hospital where he expired. On the other hand, petitioners alleged that they had observed and continued to observe the extraordinary diligence required in the operation of the transportation company and the supervision of the employees, even as they add that they are not absolute insurers of the safety of the public at large. Further, it was alleged that it was the victim's own carelessness and negligence which gave rise to the subject incident, hence they prayed for the dismissal of the complaint plus an award of damages in their favor by way of a counterclaim. On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners, with this decretal portion: IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat was negligent, which negligence was the proximate cause of his death. Nonetheless, defendants in equity, are hereby ordered to pay the heirs of Pedrito Cudiamat the sum of P10,000.00 which approximates the amount defendants initially offered said heirs for the amicable settlement of the case. No costs. SO ORDERED. 2 Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a decision 3 in CA-G.R. CV No. 19504 promulgated on August 14, 1990, set aside the decision of the lower court, and ordered petitioners to pay private respondents: 1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of the victim Pedrito Cudiamat; 2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;

of being closed. This should be so, for it is hard to believe that one would even attempt to board a vehicle (i)n motion if the door of said vehicle is closed. Here lies the defendant's lack of diligence. Under such circumstances, equity demands that there must be something given to the heirs of the victim to assuage their feelings. This, also considering that initially, defendant common carrier had made overtures to amicably settle the case. It did offer a certain monetary consideration to the victim's heirs. 7 However, respondent court, in arriving at a different opinion, declares that: From the testimony of appellees'own witness in the person of Vitaliano Safarita, it is evident that the subject bus was at full stop when the victim Pedrito Cudiamat boarded the same as it was precisely on this instance where a certain Miss Abenoja alighted from the bus. Moreover, contrary to the assertion of the appellees, the victim did indicate his intention to board the bus as can be seen from the testimony of the said witness when he declared that Pedrito Cudiamat was no longer walking and made a sign to board the bus when the latter was still at a distance from him. It was at the instance when Pedrito Cudiamat was closing his umbrella at the platform of the bus when the latter made a sudden jerk movement (as) the driver commenced to accelerate the bus. Evidently, the incident took place due to the gross negligence of the appellee-driver in prematurely stepping on the accelerator and in not waiting for the passenger to first secure his seat especially so when we take into account that the platform of the bus was at the time slippery and wet because of a drizzle. The defendants-appellees utterly failed to observe their duty and obligation as common carrier to the end that they should observe extra-ordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to the circumstances of each case (Article 1733, New Civil Code). 8 After a careful review of the evidence on record, we find no reason to disturb the above holding of the Court of Appeals. Its aforesaid findings are supported by the testimony of petitioners' own witnesses. One of them, Virginia Abalos, testified on cross-examination as follows: Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the incident, there is a crossing? A The way going to the mines but it is not being pass(ed) by the bus. Q And the incident happened before bunkhouse 56, is that not correct? A It happened between 54 and 53 bunkhouses. 9

3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and compensatory damages; 4. The costs of this suit. 4

The bus conductor, Martin Anglog, also declared: Q When you arrived at Lepanto on March 25, 1985, will you please inform this Honorable Court if there was anv unusual incident that occurred? A When we delivered a baggage at Marivic because a person alighted there between Bunkhouse 53 and 54. Q What happened when you delivered this passenger at this particular place in Lepanto?

Petitioners' motion for reconsideration was denied by the Court of Appeals in its resolution dated October 4, 1990, 5 hence this petition with the central issue herein being whether respondent court erred in reversing the decision of the trial court and in finding petitioners negligent and liable for the damages claimed. It is an established principle that the factual findings of the Court of Appeals as a rule are final and may not be reviewed by this Court on appeal. However, this is subject to settled exceptions, one of which is when the findings of the appellate court are contrary to those of the trial court, in which case a reexamination of the facts and evidence may be undertaken. 6 In the case at bar, the trial court and the Court of Appeal have discordant positions as to who between the petitioners an the victim is guilty of negligence. Perforce, we have had to conduct an evaluation of the evidence in this case for the prope calibration of their conflicting factual findings and legal conclusions. The lower court, in declaring that the victim was negligent, made the following findings:

A When we reached the place, a passenger alighted and I signalled my driver. When we stopped we went out because I saw an umbrella about a split second and I signalled again the driver, so the driver stopped and we went down and we saw Pedrito Cudiamat asking for help because he was lying down. Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying down from the bus how far was he? A It is about two to three meters. Q On what direction of the bus was he found about three meters from the bus, was it at the front or at the back?

This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a moving vehicle, especially with one of his hands holding an umbrella. And, without having given the driver or the conductor any indication that he wishes to board the bus. But defendants can also be found wanting of the necessary diligence. In this connection, it is safe to assume that when the deceased Cudiamat attempted to board defendants' bus, the vehicle's door was open instead

A At the back, sir. 10 (Emphasis supplied.)

The foregoing testimonies show that the place of the accident and the place where one of the passengers alighted were both between Bunkhouses 53 and 54, hence the finding of the Court of Appeals that the bus was at full stop when the victim boarded the same is correct. They further confirm the conclusion that the victim fell from the platform of the bus when it suddenly accelerated forward and was run over by the rear right tires of the vehicle, as shown by the physical evidence on where he was thereafter found in relation to the bus when it stopped. Under such circumstances, it cannot be said that the deceased was guilty of negligence. The contention of petitioners that the driver and the conductor had no knowledge that the victim would ride on the bus, since the latter had supposedly not manifested his intention to board the same, does not merit consideration. When the bus is not in motion there is no necessity for a person who wants to ride the same to signal his intention to board. A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the duty of the driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a passenger while he was attempting to board the same. The premature acceleration of the bus in this case was a breach of such duty. 11 It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus, to stop their conveyances a reasonable length of time in order to afford passengers an opportunity to board and enter, and they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their conveyances while they are doing so. 12 Further, even assuming that the bus was moving, the act of the victim in boarding the same cannot be considered negligent under the circumstances. As clearly explained in the testimony of the aforestated witness for petitioners, Virginia Abalos, th bus had "just started" and "was still in slow motion" at the point where the victim had boarded and was on its platform. 13 It is not negligence per se, or as a matter of law, for one attempt to board a train or streetcar which is moving slowly. 14 An ordinarily prudent person would have made the attempt board the moving conveyance under the same or similar circumstances. The fact that passengers board and alight from slowly moving vehicle is a matter of common experience both the driver and conductor in this case could not have been unaware of such an ordinary practice. The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty which the carrier passengers owes to its patrons extends to persons boarding cars as well as to those alighting therefrom. 15 Common carriers, from the nature of their business and reasons of public policy, are bound to observe extraordina diligence for the safety of the passengers transported by the according to all the circumstances of each case. 16 A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence very cautious persons, with a due regard for all the circumstances. 17 It has also been repeatedly held that in an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought by the passenger. By contract of carriage, the carrier assumes the express obligation to transport the passenger to his destination safely and observe extraordinary diligence with a due regard for all the circumstances, and any injury that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. This is an exception to the general rule that negligence must be proved, and it is therefore incumbent upon the carrier to prove that it has exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. 18 Moreover, the circumstances under which the driver and the conductor failed to bring the gravely injured victim immediately to the hospital for medical treatment is a patent and incontrovertible proof of their negligence. It defies understanding and can even be stigmatized as callous indifference. The evidence shows that after the accident the bus could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted to first proceed to Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the serious condition of the victim. The vacuous reason given by petitioners that it was the wife of the deceased who caused the delay was tersely and correctly confuted by respondent court:

... The pretension of the appellees that the delay was due to the fact that they had to wait for about twenty minutes for Inocencia Cudiamat to get dressed deserves scant consideration. It is rather scandalous and deplorable for a wife whose husband is at the verge of dying to have the luxury of dressing herself up for about twenty minutes before attending to help her distressed and helpless husband. 19 Further, it cannot be said that the main intention of petitioner Lardizabal in going to Bunk 70 was to inform the victim's family of the mishap, since it was not said bus driver nor the conductor but the companion of the victim who informed his family thereof. 20 In fact, it was only after the refrigerator was unloaded that one of the passengers thought of sending somebody to the house of the victim, as shown by the testimony of Virginia Abalos again, to wit: Q Why, what happened to your refrigerator at that particular time?

A I asked them to bring it down because that is the nearest place to our house and when I went down and asked somebody to bring down the refrigerator, I also asked somebody to call the family of Mr. Cudiamat. COURT: Q A Q A Why did you ask somebody to call the family of Mr. Cudiamat? Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of Mr. Cudiamat. But nobody ask(ed) you to call for the family of Mr. Cudiamat? No sir. 21

With respect to the award of damages, an oversight was, however, committed by respondent Court of Appeals in computing the actual damages based on the gross income of the victim. The rule is that the amount recoverable by the heirs of a victim of a tort is not the loss of the entire earnings, but rather the loss of that portion of the earnings which the beneficiary would have received. In other words, only net earnings, not gross earnings, are to be considered, that is, the total of the earnings less expenses necessary in the creation of such earnings or income and minus living and other incidental expenses. 22 We are of the opinion that the deductible living and other expense of the deceased may fairly and reasonably be fixed at P500.00 a month or P6,000.00 a year. In adjudicating the actual or compensatory damages, respondent court found that the deceased was 48 years old, in good health with a remaining productive life expectancy of 12 years, and then earning P24,000.00 a year. Using the gross annual income as the basis, and multiplying the same by 12 years, it accordingly awarded P288,000. Applying the aforestated rule on computation based on the net earnings, said award must be, as it hereby is, rectified and reduced to P216,000.00. However, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 23 WHEREFORE, subject to the above modifications, the challenged judgment and resolution of respondent Court of Appeals are hereby AFFIRMED in all other respects. SO ORDERED. Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20761 July 27, 1966

LA MALLORCA, petitioner,

vs. HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents. G. E. Yabut, R. Monterey and M.C. Lagman for petitioner. Ahmed Garcia for respondents. BARRERA, J.: La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No. 23267-R, holding it liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et al., P6,000.00 for the death of his minor daughter Raquel Beltran, plus P400.00 as actual damages. The facts of the case as found by the Court of Appeals, briefly are: On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their minor daughters, namely, Milagros, 13 years old, Raquel, about 4 years old, and Fe, over 2 years old, boarded the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953 Pampanga), owned and operated by the defendant, at San Fernando, Pampanga, bound for Anao, Mexico, Pampanga. At the time, they were carrying with them four pieces of baggages containing their personal belonging. The conductor of the bus, who happened to be a half-brother of plaintiff Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full fares of the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and Fe, since both were below the height at which fare is charged in accordance with the appellant's rules and regulations. After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers bound therefor, among whom were the plaintiffs and their children to get off. With respect to the group of the plaintiffs, Mariano Beltran, then carrying some of their baggages, was the first to get down the bus, followed by his wife and his children. Mariano led his companions to a shaded spot on the left pedestrians side of the road about four or five meters away from the vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which he had left behind, but in so doing, his daughter Raquel followed him, unnoticed by her father. While said Mariano Beltran was on the running board of the bus waiting for the conductor to hand him his bayong which he left under one of its seats near the door, the bus, whose motor was not shut off while unloading, suddenly started moving forward, evidently to resume its trip, notwithstanding the fact that the conductor has not given the driver the customary signal to start, since said conductor was still attending to the baggage left behind by Mariano Beltran. Incidentally, when the bus was again placed into a complete stop, it had travelled about ten meters from the point where the plaintiffs had gotten off. Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the running board without getting his bayong from the conductor. He landed on the side of the road almost in front of the shaded place where he left his wife and children. At that precise time, he saw people beginning to gather around the body of a child lying prostrate on the ground, her skull crushed, and without life. The child was none other than his daughter Raquel, who was run over by the bus in which she rode earlier together with her parents. For the death of their said child, the plaintiffs commenced the present suit against the defendant seeking to recover from the latter an aggregate amount of P16,000 to cover moral damages and actual damages sustained as a result thereof and attorney's fees. After trial on the merits, the court below rendered the judgment in question. On the basis of these facts, the trial court found defendant liable for breach of contract of carriage and sentenced it to pay P3,000.00 for the death of the child and P400.00 as compensatory damages representing burial expenses and costs. On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract in the case, for the reason that when the child met her death, she was no longer a passenger of the bus involved in the incident and, therefore, the contract of carriage had already terminated. Although the Court of Appeals sustained this theory, it nevertheless found the defendant-appellant guilty of quasi-delict and held the latter liable for damages, for the negligence of its driver, in accordance with Article 2180 of the Civil Code. And, the Court of Appeals did not only find the petitioner liable, but increased the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00 granted by the trial court.

In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable for quasi-delict, considering that respondents complaint was one for breach of contract, and (2) in raising the award of damages from P3,000.00 to P6,000.00 although respondents did not appeal from the decision of the lower court. Under the facts as found by the Court of Appeals, we have to sustain the judgement holding petitioner liable for damages for the death of the child, Raquel Beltran. It may be pointed out that although it is true that respondent Mariano Beltran, his wife, and their children (including the deceased child) had alighted from the bus at a place designated for disembarking or unloading of passengers, it was also established that the father had to return to the vehicle (which was still at a stop) to get one of his bags or bayong that was left under one of the seats of the bus. There can be no controversy that as far as the father is concerned, when he returned to the bus for his bayong which was not unloaded, the relation of passenger and carrier between him and the petitioner remained subsisting. For, the relation of carrier and passenger does not necessarily cease where the latter, after alighting from the car, aids the carrier's servant or employee in removing his baggage from the car.1 The issue to be determined here is whether as to the child, who was already led by the father to a place about 5 meters away from the bus, the liability of the carrier for her safety under the contract of carriage also persisted. It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the station platform is considered still a passenger.2 So also, where a passenger has alighted at his destination and is proceeding by the usual way to leave the company's premises, but before actually doing so is halted by the report that his brother, a fellow passenger, has been shot, and he in good faith and without intent of engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger entitled as such to the protection of the railroad and company and its agents.3 In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they alighted from the bus. Raquel, the child that she was, must have followed the father. However, although the father was still on the running board of the bus awaiting for the conductor to hand him the bag or bayong, the bus started to run, so that even he (the father) had to jump down from the moving vehicle. It was at this instance that the child, who must be near the bus, was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had exercised the "utmost diligence" of a "very cautions person" required by Article 1755 of the Civil Code to be observed by a common carrier in the discharge of its obligation to transport safely its passengers. In the first place, the driver, although stopping the bus, nevertheless did not put off the engine. Secondly, he started to run the bus even before the bus conductor gave him the signal to go and while the latter was still unloading part of the baggages of the passengers Mariano Beltran and family. The presence of said passengers near the bus was not unreasonable and they are, therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract of carriage. But even assuming arguendo that the contract of carriage has already terminated, herein petitioner can be held liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article 2180 of the Civil Code. Paragraph 7 of the complaint, which reads That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiffs' daughter, was caused by the negligence and want of exercise of the utmost diligence of a very cautious person on the part of the defendants and their agent, necessary to transport plaintiffs and their daughter safely as far as human care and foresight can provide in the operation of their vehicle. is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while incompatible with the other claim under the contract of carriage, is permissible under Section 2 of Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of action in the alternative, be they compatible with each other or not, to the end that the real matter in controversy may be resolved and determined.4 The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when it was alleged in the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by the negligence and want of exercise of the utmost diligence of a very cautious person on the part of the defendants and their agent." This allegation was also proved when it was established during the trial that the driver, even before receiving the proper

signal from the conductor, and while there were still persons on the running board of the bus and near it, started to run off the vehicle. The presentation of proof of the negligence of its employee gave rise to the presumption that the defendant employer did not exercise the diligence of a good father of the family in the selection and supervision of its employees. And this presumption, as the Court of Appeals found, petitioner had failed to overcome. Consequently, petitioner must be adjudged peculiarily liable for the death of the child Raquel Beltran. The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals, however, cannot be sustained. Generally, the appellate court can only pass upon and consider questions or issues raised and argued in appellant's brief. Plaintiffs did not appeal from that portion of the judgment of the trial court awarding them on P3,000.00 damages for the death of their daughter. Neither does it appear that, as appellees in the Court of Appeals, plaintiffs have pointed out in their brief the inadequacy of the award, or that the inclusion of the figure P3,000.00 was merely a clerical error, in order that the matter may be treated as an exception to the general rule.5 Herein petitioner's contention, therefore, that the Court of Appeals committed error in raising the amount of the award for damages is, evidently, meritorious.1wph1.t Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the petitioner to pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child, Raquel Beltran, and the amount of P400.00 as actual damages. No costs in this instance. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur. Makalintal, J., concurs in the result. SECOND DIVISION [G.R. No. 140349. June 29, 2005] SULPICIO LINES, INC., petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari assailing the Decision[1] of the Court of Appeals reversing the Decision[2] of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the complaint for damages for failure of the plaintiff to prove its case with a preponderance of evidence. Assailed as well is the Resolution[3] of the Court of Appeals denying petitioners Motion for Reconsideration. THE FACTS On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd. For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The vessel arrived at the North Harbor, Manila, on 24 February 1992. During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding that the contents of the crate were no longer usable for their intended purpose, they were rejected as a total loss and returned to Cebu City. The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment from respondent First LepantoTaisho Insurance Corporation (insurer) under a marine insurance policy issued to the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage value or P194, 220.31. The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier, Sulpicio

Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied. On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-63337 with the trial court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993, petitioner-carrier filed its Answer with Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was responsible for the unloading of the crates. Petitioner-carrier filed its Answer to Delbros, Inc.s cross-claim asserting that it observed extraordinary diligence in the handling, storage and general care of the shipment and that subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate that had fallen were found to be in apparent sound condition, except that 2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list. After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the RTC: The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about the payment of the claim based on the documents accompanying the claim which were the Packing List, Commercial Invoices, Bill of Lading, Claims Statement, Marine Policies, Survey Report, Marine Risk Note, and the letter to Third Party carriers and shipping lines (Exhibit A-J). The check was paid and delivered to the assured as evidenced by the check voucher and the subrogation receipt. On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the claim less 35% salvage value based on the adjuster report. This testimony is hearsay. The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together with a co-surveyor and a representative of Sulpicio Lines had conducted a survey of the shipment at the compound of Sulpicio Lines. He prepared a survey report (Exhibits G and G-1) and took a picture of shipment (Exhibit G-2). On cross-examination, he said that two cartons were torn at the sides with top portion flaps opened and the 41 cartons were properly sealed and in good order conditions. Two cartons were already opened and slightly damaged. He merely looked at them but did not conduct an inspection of the contents. What he was referring to as slightly damaged were the cartons only and not the contents. From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a preponderance of evidence. . WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the Complaint, defendant Sulpicio Lines counterclaim and defendant Delbros Inc.s cross-claim.[4] A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently denied by the trial court in an Order dated 07 February 1995 on the ground that it did not raise any new issue. Thus, respondent-insurer instituted an appeal with the Court of Appeals, which reversed the dismissal of the complaint by the lower court, the decretal portion of which reads: WHEREFORE, the appeal is granted. The decision appealed from is REVERSED. Defendants-appellees Delbros and Sulpicio Lines are hereby ordered to pay, jointly and severally, plaintiff-appellant the sum of P194,220.31 representing actual damages, plus legal interest counted from the filing of the complaint until fully paid.[5] The appellate court disposed of the issues in the case in this wise: Furthermore, the evidence shows that one of the three crates fell during the unloading at the pier in Manila. The wooden crate which fell was damaged such that this particular crate was not anymore sent to Singapore and was

instead shipped back to Cebu from Manila. Upon examination, it was found that two (2) cartons of the forty-two (42) cartons contained in this crate were externally damaged. They were torn at the sides and their top portions or flaps were open. These facts were admitted by all the parties. Defendant-appellees, however, insist that it was only the external packaging that was damaged, and that there was no actual damage to the goods such that would make them liable to the shipper. This theory is erroneous. When the goods are placed at a common carriers possession for delivery to a specified consignee, they are in good order and condition and are supposed to be transported and delivered to the consignee in the same state. In the case herein, the goods were received by defendant-appellee Delbros in Cebu properly packed in cardboard cartons and then placed in wooden crates, for delivery to the consignee in Singapore. However, before the shipment reached Singapore (while it was in Manila) one crate and 2 cartons contained therein were not anymore in their original state. They were no longer fit to be sent to Singapore. . As We have already found, there is damage suffered by the goods of the shipper. This consists in the destruction of one wooden crate and the tearing of two of the cardboard boxes therein rendering then unfit to be sent to Singapore. Defendant-appellee Sulpicio Lines admits that this crate fell while it was being unloaded at the Manila pier. Falling of the crate was negligence on the part of defendant-appellee Sulpicio Lines under the doctrine of res ipsa loquitur. Defendant-appellee Sulpicio Lines cannot exculpate itself from liability because it failed to prove that it exercised due diligence in the selection and supervision of its employees to prevent the damage.[6] On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the Court of Appeals which was subsequently denied in a Resolution dated 13 October 1999. Hence, the instant petition. During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that its appeal[7] filed before this Court had been dismissed for being filed out of time and thus the case as against it was declared closed and terminated. As a consequence, it paid in full the amount of the damages awarded by the appellate court to the respondent-insurer. Before this Court, Delbros, Inc. prays for reimbursement, contribution, or indemnity from its codefendant, herein petitioner-carrier Sulpicio Lines, Inc. for whatever it had paid to respondent-insurer in consonance with the decision of the appellate court declaring both Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and severally liable. ISSUES Petitioner-carrier raises the following issues in its petition: 1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed the complaint against Sulpicio Lines, which dismissal is already final. 2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply with the technical requirement of the Rules of Court. RULING OF THE COURT We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc. that the Court of Appeals should have dismissed the appeal for failure of respondent-insurer to attach a copy of the decision of the trial court to its appellants brief in violation of Rule 44, Section 13(h) of the Rules of Civil Procedure.[8] A perusal of the records will show, however, that in a Resolution[9] dated 13 August 1996, the Court of Appeals required herein respondent-insurer to submit seven (7) copies of the questioned decision within five (5) days from notice. Said Resolution was properly complied with. As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply with the manner required by the pertinent rules for the perfection of an appeal. Nevertheless, this Court has allowed the filing of an appeal upon subsequent compliance with the requirements imposed by law, where a strict application of the technical rules will impair the proper administration of justice. As enunciated by the Court in the case of Jaro v. Court of Appeals:[10]

There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336 SCRA 113] and Piglas-Kamao vs. National Labor Relations Commission [357SCRA 640], we ruled that the subsequent submission of the missing documents with the motion for reconsideration amounts to substantial compliance. The reasons behind the failure of the petitioners in these two cases to comply with the required attachments were no longer scrutinized.[11] We see no error, therefore, on the part of the Court of Appeals when it gave due course to the appeal after respondent-insurer had submitted copies of the RTC decision, albeit belatedly. We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to be considered in the resolution of this issue is whether or not, based on the evidence presented during the trial, the owner of the goods, respondent-insurers predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable for the same. It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while petitioner-carrier was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was found that two (2) cartons were torn on the side and the top flaps were open and that two (2) cello bags, each of 50 pieces ferri inductors, were missing from the cargo. Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss and should not include the lack of fitness of the shipment for transport to Singapore due to the damaged packing. This is erroneous. Petitioner-carrier seems to belabor under the misapprehension that a distinction must be made between the cargo packaging and the contents of the cargo. According to it, damage to the packaging is not tantamount to damage to the cargo. It must be stressed that in the case at bar, the damage sustained by the packaging of the cargo while in petitioner-carriers custody resulted in its unfitness to be transported to its consignee in Singapore. Such failure to ship the cargo to its final destination because of the ruined packaging, indeed, resulted in damages on the part of the owner of the goods. The falling of the crate during the unloading is evidence of petitioner-carriers negligence in handling the cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed in its possession for transport.[12] The standard of extraordinary diligence imposed upon common carriers is considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias established in respect of the ordinary relations between members of society.[13] A common carrier is bound to transport its cargo and its passengers safely "as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all circumstances.[14] The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery.[15] It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.[16] Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have been negligent in the handling of the damaged cargo. Under Articles 1735[17] and 1752[18] of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently in case the goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption of liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must prove that they observed extraordinary diligence as required in Article 1733[19] of the Civil Code.[20] Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to overcome the presumption that it was negligent in transporting the cargo. Coming now to the issue of the extent of petitioner-carriers liability, it is undisputed that respondent-insurer paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages the latter has incurred. Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to respondent-insurer in satisfaction of the whole amount of the judgment rendered by the Court of Appeals. The question then is: To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages suffered by the owner of the goods?

Upon respondent-insurers payment of the alleged amount of loss suffered by the insured (the owner of the goods), the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the common carrier whose negligence or wrongful act caused the loss.[21] Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.[22] The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have.[23] In other words, a subrogee cannot succeed to a right not possessed by the subrogor.[24] A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered.[25] As found by the Court of Appeals, there was damage suffered by the goods which consisted in the destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them unfit to be sent to Singapore. [26] The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it cannot exculpate itself from liability because it failed to prove that it exercised extraordinary diligence.[27] Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount paid by respondent-insurer for the damages sustained by the owner of the goods. As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for respondent-insurer to again recover damages from herein petitioner-carrier. With respect to Delbros, Inc.s prayer contained in its manifestation that, in case the decision in the instant case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay. WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur. THIRD DIVISION [G.R. No. 143133. June 5, 2002] BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent. DECISION PANGANIBAN, J.: Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the loss, the destruction or the deterioration of the goods happened, the carrier shall be held liable therefor. Statement of the Case

1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages, representing the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint on July 25, 1991, until fully paid; 2) Attorneys fees amounting to 20% of the claim; and 3) Costs of suit.[4] The assailed Resolution denied petitioners Motion for Reconsideration. The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendants counterclaim.[5] The Facts The factual antecedents of the case are summarized by the Court of Appeals in this wise: On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the subsequent days, discharged the subject cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss. Despite receipt of a formal demand, defendants-appellees refused to submit to the consignees claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the latters rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of the amount paid by them, to the consignee as insured. Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives. In addition thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of liability provided for in the bill of lading and other pertinent laws. Finally, defendantsappellees averred that, in any event, they exercised due diligence and foresight required by law to prevent any damage/loss to said shipment.[6] Ruling of the Trial Court The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required by law.[7] It likewise debunked petitioners counterclaim, because respondents suit was not manifestly frivolous or primarily intended to harass them.[8] Ruling of the Court of Appeals

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision[1] and the May 2, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as follows: WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:

In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped, because they had failed to overcome the presumption of negligence imposed on common carriers. The CA further held as inadequately proven petitioners claim that the loss or the deterioration of the goods was due to pre-shipment damage.[9] It likewise opined that the notation metal envelopes rust stained and slightly dented placed on the Bill of Lading had not been the proximate cause of the damage to the four (4) coils.[10]

As to the extent of petitioners liability, the CA held that the package limitation under COGSA was not applicable, because the words L/C No. 90/02447 indicated that a higher valuation of the cargo had been declared by the shipper. The CA, however, affirmed the award of attorneys fees. Hence, this Petition.[11] Issues In their Memorandum, petitioners raise the following issues for the Courts consideration: I Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code; II Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law; III Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to exempt herein defendants from liability; IV Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of COGSA is applicable to the case at bar.[12] In sum, the issues boil down to three: 1. Whether petitioners have overcome the presumption of negligence of a common carrier 2. Whether the notice of loss was timely filed 3. Whether the package limitation of liability is applicable This Courts Ruling The Petition is partly meritorious. First Issue: Proof of Negligence Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of the lone testimony offered by private respondent. The contention is untenable. Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport.[13] Thus, common carriers are required to render service with the greatest skill and foresight and to use all reason[a]ble means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.[14] The extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of and received for transportation by the carrier until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive them.[15]

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the riding public enters into a contract of transportation with common carriers.[16] Even if it wants to, it cannot submit its own stipulations for their approval.[17] Hence, it merely adheres to the agreement prepared by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.[18] That is, unless they prove that they exercised extraordinary diligence in transporting the goods.[19] In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence.[20] However, the presumption of fault or negligence will not arise[21] if the loss is due to any of the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5) an order or act of competent public authority.[22] This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is liable therefor.[23] Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, the loss or the destruction of the goods happened, the transporter shall be held responsible.[24] That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of the records and more so by the evidence adduced by respondent.[25] First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg, Germany.[26] Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and signed by representatives of both parties showed the steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof exposed and rusty. Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services, Inc., stated that the four coils were in bad order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a presumed loss or damage.[29] Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and tested, the steel sheets found in bad order were wet with fresh water. Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 -- admitted that they were aware of the condition of the four coils found in bad order and condition. These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of his testimony are reproduce hereunder: Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what company you are connected? A. Q. A. BM Santos Checkers Agency, sir. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies Transport Services? It is the company who contracts the checkers, sir.

Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and responsibilities? A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.

xxx Q. A.

xxx

xxx Second Issue: Notice of Loss Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act[44] (COGSA), respondent should have filed its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.[45] We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an Inspection Report[46] as to the condition of the goods was prepared and signed by representatives of both parties.[47] Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is nonetheless filed within one year.[48] This one-year prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.[49] In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not barred by prescription as long as the one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.: Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar. In the present case, the cargo was discharged on July 31, 1990, while the Complaint[51] was filed by respondent on July 25, 1991, within the one-year prescriptive period. Third Issue: Package Limitation Assuming arguendo they are liable for respondents claims, petitioners contend that their liability should be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5)[52] of COGSA.[53] On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of Credit or L/C No. 90/02447 in the said Bill of Lading.[54] A bill of lading serves two functions. First, it is a receipt for the goods shipped.[55] Second, it is a contract by which three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume stipulated obligations.[56] In a nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that it constituted a perfected and binding contract.[57] Further, a stipulation in the bill of lading limiting to a certain sum the common carriers liability for loss or destruction of a cargo -- unless the shipper or owner declares a greater value[58] -- is sanctioned by law.[59] There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon by the parties.[60] The rationale for, this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods.[61] It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per package.[62] In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce and special laws.[63] Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the carriers liability in the absence of a shippers declaration of a higher value in the bill of lading.[64] The provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by agreement of the parties.[65] In the case before us, there was no stipulation in the Bill of Lading[66] limiting the carriers liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words L/C No. 90/02447 cannot be the basis for petitioners liability.

On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker? Yes, sir.

Q. And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY? A. xxx Yes, sir, I was there. xxx xxx

Q. Based on your inspection since you were also present at that time, will you inform this Honorable Court the condition or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY? ATTY. MACAMAY: Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best evidence is the document itself, Your Honor that shows the condition of the steel sheets. COURT: Let the witness answer. A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides.[32]

All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four coils while in the possession of petitioner,[33] who notably failed to explain why.[34] Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law requires a common carrier to know and to follow, to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.[35] True, the words metal envelopes rust stained and slightly dented were noted on the Bill of Lading; however, there is no showing that petitioners exercised due diligence to forestall or lessen the loss.[36] Having been in the service for several years, the master of the vessel should have known at the outset that metal envelopes in the said state would eventually deteriorate when not properly stored while in transit.[37] Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them, the master of the vessel and his crew should have undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these measures was taken.[38] Having failed to discharge the burden of proving that they have exercised the extraordinary diligence required by law, petitioners cannot escape liability for the damage to the four coils.[39] In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article 1734(4) of the Civil Code. They cite the notation metal envelopes rust stained and slightly dented printed on the Bill of Lading as evidence that the character of the goods or defect in the packing or the containers was the proximate cause of the damage. We are not convinced. From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the condition noted on the Bill of Lading.[40] The aforecited exception refers to cases when goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods in transport, defects in packages in which they are shipped, or the natural propensities of animals.[41] None of these is present in the instant case. Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding such condition.[42] Thus, petitioners have not successfully proven the application of any of the aforecited exceptions in the present case.[43]

First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by the bill.[67] That notation was made only for the convenience of the shipper and the bank processing the Letter of Credit.[68] Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading was separate from the Other Letter of Credit arrangements. We ruled thus: (T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis--vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioners obligation to private respondent arising from the contract of transportation.[70] In the light of the foregoing, petitioners liability should be computed based on US$500 per package and not on the per metric ton price declared in the Letter of Credit.[71] In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court[72] we explained the meaning of package: When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the package referred to in the liability limitation provision of Carriage of Goods by Sea Act. Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should be considered as the shipping unit subject to the US$500 limitation. WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners liability is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as to costs. SO ORDERED. Sandoval-Gutierrez, and Carpio, JJ., concur. Puno, J., (Chairman), abroad, on official leave. FIRST DIVISION [G.R. No. 141910. August 6, 2002] FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, respondents. DECISION VITUG, J.: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer,

respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental. The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining thusly: Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his own affirmative allegation, xxx. In the instant case, plaintiff did not present any single evidence that would prove that defendant is a common carrier. x x x x x x xxx

Accordingly, the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods during transport under 1735 of the Civil Code is not availing. Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and contract of the Civil Code as well as the law on quasi delicts. Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi delict provides for some presumption of negligence but only upon the attendance of some circumstances. Thus, Article 2185 provides: Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation. Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence, the presumption of negligence is not obtaining. Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendants driver was the one negligent, defendant cannot be made liable for the damages of the subject cargoes.[2] The subsequent motion for reconsideration having been denied,[3] plaintiff interposed an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee corporation was not a common carrier defined under the law and existing jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence. The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its decision of 10 June 1999, [4] discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a common carrier. Should the appellant fail to prove that the appellee is a common carrier, the presumption would not arise; consequently, the appellant would have to prove that the carrier was negligent. "x x x x x x xxx

"Because it is the appellant who insists that the appellees can still be considered as a common carrier, despite its `limited clientele, (assuming it was really a common carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side is superior to that of the other. (Summa Insurance Corporation vs. Court

of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs complaint by the trial court is justified. "x x x x x x xxx

made the basis for action.[15] The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation[16] unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing liability. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioners principal and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position.[17] Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioners civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant.[18] A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing which caused the injury complained of is shown to be under the latters management and the accident is such that, in the ordinary course of things, cannot be expected to happen if those who have its management or control use proper care. It affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care.[19] It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of going forward with the proof.[20] Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the plaintiff.[21] Thus, it is not applicable when an unexplained accident may be attributable to one of several causes, for some of which the defendant could not be responsible.[22] Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from the nature of the relation of the parties.[23] Nevertheless, the requirement that responsible causes other than those due to defendants conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him. If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to have waived the right to present evidence.[24] Thus, respondent corporation may no longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the trial court. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. No costs. SO ORDERED.

"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no choice but to comply with the directive of its principal, the inevitable conclusion is that the appellee is a private carrier. "x x x x x x xxx

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x. "Finally, We advert to the long established rule that conclusions and findings of fact of a trial court are entitled to great weight on appeal and should not be disturbed unless for strong and valid reasons."[5] Petitioner's motion for reconsideration was likewise denied;[6] hence, the instant petition,[7] raising the following issues: I WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE. II WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION. III WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE. On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or entity, cannot be considered a common carrier. 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 hire or compensation, offering their services to the public,[8] whether to the public in general or to a limited clientele in particular, but never on an exclusive basis.[9] The true test of a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its transportation service for a fee. [10] Given accepted standards, GPS scarcely falls within the term common carrier. The above conclusion nothwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.[11] The law, recognizing the obligatory force of contracts,[12] will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.[13] A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promisee that may include his expectation interest, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party.[14] Indeed, agreements can accomplish little, either for their makers or for society, unless they are

Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur. Petitioner filed a motion for reconsideration which the trial court, in an Order dated February 4, 1992, denied.[3] FIRST DIVISION [G.R. No. 118030. January 15, 2004] PROVIDENT INSURANCE CORP., petitioner, vs. HONORABLE COURT OF APPEALS and AZUCAR SHIPPING CORP., respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals dated November 15, 1994, which affirmed the appealed Orders dated August 12, 1991 and February 4, 1992 issued by the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-56167. The pertinent facts as culled from the stipulation of facts submitted by the parties are as follows: On or about June 5, 1989, the vessel MV Eduardo II took and received on board at Sangi, Toledo City a shipment of 32,000 plastic woven bags of various fertilizer in good order and condition for transportation to Cagayan de Oro City. The subject shipment was consigned to Atlas Fertilizer Corporation, and covered by Bill of Lading No. 01 and Marine Insurance Policy No. CMI-211/89-CB. Upon its arrival at General Santos City on June 7, 1989, the vessel MV Eduardo II was instructed by the consignees representative to proceed to Davao City and deliver the shipment to its Davao Branch in Tabigao. On June 10, 1989, the MV Eduardo II arrived in Davao City where the subject shipment was unloaded. In the process of unloading the shipment, three bags of fertilizer fell overboard and 281 bags were considered to be unrecovered spillages. Because of the mishandling of the cargo, it was determined that the consignee incurred actual damages in the amount of P68,196.16. As the claims were not paid, petitioner Provident Insurance Corporation indemnified the consignee Atlas Fertilizer Corporation for its damages. Thereafter, petitioner, as subrogee of the consignee, filed on June 3, 1991 a complaint against respondent carrier seeking reimbursement for the value of the losses/damages to the cargo. Respondent carrier moved to dismiss the complaint on the ground that the claim or demand by petitioner has been waived, abandoned or otherwise extinguished for failure of the consignee to comply with the required claim for damages set forth in the first sentence of Stipulation No. 7 of the bill of lading, the full text of which reads 7. All claims for damages to the goods must be made to the carrier at the time of delivery to the consignee or his agent if the package or containers show exterior sign of damage, otherwise to be made in writing to the carrier within twenty-four hours from the time of delivery. Notice of loss due to delay must be given in writing to the carrier within 30 days from the time the goods were ready for delivery, or in case of non-delivery or misdelivery of shipment the written notice must be given within 30 days after the arrival at the port of discharge of the vessels on which the goods were received in case of the failure of the vessel on which the goods were shipped to arrived at the port of discharge, misdelivery must be presented in writing to the carrier within two months after the arrival of the vessel of the port of discharge or in case of the failure of the vessel in which the goods were shipped to arrive at the port of discharge written claims shall be made within 30 days of the time the vessel should have arrived. The giving of notice and the filing of claims as above provided shall be conditions precedent to the securing of the right of actions against the carrier for losses due to delay, non-delivery, or misdelivery. In the case of damage to goods, the filing of the suit based upon claims arising from damage, delay, non-delivery or mis-delivery shall be instituted within one year from the date of the accrual of the right of action. Failure to institute judicial proceedings as herein provided shall constitute a waiver of the claim or right of action, and no agent nor employee of the carrier shall have authority to waive any of the provisions or requirements of this bill of lading. Any action by the ship owner or its agents or attorneys in considering or dealing with claims where the provisions or requirements of this bill of lading have not been complied with shall not be considered a waiver of such requirements and they shall not be considered as waived except by an express waiver.[1] (Italics Supplied) The trial court, in an Order dated August 12, 1991, found the motion to dismiss well taken and accordingly, dismissed the complaint.[2] Aggrieved by the lower courts decision, petitioner appealed to the Court of Appeals. On November 15, 1994, the Court of Appeals rendered the assailed decision which affirmed the lower courts Orders dated August 12, 1991 and February 4, 1992.[4] Hence, this petition raising the lone error that THE HONORABLE COURT OF APPEALS HAS DECIDED THE QUESTION IN ISSUE NOT IN ACCORDANCE WITH THE PURPOSE FOR WHICH THE LAW WAS ESTABLISHED AND CONTRARY TO THE EXISTING JURISPRUDENCE.[5] In support of its petition, petitioner contends that it is unreasonable for the consignee Atlas Fertilizer Corporation to be required to abide by the provisions of Stipulation No. 7 of the bill of lading. According to petitioner, since the place of delivery was remote and inaccessible, the consignee cannot be expected to have been able to immediately inform its main office and make the necessary claim for damages for the losses and unrecovered spillages in the subject cargo. Petitioner further argues that the contents of the bill of lading are printed in small letters that no one would bother to read them, as they are difficult to read. Finally, petitioner avers that from June 13 to 18, 1987, the vessels Chief Officer supervised the unloading of the shipment and thereafter signed a discharging report attesting to the fact of loss and unrecovered spillages on the cargo. Thus, petitioner argues that respondent carriers knowledge of the loss and spillages was substantial compliance with the notice of claim required under Stipulation No. 7 of the bill of lading. The petition is bereft of merit. It is a fact admitted by both parties that the losses and damages were caused by the mishandling of the cargo by respondent carrier. There is also no dispute that the consignee failed to strictly comply with Stipulation No. 7 of the Bill of Lading in not making claims for damages to the goods within the twenty-four hour period from the time of delivery, and that there was no exterior sign of damage of the goods. Consequently, the only issue left to be resolved is whether the failure to make the prompt notice of claim as required is fatal to the right of petitioner to claim indemnification for damages. The bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage. Stipulations therein are valid and binding in the absence of any showing that the same are contrary to law, morals, customs, public order and public policy. Where the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control. In light of the foregoing, there can be no question about the validity and enforceability of Stipulation No. 7 in the bill of lading. The twenty-four hour requirement under the said stipulation is, by agreement of the contracting parties, a sine qua non for the accrual of the right of action to recover damages against the carrier. The wisdom of this kind of proviso has been succinctly explained in Consunji v. Manila Port Service, where it was held: Carriers and depositaries sometimes require presentation of claims within a short time after delivery as a condition precedent to their liability for losses. Such requirement is not an empty formalism. It has a definite purpose, i.e., to afford the carrier or depositary a reasonable opportunity and facilities to check the validity of the claims while the facts are still fresh in the minds of the persons who took part in the transaction and the document are still available. [6] Considering that a prompt demand was necessary to foreclose the possibility of fraud or mistake in ascertaining the validity of claims, there was a need for the consignee or its agent to observe the conditions provided for in Stipulation No. 7. Hence, petitioners insistence that respondent carrier had knowledge of the damage because one of respondent carriers officers supervised the unloading operations and signed a discharging report, cannot be construed as sufficient compliance with the aforementioned proviso. The Discharge Report is not the notice referred to in Stipulation No. 7, hence, its accomplishment cannot be considered substantial compliance of the requirement embodied therein. Moreover, a reading of the first paragraph of Stipulation No. 7 will readily show that upon the

consignee or its agent rests the obligation to make the necessary claim within the prescribed period and not merely rely on the supposed knowledge of the damages by the carrier. Petitioner also makes much of the fact that it had nothing to do with the preparation of the bill of lading. Worse, according to petitioner, the bill of lading, particularly Stipulation No. 7, was printed in very small letters that no one would be minded to closely examine the contents thereof and understand its legal implications. We are not persuaded. A bill of lading is in the nature of a contract of adhesion, defined as one where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his adhesion thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.[7] After it received the bill of lading without any objection, consignee Atlas Fertilizer Corporation was presumed to have knowledge of its contents and to have assented to the terms and conditions set forth therein. The pronouncement by this Court in Magellan Manufacturing Marketing Corp. v. Court of Appeals may be cited by analogy The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly stating the contract and to have assented to its terms. In other words, the acceptance of the bill without dissent raises the presumption that all the terms therein were brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms.[8] (Italics Supplied) In this regard, we also quote with approval the lower courts view on the matter when it said: It is very clear that the Bill of Lading provides for the time or period within which a claim should be made or suit filed in Court. Plaintiff or Atlas Fertilizer Corporation failed on this score. Moreover, Atlas Fertilizer Corporation could not claim ignorance of the contents of the Bill of Lading just because the printed letters are so small that they are hard to read or that the shipper did not sign it for Atlas Fertilizer Corporation being a regular shipper and a big corporation. Plaintiff is presumed to know the contents thereof for the reason that this is the very document (Annex A of the complaint) where plaintiff relied its suit.[9] We are likewise not inclined to lend credence to petitioners allegation that the lack of communications facilities in the place of delivery prevented the consignee from making a prompt claim for recovery of damages as prescribed by Stipulation No. 7. It is indeed hard to believe that Atlas Fertilizer Corporation, being an established corporation and a regular shipper, would be so inept as not to have the necessary facilities to at least monitor, in the form of communications equipment, the condition of its large shipment involving 32,000 bags of fertilizer. As pointed out by the appellate court, at this day and age of advanced telecommunications and modern transportation, even in the year 1989, the time limitation provided for in Stipulation No. 7 are just and reasonable. WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 36498 is AFFIRMED in toto. SO ORDERED. Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur. SECOND DIVISION [G.R. No. 142305. December 10, 2003] SINGAPORE AIRLINES LIMITED, petitioner, vs. ANDION FERNANDEZ, respondent. DECISION CALLEJO, SR., J.:

This is a petition for review on certiorari assailing the Decision[1] of the Court of Appeals which affirmed in toto the decision[2] of the Regional Trial Court of Pasig City, Branch 164 in Civil Case No. 60985 filed by the respondent for damages. The Case for the Respondent Respondent Andion Fernandez is an acclaimed soprano here in the Philippines and abroad. At the time of the incident, she was availing an educational grant from the Federal Republic of Germany, pursuing a Masters Degree in Music majoring in Voice.[3] She was invited to sing before the King and Queen of Malaysia on February 3 and 4, 1991. For this singing engagement, an airline passage ticket was purchased from petitioner Singapore Airlines which would transport her to Manila from Frankfurt, Germany on January 28, 1991. From Manila, she would proceed to Malaysia on the next day.[4] It was necessary for the respondent to pass by Manila in order to gather her wardrobe; and to rehearse and coordinate with her pianist her repertoire for the aforesaid performance. The petitioner issued the respondent a Singapore Airlines ticket for Flight No. SQ 27, leaving Frankfurt, Germany on January 27, 1991 bound for Singapore with onward connections from Singapore to Manila. Flight No. SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January 27, 1991, arriving at Singapore at 8:50 in the morning of January 28, 1991. The connecting flight from Singapore to Manila, Flight No. SQ 72, was leaving Singapore at 11:00 in the morning of January 28, 1991, arriving in Manila at 2:20 in the afternoon of the same day.[5] On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived in Singapore two hours late or at about 11:00 in the morning of January 28, 1991. By then, the aircraft bound for Manila had left as scheduled, leaving the respondent and about 25 other passengers stranded in the Changi Airport in Singapore.[6] Upon disembarkation at Singapore, the respondent approached the transit counter who referred her to the nightstop counter and told the lady employee thereat that it was important for her to reach Manila on that day, January 28, 1991. The lady employee told her that there were no more flights to Manila for that day and that respondent had no choice but to stay in Singapore. Upon respondents persistence, she was told that she can actually fly to Hong Kong going to Manila but since her ticket was non-transferable, she would have to pay for the ticket. The respondent could not accept the offer because she had no money to pay for it.[7] Her pleas for the respondent to make arrangements to transport her to Manila were unheeded.[8] The respondent then requested the lady employee to use their phone to make a call to Manila. Over the employees reluctance, the respondent telephoned her mother to inform the latter that she missed the connecting flight. The respondent was able to contact a family friend who picked her up from the airport for her overnight stay in Singapore. [9] The next day, after being brought back to the airport, the respondent proceeded to petitioners counter which says: Immediate Attention To Passengers with Immediate Booking. There were four or five passengers in line. The respondent approached petitioners male employee at the counter to make arrangements for immediate booking only to be told: Cant you see I am doing something. She explained her predicament but the male employee uncaringly retorted: Its your problem, not ours.[10] The respondent never made it to Manila and was forced to take a direct flight from Singapore to Malaysia on January 29, 1991, through the efforts of her mother and travel agency in Manila. Her mother also had to travel to Malaysia bringing with her respondents wardrobe and personal things needed for the performance that caused them to incur an expense of about P50,000.[11] As a result of this incident, the respondents performance before the Royal Family of Malaysia was below par. Because of the rude and unkind treatment she received from the petitioners personnel in Singapore, the respondent was engulfed with fear, anxiety, humiliation and embarrassment causing her to suffer mental fatigue and skin rashes. She was thereby compelled to seek immediate medical attention upon her return to Manila for acute urticaria.[12] On June 15, 1993, the RTC rendered a decision with the following dispositive portion:

ACCORDINGLY and as prayed for, defendant Singapore Airlines is ordered to pay herein plaintiff Andion H. Fernandez the sum of: 1. FIFTY THOUSAND (P50,000.00) PESOS as compensatory or actual damages;

The petitioner also alleges that the action of the respondent was baseless and it tarnished its good name and image earned through the years for which, it was entitled to damages in the amount of P1,000,000; exemplary damages of P500,000; and attorneys fees also in the amount of P500,000.[18] The petition is barren of merit.

2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS as moral damages considering plaintiffs professional standing in the field of culture at home and abroad; 3. 4. 5. ONE HUNDRED THOUSAND (P100,000.00) PESOS as exemplary damages; SEVENTY-FIVE THOUSAND (P75,000.00) PESOS as attorneys fees; and To pay the costs of suit.

When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage.[19] The contract of air carriage is a peculiar one. Imbued with public interest, the law requires common carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons with due regard for all the circumstances.[20] In an action for breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that is necessary to prove is the existence of the contract and the fact of its non-performance by the carrier.[21] In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore; and 2) Singapore-Manila. In her contract of carriage with the petitioner, the respondent certainly expected that she would fly to Manila on Flight No. SQ 72 on January 28, 1991. Since the petitioner did not transport the respondent as covenanted by it on said terms, the petitioner clearly breached its contract of carriage with the respondent. The respondent had every right to sue the petitioner for this breach. The defense that the delay was due to fortuitous events and beyond petitioners control is unavailing. In PAL vs. CA,[22] we held that: .... Undisputably, PALs diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did not terminate PALs contract with its passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is deemed to be equipped to deal with situations as in the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and passenger continues until the latter has been landed at the port of destination and has left the carriers premises. Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination... ...

SO ORDERED.[13] The petitioner appealed the decision to the Court of Appeals. On June 10, 1998, the CA promulgated the assailed decision finding no reversible error in the appealed decision of the trial court.[14] Forthwith, the petitioner filed the instant petition for review, raising the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION OF THE TRIAL COURT THAT AWARDED DAMAGES TO RESPONDENT FOR THE ALLEGED FAILURE OF THE PETITIONER TO EXERCISE EXTRAORDINARY DILIGENCE. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER ACTED IN BAD FAITH. III THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE PETITIONERS COUNTERCLAIMS.[15] The petitioner assails the award of damages contending that it exercised the extraordinary diligence required by law under the given circumstances. The delay of Flight No. SQ 27 from Frankfurt to Singapore on January 28, 1991 for more than two hours was due to a fortuitous event and beyond petitioners control. Inclement weather prevented the petitioners plane coming from Copenhagen, Denmark to arrive in Frankfurt on time on January 27, 1991. The plane could not take off from the airport as the place was shrouded with fog. This delay caused a snowball effect whereby the other flights were consequently delayed. The plane carrying the respondent arrived in Singapore two (2) hours behind schedule.[16] The delay was even compounded when the plane could not travel the normal route which was through the Middle East due to the raging Gulf War at that time. It had to pass through the restricted Russian airspace which was more congested.[17] Under these circumstances, petitioner therefore alleged that it cannot be faulted for the delay in arriving in Singapore on January 28, 1991 and causing the respondent to miss her connecting flight to Manila. The petitioner further contends that it could not also be held in bad faith because its personnel did their best to look after the needs and interests of the passengers including the respondent. Because the respondent and the other 25 passengers missed their connecting flight to Manila, the petitioner automatically booked them to the flight the next day and gave them free hotel accommodations for the night. It was respondent who did not take petitioners offer and opted to stay with a family friend in Singapore.

...If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755 C.C., Art. 1733 C.C.). Since part of the failure to comply with the obligation of common carrier to deliver its passengers safely to their destination lay in the defendants failure to provide comfort and convenience to its stranded passengers using extraordinary diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous event, but due to something which defendant airline could have prevented, defendant becomes liable to plaintiff. Indeed, in the instant case, petitioner was not without recourse to enable it to fulfill its obligation to transport the respondent safely as scheduled as far as human care and foresight can provide to her destination. Tagged as a premiere airline as it claims to be and with the complexities of air travel, it was certainly well-equipped to be able to foresee and deal with such situation. The petitioners indifference and negligence by its absence and insensitivity was exposed by the trial court, thus: (a) Under Section 9.1 of its Traffic Manual (Exhibit 4) flights can be delayed to await the uplift of connecting cargo and passengers arriving on a late in-bound flight As adverted to by the trial court,Flight SQ-27/28 maybe delayed for about half an hour to transfer plaintiff to her connecting flight. As pointed out above, delay is normal in commercial air transportation (RTC Decision, p. 22); or (b) Petitioner airlines could have carried her on one of its flights bound for Hongkong and arranged for a connecting flight from Hongkong to Manila all on the same date. But then the airline personnel who informed her of such possibility told her that she has to pay for that flight. Regrettably, respondent did not have sufficient funds to pay for it. (TSN, 30 March 1992, pp.8-9; RTC Decision, pp. 22-23) Knowing the predicament of the respondent, petitioner did not offer to shoulder the cost of the ticket for that flight; or

(c) As noted by the trial court from the account of petitioners witness, Bob Khkimyong, that a passenger such as the plaintiff could have been accommodated in another international airline such as Lufthansa to bring the plaintiff to Singapore early enough from Frankfurt provided that there was prior communication from that station to enable her to catch the connecting flight to Manila because of the urgency of her business in Manila(RTC Decision, p. 23) The petitioners diligence in communicating to its passengers the consequences of the delay in their flights was wanting. As elucidated by the trial court: It maybe that delay in the take off and arrival of commercial aircraft could not be avoided and may be caused by diverse factors such as those testified to by defendants pilot. However, knowing fully well that even before the plaintiff boarded defendants Jumbo aircraft in Frankfurt bound for Singapore, it has already incurred a delay of two hours. Nevertheless, defendant did not take the trouble of informing plaintiff, among its other passengers of such a delay and that in such a case, the usual practice of defendant airline will be that they have to stay overnight at their connecting airport; and much less did it inquire from the plaintiff and the other 25 passengers bound for Manila whether they are amenable to stay overnight in Singapore and to take the connecting flight to Manila the next day. Such information should have been given and inquiries made in Frankfurt because even the defendant airlines manual provides that in case of urgency to reach his or her destination on the same date, the head office of defendant in Singapore must be informed by telephone or telefax so as the latter may make certain arrangements with other airlines in Frankfurt to bring such a passenger with urgent business to Singapore in such a manner that the latter can catch up with her connecting flight such as S-27/28 without spending the night in Singapore[23] The respondent was not remiss in conveying her apprehension about the delay of the flight when she was still in Frankfurt. Upon the assurance of petitioners personnel in Frankfurt that she will be transported to Manila on the same date, she had every right to expect that obligation fulfilled. She testified, to wit: Q: Now, since you were late, when the plane that arrived from Frankfurt was late, did you not make arrangements so that your flight from Singapore to Manila would be adjusted? A: I asked the lady at the ticket counter, the one who gave the boarding pass in Frankfurt and I asked her, Since my flight going to Singapore would be late, what would happen to my Singapore-Manila flight? and then she said, Dont worry, Singapore Airlines would be responsible to bring you to Manila on the same date. And then they have informed the name of the officer, or whatever, that our flight is going to be late.[24] When a passenger contracts for a specific flight, he has a purpose in making that choice which must be respected. This choice, once exercised, must not be impaired by a breach on the part of the airline without the latter incurring any liability.[25] For petitioners failure to bring the respondent to her destination, as scheduled, we find the petitioner clearly liable for the breach of its contract of carriage with the respondent. We are convinced that the petitioner acted in bad faith. Bad faith means a breach of known duty through some motive of interest or ill will. Self-enrichment or fraternal interest, and not personal ill will, may well have been the motive; but it is malice nevertheless.[26] Bad faith was imputed by the trial court when it found that the petitioners employees at the Singapore airport did not accord the respondent the attention and treatment allegedly warranted under the circumstances. The lady employee at the counter was unkind and of no help to her. The respondent further alleged that without her threats of suing the company, she was not allowed to use the companys phone to make long distance calls to her mother in Manila. The male employee at the counter where it says: Immediate Attention to Passengers with Immediate Booking was rude to her when he curtly retorted that he was busy attending to other passengers in line. The trial court concluded that this inattentiveness and rudeness of petitioners personnel to respondents plight was gross enough amounting to bad faith. This is a finding that is generally binding upon the Court which we find no reason to disturb. Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary damages may be awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In this case, petitioners employees acted in a wanton, oppressive or malevolent manner. The award of exemplary damages is, therefore, warranted in this case. WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 150751 September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent. DECISION PANGANIBAN, J.: A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss. In the present case, the weather condition encountered by petitioners vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier was insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss. The Case Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as follows: "WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby MODIFIED in so far as the award of attorneys fees is DELETED. The decision is AFFIRMED in all other respects."3 The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution.4 The Facts The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows: "On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V Central Bohol, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska Lumber Co., Inc. "The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine Cargo Policy No. MCPB00170. "On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to Manila. "At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due to the shifting of logs in the hold.

"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost. "[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00. "The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against the [petitioner]. "[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessels master exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm. "It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen."5 The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso fortuito. It noted that monsoons, which were common occurrences during the months of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of P200,000 from the principal claim of respondent and found that the latter was entitled to be subrogated to the rights of the insured. The court a quo disposed as follows: "WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the [petitioner] ordering the latter to pay the following: 1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is fully paid; 2) P80,000.00 as and for attorneys fees; 3) Plus costs of suit."6 Ruling of the Court of Appeals The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have anticipated the perils of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because its own negligence had contributed thereto. The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea. Found untenable was petitioners insistence that the trial court should have given greater weight to the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and conclusions of the agency. Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative liability of the owner/operator, officers and crew of the vessel. However, the determination of whether the carrier observed extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI.

The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners negligence -particularly its improper stowage of the logs. Hence, this Petition.8 Issues In its Memorandum, petitioner submits the following issues for our consideration: "(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol was a fortuitous event. "(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court. "(iii) Whether or not the finding of the Court of Appeals that the logs in the hold shifted and such shifting could only be due to improper stowage has a valid and factual basis. "(iv) Whether or not M/V Central Bohol is seaworthy. "(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime accidents. "(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."9 The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so, whether its sole and proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss. The Courts Ruling The Petition is devoid of merit. First Issue: Liability for Lost Cargo From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances of each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about -- among others -- by "flood, storm, earthquake, lightning or other natural disaster or calamity."11 In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.12 In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990. At the outset, it must be stressed that only questions of law13 may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of appeal,14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be reviewed on appeal16 only under exceptional circumstances such as, among others, when the inference is manifestly mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion.19

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage. The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol had been caused by the strong southwest monsoon.21 Having made such factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a "storm." The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a southwestern monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau.22 Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was observed within the Philippine area of responsibility during that period.23 According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort Scale.25 Consequently, the strong winds accompanying the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage.26 Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or worsened by the presence of human participation.27 The defense of fortuitous event or natural disaster cannot be successfully made when the injury could have been avoided by human precaution.28 Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1).29 We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only by the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to improper stowage. The assailed Decision stated: "Notably, in Master Cahatols account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second monsoon attack occurred at about 12:00 midnight. During this occasion, the master felt that the logs in the hold shifted, prompting him to order second mate Percival Dayanan to look at the bodega. Complying with the captains order, 2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanans account was: 14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na paglubog sa barkong M/V Central Bohol? S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang

bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang ako ay lumingon sa barko ito ay di ko na nakita. "Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler Frederick Perena, are one in saying that the vessel encountered two weather disturbances, one at around 10 oclock to 11 oclock in the evening and the other at around 12 oclock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel endured the first and not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught because the logs in the bodega shifted and there were already seawater that seeped inside."30 The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created pressures that eventually caused the ship to sink. Had the logs not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there was another motor launch that had been buffeted by the same weather condition within the same area, yet it was able to arrive safely at El Nido.31 In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latters Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V Central Bohol listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside."32 Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard side. After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been improperly loaded. According to the boatswains testimony, the logs were piled properly, and the entire shipment was lashed to the vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However, while they were placed side by side, there were unavoidable clearances between them owing to their round shape. Those loaded on deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port.34 It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs should not have been stowed with nothing to hold them securely in place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards the bottom of the ship. The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted, stated that "the logs were still properly lashed by steel chains on deck." Parenthetically, this statement referred only to those loaded on deck and did not mention anything about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck. The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of

observing extraordinary diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now escape responsibility for the loss. Second Issue: Doctrine of Limited Liability The doctrine of limited liability under Article 587 of the Code of Commerce36 is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and the captain.37 It has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the shipowner could have prevented this fatal miscalculation."38 As such, the shipowner was equally negligent. It cannot escape liability by virtue of the limited liability rule. WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner. SO ORDERED. Sandoval-Gutirrez, Corona and Carpio Morales*, JJ., concur. THIRD DIVISION [G.R. No. 146018. June 25, 2003] EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY, INC., respondent. DECISION PANGANIBAN, J.: The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the insurance policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of lading. The Case Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the August 31, 2000 Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 62751. The dispositive part of the Decision reads: IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED. [Petitioner] is hereby condemned to pay to [respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6% per annum, from date of this Decision of the Court. [Respondents] claim for attorneys fees [is] DISMISSED. [Petitioners] counterclaims are DISMISSED.[5] The assailed Resolution denied petitioners Motion for Reconsideration. On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which was later reversed by the CA, states: WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit. No cost.[8] The Facts The facts of the case are summarized by the appellate court in this wise:

Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas dcor and two (2) sacks of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the amount of P6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was both the shipper and consignee of the cargo. On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB General Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 against all risks under Open Policy No. 002/91/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the amount of P50,000.00, under Open Policy No. 002/91/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date. When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel resulting in the loss of the vessel and the cargoes therein. The Captain filed the required Marine Protest. Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount of P110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of P99,000.00, in settlement of her claim after which she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received from Feliciana Legaspi valued at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net amount of P49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of [respondent]. On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against [petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount of P148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and against the [petitioner] as follows: WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered ordering [petitioner] to pay [respondent] the following. 1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of filing of this complaint until fully paid; 2. Attorneys fees in the amount of P10,000.00; and 3. Cost of suit. [Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and equitable under the premises. [Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and received by, [petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings, Annexes A and B of the complaint; that the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after paying to her the value of the cargo on account of the Marine Risk Notes it issued in her favor covering the cargo.

In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action against [petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as stated in the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo beyond the value thereof declared in the Bill of Lading. After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before the Court and declared inter alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine Inquiry of the Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any responsibility on account of the fire, which Report of the Board was approved by the District Commander of the Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi Marketing filed claims for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative of the Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the amount of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated August 12, 1992, for the said amount of P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner] approved the claim of Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by Legaspi Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo under both Bills of Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value of the cargo with [respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total amount of P148,500.00 to her; [petitioner] came to know, for the first time, of the payments by [respondent] of the claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of the cargo as stated in the Bills of Lading. [Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x[9] (Citations omitted) Ruling of the Court of Appeals The CA held that petitioner had failed to prove that the fire which consumed the vessel and its cargo was caused by something other than its negligence in the upkeep, maintenance and operation of the vessel.[10] Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however, held that the payment did not extinguish petitioners obligation to respondent, because there was no evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the impropriety of treating the claim under Bill of Lading No. 58 -- covering cargo valued therein at P6,500 -- as a setoff against Nestor Angelias account with Chester Enterprises, Inc. Finally, it ruled that respondent is not bound by the valuation of the cargo under the Bills of Lading, x x x nor is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in the first place, the goods were insured with the [respondent] for the total amount of P150,000.00, which amount may be considered as the face value of the goods.[11]

Hence this Petition.[12] Issues Petitioner raises for our consideration the following alleged errors of the CA: I The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioners liability should be based on the actual insured value of the goods and not from actual valuation declared by the shipper/consignee in the bill of lading. II The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and due diligence was [exercised] by petitioner prior to, during and immediately after the fire on [petitioners] vessel. III The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action against the petitioner.[13] In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of its liability? This Courts Ruling The Petition is partly meritorious. First Issue: Liability for Loss Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard. We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the fuel oil tank, which had a mere two-inch gap from the engine room walling, thus precluding constant inspection and care by the crew. Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning, an earthquake, a tempest or a public enemy.[14] Hence, fire is not considered a natural disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we explained: x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused by the actual fault or privity of the carrier. Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protective policy towards agriculture. As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have

been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law. Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials.[16] The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in exercising the required vigilance. Petitioner did not present sufficient evidence showing what measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show when the last inspection and care of the auxiliary engine fuel oil service tank was made, what the normal practice was for its maintenance, or some other evidence to establish that it had exercised extraordinary diligence. It merely stated that constant inspection and care were not possible, and that the last time the vessel was dry-docked was in November 1990. Necessarily, in accordance with Article 1735[17] of the Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading Nos. 58 and 59. Second Issue: Extent of Liability Respondent contends that petitioners liability should be based on the actual insured value of the goods, subject of this case. On the other hand, petitioner claims that its liability should be limited to the value declared by the shipper/consignee in the Bill of Lading. The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of claim for loss or for damage to the shipped merchandise or property, [t]he liability of the common carrier x x x shall not exceed the value of the goods as appearing in the bill of lading.[19] The attempt by respondent to make light of this stipulation is unconvincing. As it had the consignees copies of the Bills of Lading,[20] it could have easily produced those copies, instead of relying on mere allegations and suppositions. However, it presented mere photocopies thereof to disprove petitioners evidence showing the existence of the above stipulation. A stipulation that limits liability is valid[21] as long as it is not against public policy. In Everett Steamship Corporation v. Court of Appeals,[22] the Court stated: A stipulation in the bill of lading limiting the common carriers 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 provides: Art. 1749. A stipulation that the common carriers 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 freely and fairly agreed upon. Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in SeaLand 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, and this the private respondent does not pretend to do. 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.

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers liability for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed upon. The bill of lading subject of the present controversy specifically provides, among others: 18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any consequential loss. The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency (100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required. The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. (Italics supplied) In the present case, the stipulation limiting petitioners liability is not contrary to public policy. In fact, its just and reasonable character is evident. The shippers/consignees may recover the full value of the goods by the simple expedient of declaring the true value of the shipment in the Bill of Lading. Other than the payment of a higher freight, there was nothing to stop them from placing the actual value of the goods therein. In fact, they committed fraud against the common carrier by deliberately undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper and just transport fare. Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier. Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter may be liable for in case of loss of the goods. The common carrier can then take appropriate measures -- getting insurance, if needed, to cover or protect itself. This precaution on the part of the carrier is reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it seeks to transport does not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it declared in the bill of lading. Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which it could not protect itself. It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than what it was entitled to for transporting the goods that had been deliberately undervalued by the shippers in the Bill of Lading. Between the two of them, the insurer should bear the loss in excess of the value declared in the Bills of Lading. This is the just and equitable solution. In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the goods shipped were declared and reflected in the bill of lading, like in the present case. The Court therein considered this declaration as the basis of the carriers liability and ordered payment based on such amount. Following this ruling, petitioner should not be held liable for more than what was declared by the shippers/consignees as the value of the goods in the bills of lading. We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the owner of the goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of loss, to compensation therefor. There is no evidence showing that petitioner paid her for the loss of those goods. It does not even claim to have paid her.

On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No. 59, for which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the former was the owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who owned those goods, and who was thus entitled to payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59 cannot be deemed to have been extinguished, because payment was made to a person who was not entitled thereto. With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500, the parties have not convinced us to disturb the findings of the CA that compensation could not validly take place. Thus, we uphold the appellate courts ruling on this point. WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense that petitioner is ORDERED to pay respondent the sums of P14,000 and P6,500, which represent the value of the goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs. SO ORDERED.

diligence in the upkeep and maintenance of her cooking equipments, as well as the selection and supervision of her employees; that petitioners negligence was the proximate cause of the fire that gutted the fastfood stalls.[4] In her Answer dated September 23, 1996, petitioner denied liability on the grounds that the fire was a fortuitous event and that she exercised due diligence in the selection and supervision of her employees.[5] After trial, the MeTC rendered its Decision[6] dated April 5, 1999 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, in light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter: 1) To pay the plaintiff the sum of P50,000.00 representing temperate or moderate damages; and 2) To pay the plaintiff the sum of P25,000.00 as and for attorneys fees and litigation expenses. The counterclaim filed by the defendant is hereby DENIED FOR LACK OF MERIT.

Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur. SO ORDERED.[7] VIRGINIA REAL, Petitioner, G.R. NO. 146224 Present: YNARES-SANTIAGO, J., (Chairperson), AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ. The MeTC held that the investigation conducted by the appropriate authority revealed that the fire broke out due to the leaking fumes coming from the LPG stove and tank installed at petitioners fastfood stall; that factual circumstances did not show any sign of interference by any force of nature to infer that the fire occurred due to fortuitous event; that the petitioner failed to exercise due diligence, precaution, and vigilance in the conduct of her business, particularly, in maintaining the safety of her cooking equipment as well as in the selection and supervision of her employees; that even if petitioner passes the fault to her employees, Article 2180 of the Civil Code finds application; that in the absence of supporting evidence, the amount of actual damages and unrealized profits prayed for by respondent cannot be granted; that, nonetheless, respondent is entitled to temperate damages since respondent sustained pecuniary loss, though its true value cannot, from the very nature of the case, be proved with certainty. Dissatisfied, petitioner filed an appeal with the Regional Trial Court, Branch 43, Manila (RTC), docketed as Civil Case No. 99-94606, insisting that the fire was a fortuitous event. On November 26, 1999, the RTC affirmed the Decision of the MeTC but increased the amount of temperate damages awarded to the respondent from P50,000.00 to P80,000.00.[8] Petitioner filed a Motion for Reconsideration contending that the increase in the award of temperate damages is unreasonable since she also incurred losses from the fire. In its Order dated April 12, 2000, the RTC denied petitioners Motion for Reconsideration holding that it cannot disregard evidence showing that the fire originated from petitioners fastfood stall; that the increased amount of temperate damages awarded to respondent is not a full compensation but only a fair approximate of what he lost due to the negligence of petitioners workers.[9] Petitioner then filed a Petition for Review with the CA, docketed as CA-G.R. SP No. 58799.[10] On June 16, 2000, the CA issued a Resolution dismissing the petition for being procedurally flawed/deficient.[11] The CA held that the attached RTC Decision was not certified as a true copy by the Clerk of Court; that a certified true copy of the MeTC Decision was not attached; that material portions of the record, such as the position papers of the parties and affidavits of witnesses, as would support the material allegations of the petition were also not attached.[12] On July 14, 2000, petitioner filed her Motion for Reconsideration,[13] attaching photocopies of the Decisions of the RTC and MeTC as certified correct by the Clerk of Court.[14] On November 27, 2000, the CA issued its Resolution denying petitioners Motion for Reconsideration.[15] Hence, the present petition raising the following issues: Hence, respondent filed a complaint for damages against petitioner before the Metropolitan Trial Court, Branch 24, Manila (MeTC), docketed as Civil Case No. 152822.[3] Respondent alleged that petitioner failed to exercise due

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SISENANDO H. BELO, Promulgated: Respondent. January 26, 2007 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the Resolution[1] dated June 16, 2000 of the Court of Appeals (CA) which dismissed outright the petition for review of Virginia Real (petitioner) in CA-G.R. SP No. 58799, and the CA Resolution[2] dated November 27, 2000 which denied her Motion for Reconsideration. The facts of the case: Petitioner owned and operated the Wasabe Fastfood stall located at the Food Center of the Philippine Womens University (PWU) along Taft Avenue, Malate, Manila. Sisenando H. Belo (respondent) owned and operated the BS Masters fastfood stall, also located at the Food Center of PWU. Around 7:00 oclock in the morning of January 25, 1996, a fire broke out at petitioners Wasabe Fastfood stall. The fire spread and gutted other fastfood stalls in the area, including respondents stall. An investigation on the cause of the fire by Fire Investigator SFO1 Arnel C. Pinca (Pinca) revealed that the fire broke out due to the leaking fumes coming from the Liquefied Petroleum Gas (LPG) stove and tank installed at petitioners stall. For the loss of his fastfood stall due to the fire, respondent demanded compensation from petitioner. However, petitioner refused to accede to respondents demand.

1. Whether the submitted certified true copy of the appealed decision of the Regional Trial Court as authenticated by a court employee other than the Clerk of Court who was not around at that time said copy was secured constitutes compliance with the Rules? 2. Whether the submission of a certified true copy of the Metropolitan Trial Courts judgment is still an indispensable requirement in filing a petition for review before the Court of Appeals despite the fact that said judgment was already modified by the above decision of the Regional Trial Court and it is the latter decision that is the proper subject of the petition for review? 3. Whether the submission of copies of the respective position papers of the contending parties is still an indispensable requirement in filing a petition for review before the Court of Appeals despite the fact that the contents thereof are already quoted in the body of the verified petition and in the subject judgment of the Metropolitan Trial Court? 4. Whether the herein petitioner could be held liable for damages as a result of the fire that razed not only her own food kiosk but also the adjacent foodstalls at the Food Center premises of the Philippine Womens University, including that of the respondent? 5. Whether the Regional Trial Court could increase the amount of damages awarded by the Metropolitan Trial Court in favor of the respondent who has not even filed an appeal therefrom?[16]

The requirements as to form and content of a petition for review of a decision of the RTC are laid down in Section 2 of Rule 42 of the Revised Rules of Court, thus: Sec. 2. Form and contents. - The petition shall be filed in seven (7) legible copies, with the original copy intended for the court being indicated as such by the petitioner, and shall (a) state the full names of the parties to the case, without impleading the lower courts or judges thereof either as petitioners or respondents; (b) indicate the specific material dates showing that it was filed on time; (c) set forth concisely a statement of the matters involved, the issues raised, the specification of errors of fact or law, or both, allegedly committed by the Regional Trial Court, and the reasons or arguments relied upon for the allowance of the appeal; (d) be accompanied by clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts, certified correct by the clerk of court of the Regional Trial Court, the requisite number of plain copies thereof and of the pleadings and other material portions of the record as would support the allegations of the petition. (Emphasis supplied) xxxx

Under Section 3 of the same Rule, failure to comply with the above requirements shall be sufficient ground for the dismissal thereof.

Petitioner submits that rules of procedure should not be applied in a very harsh, inflexible and technically unreasonable sense. While admitting that the RTC Decision and Order were not certified by the Clerk of Court himself, petitioner insists that they were certified as authentic copies by Administrative Officer IV Gregorio B. Paraon of the RTC. As to the MeTC Decision, petitioner contends that the submission of a certified true copy thereof is not an indispensable requirement because that judgment is not the subject of the petition for review. In any case, petitioner submits that she had substantially complied with the requirements of the rule when she attached with her Motion for Reconsideration the copies of the Decisions of the RTC and MeTC as certified correct by the Clerk of Court. Anent the non-submission of the position papers of the parties, petitioner maintains that the contents of said position papers were lengthily quoted verbatim in the petition and in the attached copy of the MeTC Decision. On the submission of affidavits of witnesses, petitioner contends that it was not necessary because the case before the MeTC was not covered by summary proceedings. On the merits of her petition before the CA, petitioner avers that she should not be held liable for a fire which was a fortuitous event since the fire could not be foreseen and the spread of the fire to the adjacent fastfood stalls was inevitable. Lastly, she argues that the RTC cannot increase the amount of temperate damages since the respondent did not appeal from the judgment of the MeTC. Respondent opted not to file a Comment, manifesting that the petition contains no new arguments which would require a comment since the arguments are but a rehash of those raised and decided by the lower courts.[17] The Court gave due course to the petition and required both parties to submit their respective memoranda.[18] In compliance therewith, petitioner submitted her Memorandum.[19] On the other hand, respondent filed a Manifestation stating that since no new issues have been raised by the petitioner in her petition and in order not to be redundant, he adopts as his memorandum the memoranda he filed in the MeTC and the RTC.[20] In his Memoranda before the MeTC and RTC, respondent emphasized the evidence he presented to establish his cause of action against petitioner, principally the testimony of Fire Investigator SFO1 Arnel G. Pinca stating that the fire originated from the LPG stove and tank in petitioners fastfood stall.

However, Section 6, Rule 1 of the Revised Rules of Court also provides that rules shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding. Indeed, rules of procedure should be used to promote, not frustrate justice.[21] In the present case, petitioners submission of copies of the RTC Decision and Order certified as correct by the Administrative Officer IV of the RTC is insufficient compliance with the requirements of the rule. Petitioner failed to show that the Clerk of Court was officially on leave and the Administrative Officer was officially designated as officerin-charge. The rule is explicit in its mandate that the legible duplicate originals or true copies of the judgments or final orders of both lower courts must be certified correct by the Clerk of Court. Nonetheless, a strict application of the rule in this case is not called for. This Court has ruled against the dismissal of appeals based solely on technicalities in several cases, especially when the appellant had substantially complied with the formal requirements.[22] There is ample jurisprudence holding that the subsequent and substantial compliance of a party may call for the relaxation of the rules of procedure.[23] When the CA dismisses a petition outright and the petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite pleadings, documents or order/resolution, this would constitute substantial compliance with the Revised Rules of Court.[24] Thus, in the present case, there was substantial compliance when petitioner attached in her Motion for Reconsideration a photocopy of the Decision of the RTC as certified correct by the Clerk of Court of the RTC. In like manner, there was substantial compliance when petitioner attached, in her Motion for Reconsideration, a photocopy of the Decision of the MeTC as certified correct by the Clerk of Court of the RTC. On the necessity of attaching position papers and affidavits of witnesses, Section 2 of Rule 42 of the Revised Rules of Court requires attachments if these would support the allegations of the petition.[25] In the present case, there was no compelling need to attach the position papers of the parties since the Decisions of the MeTC and RTC already stated their respective arguments. As to the affidavits, the Court notes that they were presented by the respondent as part of the testimony of his witness Fire Investigator Pinca and therefore would not support the allegations of the petitioner. Truly, in dismissing the petition for review, the CA had committed grave abuse of discretion amounting to lack of jurisdiction in putting a premium on technicalities at the expense of a just resolution of the case. The Courts pronouncement in Republic of the Philippines v. Court of Appeals[26] is worth echoing: cases should be determined on the merits, after full opportunity to all parties for ventilation of their causes and defenses, rather than on technicality or some procedural imperfections. In that way, the ends of justice would be better served.[27] Thus,

what should guide judicial action is that a party litigant is given the fullest opportunity to establish the merits of his action or defense rather than for him to lose life, honor or property on mere technicalities.[28] The next most logical step would then be for the Court to simply set aside the challenged resolutions, remand the case to the CA and direct the latter to resolve on the merits of the petition in CA-G.R. SP No. 58799. But, that would further delay the case. Considering the issues raised which can be resolved on the basis of the pleadings and documents filed, and the fact that petitioner herself has asked the Court to decide her petition on the merits, the Court deems it more practical and in the greater interest of justice not to remand the case to the CA but, instead, to resolve the controversy once and for all.[29] The Court shall now address the issue of whether the fire was a fortuitous event. Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause of the unforeseen and unexpected occurrence must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. [30] Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.[31] It is established by evidence that the fire originated from leaking fumes from the LPG stove and tank installed at petitioners fastfood stall and her employees failed to prevent the fire from spreading and destroying the other fastfood stalls, including respondents fastfood stall. Such circumstances do not support petitioners theory of fortuitous event. Petitioners bare allegation is far from sufficient proof for the Court to rule in her favor. It is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to proof.[32] In short, mere allegations are not evidence.[33] The Civil Code provides: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. xxx

In this case, petitioner not only failed to show that she submitted proof that the LPG stove and tank in her fastfood stall were maintained in good condition and periodically checked for defects but she also failed to submit proof that she exercised the diligence of a good father of a family in the selection and supervision of her employees. For failing to prove care and diligence in the maintenance of her cooking equipment and in the selection and supervision of her employees, the necessary inference was that petitioner had been negligent.[36] As to the award of temperate damages, the increase in the amount thereof by the RTC is improper. The RTC could no longer examine the amounts awarded by the MeTC since respondent did not appeal from the Decision of the MeTC.[37] It is well-settled that a party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court, if any, whose decision is brought up on appeal.[38] While there are exceptions to this rule, such as if they involve (1) errors affecting the lower courts jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors,[39] none apply here. WHEREFORE, the petition is GRANTED. The assailed Resolutions dated June 16, 2000 and November 27, 2000 of the Court of Appeals are REVERSED and SET ASIDE. The Decision dated November 26, 1999 of the Regional Trial Court, Branch 43, Manila is AFFIRMED with MODIFICATION that the temperate damages awarded is reduced from P80,000.00 to P50,000.00 as awarded by the Metropolitan Trial Court, Branch 24, Manila in its Decision dated April 5, 1999. No costs. SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxxx The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Whenever an employees negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.[34] To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.[35] CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division ROMEO J. CALLEJO, SR. Associate Justice ATTESTATION MINITA V. CHICO-NAZARIO Associate Justice

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Chief Justice

Except for Ocfemia, all the defendants filed separate answers to the complaint. [Petitioner] Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared that her presence at the scene of the accident was upon the request of the actual owner of the Mitsubishi Lancer (PHK 201 91) [Albert Jaucian] for whom she had been working as agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert Jaucian claimed that he was not the registered owner of the car. Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was off-duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his employment.3 After trial, the trial court found petitioner liable and ordered him to pay respondent actual, moral and exemplary damages plus appearance and attorneys fees: WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount of P99,580 as actual damages, P25,000.00 as moral damages, P25,000.00 as exemplary damages and attorneys fees in the amount of P10,000.00 plus appearance fees of P500.00 per hearing with legal interest counted from the date of judgment. In conformity with the law on equity and in accordance with the ruling in First Malayan Lending and Finance Corporation vs. Court of Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for whatever amount the latter is hereby ordered to pay under the judgment. SO ORDERED.4 The CA upheld the trial courts decision but deleted the award for appearance and attorneys fees because the justification for the grant was not stated in the body of the decision. Thus, this petition for review which raises a singular issue: MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE?5 Yes. We have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being operated.6 The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte7: 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 his 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 defendant-appellant 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 (defendant-appellants) 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 Vehicles 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 property 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

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 144274 September 20, 2004

NOSTRADAMUS VILLANUEVA, petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents. DECISION CORONA, J.: This is a petition to review the decision1 of the Court of Appeals in CA-G.R. CV No. 52203 affirming in turn the decision of the trial court finding petitioner liable to respondent for damages. The dispositive portion read: WHEREFORE, the appealed decision is hereby AFFIRMED except the award of attorneys fees including appearance fees which is DELETED. SO ORDERED.2 The facts of the case, as summarized by the Court of Appeals, are as follows: [Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No. NDW 781 91 with [co-respondent] Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was then the registered "owner" of a green Mitsubishi Lancer bearing Plate No. PHK 201 91. On 22 October 1991 at about 9:45 in the evening, following a green traffic light, [respondent] Priscilla Domingos silver Lancer car with Plate No. NDW 781 91 then driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle lane of South Superhighway at moderate speed from north to south. Suddenly, a green Mitsubishi Lancer with plate No. PHK 201 91 driven by Renato Dela Cruz Ocfemia darted from Vito Cruz Street towards the South Superhighway directly into the path of NDW 781 91 thereby hitting and bumping its left front portion. As a result of the impact, NDW 781 91 hit two (2) parked vehicles at the roadside, the second hitting another parked car in front of it. Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the filing of information for reckless imprudence resulting to (sic) damage to property and physical injuries. The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-seller and second, impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace Car Exchange.

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 thee Motor Vehicles Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturers 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 vehicle 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 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 "share 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 pace a "middleman" between them and the public, and escape liability by the manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 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 by 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 thirdparty 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.8

Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the accident was not an authorized driver of the new (actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing and Finance Corporation vs. CA9 implies that to hold the registered owner liable for damages, the driver of the vehicle must have been authorized, allowed and permitted by its actual owner to operate and drive it. Thus, if the vehicle is driven without the knowledge and consent of the actual owner, then the registered owner cannot be held liable for damages. He further argues that this was the underlying theory behind Duavit vs. CA10 wherein the court absolved the registered owner from liability after finding that the vehicle was virtually stolen from the owners garage by a person who was neither authorized nor employed by the owner. Petitioner concludes that the ruling in Duavit and not the one in First Malayan should be applicable to him. Petitioners argument lacks merit. Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. To require the driver of the vehicle to be authorized by the actual owner before the registered owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in the first place. Furthermore, there is nothing in First Malayan which even remotely suggests that the driver must be authorized before the registered owner can be held accountable. In First Malayan, the registered owner, First Malayan Corporation, was held liable for damages arising from the accident even if the vehicle involved was already owned by another party: This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered owner is the operator of the same with respect to the public and third persons, and as such, directly and primarily responsible for the consequences of its operation. In contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as his agent (MYC-AgroIndustrial Corporation vs. Vda. de Caldo, 132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil. 949). We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It 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 actual owner and that he is the actual employer, following the 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 person, and as such is responsible for the consequences incident to its operation, we must hold and consider such owner-operator of record as the employer, in contemplation of law, of the driver. And, to give effect to this policy of law as enunciated in the above cited decisions of this Court, we must now extend the same and consider the actual operator and employer as the agent of the operator of record.11 Contrary to petitioners position, the First Malayan ruling is applicable to him since the case involves the same set of facts the registered owner had previously sold the vehicle to someone else and was being driven by an employee of the new (actual) owner. Duavit is inapplicable since the vehicle there was not transferred to another; the registered and the actual owner was one and the same person. Besides, in Duavit, the defense of the registered owner, Gilberto Duavit, was that the vehicle was practically stolen from his garage by Oscar Sabiano, as affirmed by the latter: Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from the garage of defendant Duavit without the consent and authority of the latter. He testified further that Duavit even filed charges against him for the theft of the jeep but which Duavit did not push through as his (Sabianos) parents apologized to Duavit on his behalf.12 As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioners case since the circumstance of unauthorized use was not present. He in fact voluntarily delivered his car to Albert Jaucian as part of the downpayment for a vehicle he purchased from Jaucian. Thus, he could not claim that the vehicle was stolen from him since he voluntarily ceded possession thereof to Jaucian. It was the latter, as the new (actual) owner, who could have raised the defense of theft to prove that he was not liable for the acts of his employee Ocfemia. Thus, there is no reason to apply the Duavit ruling to this case.

The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA13 and more recently in Aguilar, Sr. vs. Commercial Savings Bank.14 In BA Finance, we held the registered owner liable even if, at the time of the accident, the vehicle was leased by another party and was driven by the lessees employee. In Aguilar, the registered owner-bank answered for damages for the accident even if the vehicle was being driven by the VicePresident of the Bank in his private capacity and not as an officer of the Bank, as claimed by the Bank. We find no reason to deviate from these decisions. The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid. Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement under the motor vehicle law. WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court of Appeals is AFFIRMED. SO ORDERED. Panganiban, Sandoval-Gutierrez, and Carpio Morales*, JJ., concur.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees. This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez. Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: t.hqw WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned. Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff. Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner, vs. SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents. Manuel A. Concordia for petitioner. Nicasio Ocampo for himself and on behalf of his correspondents.

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p. 121, Ibid.) On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive portion another paragraph, to wit: t.hqw In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.) Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw

ESCOLIN, J.:+.wph!1 1. "Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts. The factual background of this case is undisputed. Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of public respondent so that: (a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted; (b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government. Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:t.hqw ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed; (1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking. The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void." The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case. WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs. SO ORDERED.1wph1.t Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur. Aquino, J., took no part.

AUSTRIA-MARTINEZ. CALLEJO, SR., and CHICO-NAZARIO, JJ. COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents. Promulgated: April 19, 2006

x-----------------------------------------------------------------------------------------x DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the Decision[1] and Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the Resolution[3] of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn affirmed the Decision[4] of the Labor Arbiter dismissing the complaint filed by respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he operated by employing drivers on a boundary basis. One of those drivers was respondent Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary and kept the residue of his daily earnings as compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the boundary-hulog scheme, where Bustamante would remit to Villarama P550.00 a day for a period of four years; Bustamante would then become the owner of the vehicle and continue to drive the same under Villamarias franchise. It was also agreed that Bustamante would make a downpayment of P10,000.00. On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng Boundary-Hulog[5] over the passenger jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay the boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and Bustamante would have to return the vehicle to Villamaria Motors. Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to transport passengers only and not for other purposes. He was also required to display an identification card in front of the windshield of the vehicle; in case of failure to do so, any fine that may be imposed by government authorities would be charged against his account. Bustamante further obliged himself to pay for the cost of replacing any parts of the vehicle that would be lost or damaged due to his negligence. In case the vehicle sustained serious damage, Bustamante was obliged to notify Villamaria Motors before commencing repairs. Bustamante was not allowed to wear slippers, short pants or undershirts while driving. He was required to be polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in case the vehicle was leased for two or more days and was required to attend any meetings which may be called from time to time. Aside from the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the vehicle and the premium for the vehicles comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations imposed by Villamaria for the upkeep and maintenance of the jeepney. Bustamante continued driving the jeepney under the supervision and control of Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria allowed him to continue driving the jeepney.

FIRST DIVISION

OSCAR VILLAMARIA, JR. Petitioner,

G.R. No. 165881 Present: PANGANIBAN, C.J., Chairperson, YNARES-SANTIAGO,

- versus -

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors failed to pay their respective boundary-hulog. This prompted Villamaria to serve a Paalala,[6] reminding them that under the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean their respective jeepneys would be returned to him without any complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and urged them to comply with their obligation to avoid litigation. On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from driving the vehicle. On August 15, 2000, Bustamante filed a Complaint[7] for Illegal Dismissal against Villamaria and his wife Teresita. In his Position Paper,[8] Bustamante alleged that he was employed by Villamaria in July 1996 under the boundary system, where he was required to remit P450.00 a day. After one year of continuously working for them, the spouses Villamaria presented the Kasunduan for his signature, with the assurance that he (Bustamante) would own the jeepney by March 2001 after paying P550.00 in daily installments and that he would thereafter continue driving the vehicle along the same route under the same franchise. He further narrated that in July 2000, he informed the Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and was assured that it would be done. However, he was later arrested and his drivers license was confiscated because apparently, the replacement engine that was installed was taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the jeepney was not impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to drive the vehicle since then unless he paid them P70,000.00. Bustamante prayed that judgment be rendered in his favor, thus: WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered ordering the respondents, jointly and severally, the following: 1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660; 2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits computed from July 24, 2000 up to the time of his actual reinstatement; 3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred by the complainant in the repair and maintenance of the subject jeep; 4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or a total of P91,200.00; 5. To pay moral and exemplary damages of not less than P200,000.00; 6. Attorneys fee[s] of not less than 10% of the monetary award. Other just and equitable reliefs under the premises are also being prayed for.[9] In their Position Paper,[10] the spouses Villamaria admitted the existence of the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00 downpayment and the vehicles annual registration fees. They further alleged that Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of complying with his obligations, Bustamante stopped making his remittances despite his daily trips and even brought the jeepney to the province without permission. Worse, the jeepney figured in an accident and its license plate was confiscated; Bustamante even abandoned the vehicle in a gasoline station in Sucat, Paraaque City for two weeks. When the security guard at the gasoline station requested that the vehicle be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante told her: Di kunin ninyo. When the vehicle was finally retrieved, the tires were worn, the alternator was gone, and the battery was no longer working. Citing the cases of Cathedral School of Technology v. NLRC[11] and Canlubang Security Agency Corporation v. NLRC,[12] the spouses Villamaria argued that Bustamante was not illegally dismissed since the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship into that of vendor-vendee. Hence,

the spouses concluded, there was no legal basis to hold them liable for illegal dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack of merit. In his Reply,[13] Bustamante claimed that Villamaria exercised control and supervision over the conduct of his employment. He maintained that the rulings of the Court in National Labor Union v. Dinglasan,[14] Magboo v. Bernardo,[15] and Citizen's League of Free Workers v. Abbas[16] are germane to the issue as they define the nature of the owner/operator-driver relationship under the boundary system. He further reiterated that it was the Villamaria spouses who presented the Kasunduan to him and that he conformed thereto only upon their representation that he would own the vehicle after four years. Moreover, it appeared that the Paalala was duly received by him, as he, together with other drivers, was made to affix his signature on a blank piece of paper purporting to be an attendance sheet. On March 15, 2002, the Labor Arbiter rendered judgment[17] in favor of the spouses Villamaria and ordered the complaint dismissed on the following ratiocination: Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim that complainant violated the terms of their contract and afterwards abandoned the vehicle assigned to him. As against the foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail. Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees.[18] Bustamante appealed the decision to the NLRC,[19] insisting that the Kasunduan did not extinguish the employeremployee relationship between him and Villamaria. While he did not receive fixed wages, he kept only the excess of the boundary-hulog which he was required to remit daily to Villamaria under the agreement. Bustamante maintained that he remained an employee because he was engaged to perform activities which were necessary or desirable to Villamarias trade or business. The NLRC rendered judgment[20] dismissing the appeal for lack of merit, thus: WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject matter of the controversy.[21] The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May 30, 2003.[22] Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred I IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE; II IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF OUR LABOR LAWS.[23] Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his complaint. He further alleged that it is common knowledge that operators of passenger jeepneys (including taxis) pay their drivers not on a regular monthly basis but on commission or boundary basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed from employment without any lawful or just cause and without due notice. For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not the boundary-hulog system, hence inapplicable in the instant case. He argued that upon the execution of the Kasunduan, the juridical tie between him and Bustamante was transformed into a vendor-vendee relationship. Noting that he was engaged in the manufacture and sale of jeepneys and not in the business of transporting passengers for consideration, Villamaria contended that the daily fees which Bustmante paid were actually periodic installments for the the vehicle

and were not the same fees as understood in the boundary system. He added that the boundary-hulog plan was basically a scheme to help the driver-buyer earn money and eventually pay for the unit in full, and for the owner to profit not from the daily earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further asserted that the apparently restrictive conditions in the Kasunduan did not mean that the means and method of driver-buyers conduct was controlled, but were mere ways to preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase price, while Bustamante would be assured that the vehicle would still be in good running condition even after four years. Moreover, the right of vendor to impose certain conditions on the buyer should be respected until full ownership of the property is vested on the latter. Villamaria insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v. Drilon[24] has analogous application to the instant issue. In its Decision[25] dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of the decision reads: UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be, as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

the juridical relationship between him and respondent under the Kasunduan was a combination of employeremployee and vendor-vendee relationships. The terms and conditions of the Kasunduan clearly state that he and respondent Bustamante had entered into a conditional deed of sale over the jeepney; as such, their employeremployee relationship had been transformed into that of vendor-vendee. Petitioner insists that he had the right to reserve his title on the jeepney until after the purchase price thereof had been paid in full. In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a special civil action of certiorari under Rule 65. He argues that petitioner failed to establish that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in its decision, as the said ruling is in accord with law and the evidence on record. Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines. Respondent insists that his juridical relationship with petitioner is that of employer-employee because he was engaged to perform activities which were necessary or desirable in the usual business of petitioner, his employer. In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor; hence, it behooves the Court to resolve the merits of his petition.

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante separation pay computed from the time of his employment up to the time of termination based on the prevailing minimum wage at the time of termination; and, 2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back wages computed from the time of his dismissal up to March 2001 based on the prevailing minimum wage at the time of his dismissal. Without Costs. SO ORDERED.[26] The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes complaint. Under the Kasunduan, the relationship between him and Villamaria was dual: that of vendor-vendee and employer-employee. The CA ratiocinated that Villamarias exercise of control over Bustamantes conduct in operating the jeepney is inconsistent with the formers claim that he was not engaged in the transportation business. There was no evidence that petitioner was allowed to let some other person drive the jeepney. The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not mean that Villamaria could not exercise it. It explained that the existence of an employment relationship did not depend on how the worker was paid but on the presence or absence of control over the means and method of the employees work. In this case, Villamarias directives (to drive carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to inform him about provincial trips, etc.) was a means to control the way in which Bustamante was to go about his work. In view of Villamarias supervision and control as employer, the fact that the boundary represented installment payments of the purchase price on the jeepney did not remove the parties employeremployee relationship. While the appellate court recognized that a weeks default in paying the boundary-hulog constituted an additional cause for terminating Bustamantes employment, it held that the latter was illegally dismissed. According to the CA, assuming that Bustamante failed to make the required payments as claimed by Villamaria, the latter nevertheless failed to take steps to recover the unit and waited for Bustamante to abandon it. It also pointed out that Villamaria neither submitted any police report to support his claim that the vehicle figured in a mishap nor presented the affidavit of the gas station guard to substantiate the claim that Bustamante abandoned the unit. Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a motion for reconsideration thereof. The CA denied the motion in a Resolution[27] dated November 2, 2004, and Villamaria received a copy thereof on November 8, 2004. Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA erred in ruling that

We agree with respondents contention that the remedy of petitioner from the CA decision was to file a petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action of certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his motion for the reconsideration within which to file the petition under Rule 45.[28] But instead of doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not, however, suspend the running of the 15-day reglementary period; consequently, the CA decision became final and executory upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse, the instant petition stands to be dismissed.[29] It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is proscribed by the remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals:[30] We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to file a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, on questions of facts or issues of law within fifteen days from notice of the said resolution. Otherwise, the decision of the CA shall become final and executory. The remedy under Rule 45 of the Rules of Court is a mode of appeal to this Court from the decision of the CA. It is a continuation of the appellate process over the original case. A review is not a matter of right but is a matter of judicial discretion. The aggrieved party may, however, assail the decision of the CA via a petition for certiorari under Rule 65 of the Rules of Court within sixty days from notice of the decision of the CA or its resolution denying the motion for reconsideration of the same. This is based on the premise that in issuing the assailed decision and resolution, the CA acted with grave abuse of discretion, amounting to excess or lack of jurisdiction and there is no plain, speedy and adequate remedy in the ordinary course of law. A remedy is considered plain, speedy and adequate if it will promptly relieve the petitioner from the injurious effect of the judgment and the acts of the lower court. The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the remedies of appeal and certiorari are mutually exclusive and not alternative or successive. The aggrieved party is, likewise, barred from filing a petition for certiorari if the remedy of appeal is lost through his negligence. A petition for certiorari is an original action and does not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary injunction has been issued against the public respondent from further proceeding. A petition for certiorari must be based on jurisdictional grounds because, as long as the respondent court acted within its jurisdiction, any error committed by it will amount to nothing more than an error of judgment which may be corrected or reviewed only by appeal.[31] However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed under Rule 45, conformably with the principle that rules of procedure are to be construed liberally, provided that the petition is filed within the reglementary period under Section 2, Rule 45 of the Rules of Court, and where valid and compelling circumstances warrant that the petition be resolved on its merits.[32] In this case, the petition was filed within the reglementary period and petitioner has raised an issue of substance: whether the existence of a boundary-hulog

agreement negates the employer-employee relationship between the vendor and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a complaint for illegal dismissal in such case. We resolve these issues in the affirmative. The rule is that, the nature of an action and the subject matter thereof, as well as, which court or agency of the government has jurisdiction over the same, are determined by the material allegations of the complaint in relation to the law involved and the character of the reliefs prayed for, whether or not the complainant/plaintiff is entitled to any or all of such reliefs.[33] A prayer or demand for relief is not part of the petition of the cause of action; nor does it enlarge the cause of action stated or change the legal effect of what is alleged.[34] In determining which body has jurisdiction over a case, the better policy is to consider not only the status or relationship of the parties but also the nature of the action that is the subject of their controversy.[35] Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only over the following: x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Termination disputes; 3. If accompanied with a claim for reinstatement, those cases that workers may file involving wage, rates of pay, hours of work, and other terms and conditions of employment; 4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations; 5. Cases arising from violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and

analogously applied to govern the relationships between auto-calesa owner/operator and driver,[43] bus owner/operator and conductor,[44] and taxi owner/operator and driver.[45] The boundary system is a scheme by an owner/operator engaged in transporting passengers as a common carrier to primarily govern the compensation of the driver, that is, the latters daily earnings are remitted to the owner/operator less the excess of the boundary which represents the drivers compensation. Under this system, the owner/operator exercises control and supervision over the driver. It is unlike in lease of chattels where the lessor loses complete control over the chattel leased but the lessee is still ultimately responsible for the consequences of its use. The management of the business is still in the hands of the owner/operator, who, being the holder of the certificate of public convenience, must see to it that the driver follows the route prescribed by the franchising and regulatory authority, and the rules promulgated with regard to the business operations. The fact that the driver does not receive fixed wages but only the excess of the boundary given to the owner/operator is not sufficient to change the relationship between them. Indubitably, the driver performs activities which are usually necessary or desirable in the usual business or trade of the owner/operator.[46] Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which represented the boundary of petitioner as well as respondents partial payment (hulog) of the purchase price of the jeepney. Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily remittances also had a dual purpose: that of petitioners boundary and respondents partial payment (hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that expressly recognizes the old one, changes only the terms of payment, and adds other obligations not incompatible with the old provisions or where the new contract merely supplements the previous one. [47] The two obligations of the respondent to remit to petitioner the boundary-hulog can stand together. In resolving an issue based on contract, this Court must first examine the contract itself, keeping in mind that when the terms of the agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.[48] The intention of the contracting parties should be ascertained by looking at the words used to project their intention, that is, all the words, not just a particular word or two or more words standing alone. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[49] The parts and clauses must be interpreted in relation to one another to give effect to the whole. The legal effect of a contract is to be determined from the whole read together.[50] Under the Kasunduan, petitioner retained supervision and control over the conduct of the respondent as driver of the jeepney, thus: Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga sumusunod:

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relationship, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (c) Cases arising from the interpretation or implementation of collective bargaining agreements, and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements. In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite.[36] The jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can only be resolved by reference to the Labor Code, other labor statutes or their collective bargaining agreement.[37] Not every dispute between an employer and employee involves matters that only the Labor Arbiter and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between employers and employees where the employer-employee relationship is merely incidental is within the exclusive original jurisdiction of the regular courts.[38] When the principal relief is to be granted under labor legislation or a collective bargaining agreement, the case falls within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a claim for damages might be asserted as an incident to such claim.[39] We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of employer-employee and vendorvendee. The Kasunduan did not extinguish the employer-employee relationship of the parties extant before the execution of said deed. As early as 1956, the Court ruled in National Labor Union v. Dinglasan[40] that the jeepney owner/operator-driver relationship under the boundary system is that of employer-employee and not lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v. Bernardo[41] and Lantaco, Sr. v. Llamas,[42] and was

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG. 2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan. 3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG. 4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG. 5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA MOTORS o hindi. 6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang kapabayaan. 8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan. 9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS. 10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang nagmamaneho ay laging nasa maayos ang kasuotan upang igalang ng mga pasahero. 11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring kasangkutan. 12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS. 13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG. 14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG. 15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang anumang mungkahi sa ikasusulong ng samahan. 16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan. 17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo. 18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito. 19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang suliranin. 20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang aksidente. 21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA MOTORS. 22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa paghahanapbuhay at wala nang iba pa.[51]

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes referred to as contract to sell, if the ownership or title over the property sold is retained by the vendor, and is not passed to the vendee unless and until there is full payment of the purchase price and/or upon faithful compliance with the other terms and conditions that may lawfully be stipulated. [52] Such payment or satisfaction of other preconditions, as the case may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or serious, but simply an event that would prevent the obligation of the vendor to convey title from acquiring binding force.[53] Stated differently, the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. [54] The vendor may extrajudicially terminate the operation of the contract, refuse conveyance, and retain the sums or installments already received, where such rights are expressly provided for.[55] Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its material possession was vested in respondent as its driver. In case respondent failed to make his P550.00 daily installment payment for a week, the agreement would be of no force and effect and respondent would have to return the jeepney to petitioner; the employer-employee relationship would likewise be terminated unless petitioner would allow respondent to continue driving the jeepney on a boundary basis of P550.00 daily despite the termination of their vendor-vendee relationship. The juridical relationship of employer-employee between petitioner and respondent was not negated by the foregoing stipulation in the Kasunduan, considering that petitioner retained control of respondents conduct as driver of the vehicle. As correctly ruled by the CA: The exercise of control by private respondent over petitioners conduct in operating the jeepney he was driving is inconsistent with private respondents claim that he is, or was, not engaged in the transportation business; that, even if petitioner was allowed to let some other person drive the unit, it was not shown that he did so; that the existence of an employment relation is not dependent on how the worker is paid but on the presence or absence of control over the means and method of the work; that the amount earned in excess of the boundary hulog is equivalent to wages; and that the fact that the power of dismissal was not mentioned in the Kasunduan did not mean that private respondent never exercised such power, or could not exercise such power. Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card, or to don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria Motors about the fact that the unit would be going out to the province for two days of more, or to drive the unit carefully, etc. necessarily related to control over the means by which the petitioner was to go about his work; that the ruling applicable here is not Singer Sewing Machine but National Labor Union since the latter case involved jeepney owners/operators and jeepney drivers, and that the fact that the boundary here represented installment payment of the purchase price on the jeepney did not withdraw the relationship from that of employer-employee, in view of the overt presence of supervision and control by the employer.[56] Neither is such juridical relationship negated by petitioners claim that the terms and conditions in the Kasunduan relative to respondents behavior and deportment as driver was for his and respondents benefit: to insure that respondent would be able to pay the requisite daily installment of P550.00, and that the vehicle would still be in good condition despite the lapse of four years. What is primordial is that petitioner retained control over the conduct of the respondent as driver of the jeepney. Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise supervision and control over the respondent, by seeing to it that the route provided in his franchise, and the rules and regulations of the Land Transportation Regulatory Board are duly complied with. Moreover, in a business establishment, an identification card is usually provided not just as a security measure but to mainly identify the holder thereof as a bona fide employee of the firm who issues it.[57] As respondents employer, it was the burden of petitioner to prove that respondents termination from employment was for a lawful or just cause, or, at the very least, that respondent failed to make his daily remittances of P550.00 as boundary. However, petitioner failed to do so. As correctly ruled by the appellate court:

It is basic of course that termination of employment must be effected in accordance with law. The just and authorized causes for termination of employment are enumerated under Articles 282, 283 and 284 of the Labor Code. Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance of the boundary hulog for one week or longer may be considered an additional cause for termination of employment. The reason is because the Kasunduan would be of no force and effect in the event that the purchaser failed to remit the boundary hulog for one week. The Kasunduan in this case pertinently stipulates: 13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa. Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of an employee is for a just cause. The failure of the employer to discharge this burden means that the dismissal is not justified and that the employee is entitled to reinstatement and back wages. In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of the unit; that petitioner also stopped remitting the boundary hulog, prompting him (private respondent) to issue a Paalala, which petitioner however ignored; that petitioner even brought the unit to his (petitioners) province without informing him (private respondent) about it; and that petitioner eventually abandoned the vehicle at a gasoline station after figuring in an accident. But private respondent failed to substantiate these allegations with solid, sufficient proof. Notably, private respondents allegation viz, that he retrieved the vehicle from the gas station, where petitioner abandoned it, contradicted his statement in the Paalala that he would enforce the provision (in the Kasunduan) to the effect that default in the remittance of the boundary hulog for one week would result in the forfeiture of the unit. The Paalala reads as follows: Sa lahat ng mga kumukuha ng sasakyan Sa pamamagitan ng BOUNDARY HULOG Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa. Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito. Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso. Sumasainyo

On another point, private respondent did not submit any police report to support his claim that petitioner really figured in a vehicular mishap. Neither did he present the affidavit of the guard from the gas station to substantiate his claim that petitioner abandoned the unit there.[58]

Petitioners claim that he opted not to terminate the employment of respondent because of magnanimity is negated by his (petitioners) own evidence that he took the jeepney from the respondent only on July 24, 2000. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner. SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN Chief Justice Chairperson

CONSUELO YNARES-SANTIAGO Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

Attendance: 8/27/99 (The Signatures appearing herein include (sic) that of petitioners)

(Sgd.) OSCAR VILLAMARIA, JR.

G.R. No. 138060

September 1, 2004

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to abandon it?

WILLIAM TIU, doing business under the name and style of "D Rough Riders," and VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents. DECISION

CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 of the Court of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision2 of the Regional Trial Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of carriage, damages and attorneys fees, and the Resolution dated February 26, 1999 denying the motion for reconsideration thereof. The following facts are undisputed:

1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado; 2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing actual expenses incurred by the plaintiff in connection with the death/burial of plaintiffs wife; 3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing medical/hospitalization expenses incurred by plaintiff for the injuries sustained by him; 4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral damages;

At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.3 Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away4 behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987. At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspias was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places from the front seat. As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25 meters away.5 He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles.6 His wife, Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter.7 Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspias did not take precautionary measures to avoid the accident.8 Thus: 6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX "A", and physical injuries to several of its passengers, including plaintiff himself who suffered a "COLLES FRACTURE RIGHT," per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX "B" hereof. 7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of the said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their destination which was Cebu City, the proximate cause of which was defendant-drivers failure to observe utmost diligence required of a very cautious person under all circumstances. 8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which figured in the said accident, wherein plaintiff and his wife were riding at the time of the accident, is therefore directly liable for the breach of contract of carriage for his failure to transport plaintiff and his wife safely to their place of destination which was Cebu City, and which failure in his obligation to transport safely his passengers was due to and in consequence of his failure to exercise the diligence of a good father of the family in the selection and supervision of his employees, particularly defendant-driver Virgilio Te Laspias.9 The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the following damages:

5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of exemplary damages; 6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys fees; 7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation expenses. PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY.10 The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged that petitioner Laspias was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early warning device was displayed. Petitioner Laspias promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the cargo trucks left rear. The petitioners further alleged, thus: 5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the thirdparty defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of the third-party defendants, at the time of the incident; 6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) "Condor Hollow Blocks & General Merchandise," with Plate No. GBP-675 which was recklessly and imprudently parked along the national highway of Compostela, Cebu during the vehicular accident in question, and third-party defendant Benjamin Condor, as the registered owner of the cargo truck who failed to exercise due diligence in the selection and supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for whatever liability that may be adjudged against said third-party plaintiffs or are directly liable of (sic) the alleged death of plaintiffs wife; 7. That in addition to all that are stated above and in the answer which are intended to show reckless imprudence on the part of the third-party defendants, the third-party plaintiffs hereby declare that during the vehicular accident in question, third-party defendant was clearly violating Section 34, par. (g) of the Land Transportation and Traffic Code 10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a common carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July 22, 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during the time of the aforementioned incident (Annex "A" as part hereof); 11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;

12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they stand to pay damages sought by the plaintiff and therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc., for contribution, indemnification and/or reimbursement of any liability or obligation that they might [be] adjudged per insurance coverage duly entered into by and between third-party plaintiff William Tiu and third-party defendant Philippine Phoenix Surety and Insurance, Inc.;12 The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it had already attended to and settled the claims of those who were injured during the incident.13 It could not accede to the claim of respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the contract of insurance.14 After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado. The dispositive portion of the decision reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff the following amounts: 1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages; 3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (P38,441.00) as actual damages; 4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees; 5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit; SO ORDERED.15 According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a common carrier, in view of his admission that D Rough Rider passenger bus which figured in the accident was owned by him; that he had been engaged in the transportation business for 25 years with a sole proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not been driving at a fast pace, he could have easily swerved to the left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded that petitioner Laspias was negligent. The trial court also ruled that the absence of an early warning device near the place where the truck was parked was not sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the truck were fully on, and the vicinity was well lighted by street lamps.16 It also found that the testimony of petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in-service training, and that the latter had been so far an efficient and good driver for the past six years of his employment, was insufficient to prove that he observed the diligence of a good father of a family in the selection and supervision of his employees. After the petitioners motion for reconsideration of the said decision was denied, the petitioners elevated the case to the Court of Appeals on the following issues: I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN OBLIQUE MANNER; II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS; III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY OF GROSS NEGLIGENCE; IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF HIS DRIVERS;

V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES TO PLAINTIFFAPPELLEE; VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT WILLIAM TIU.17 The appellate court rendered judgment affirming the trial courts decision with the modification that the awards for moral and exemplary damages were reduced to P25,000. The dispositive portion reads: WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards for moral and exemplary damages are each reduced to P25,000.00 or a total of P50,000.00 for both. The judgment is AFFIRMED in all other respects. SO ORDERED.18 SECOND DIVISION [G.R. No. 136960. December 8, 2003] IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner, vs. REMINGTON INDUSTRIAL SALES CORPORATION, respondent. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the August 28, 1998 Decision[1] and the December 24, 1998 Resolution of the Court of Appeals in CA-G.R. CV No. 49725,[2] affirming in toto the decision of the Regional Trial Court of Manila (Branch 9). The factual background of the case is summarized by the appellate court, thus: Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation (hereafter Remington for short) ordered from defendant Wangs Company, Inc. (hereafter Wangs for short) 194 packages of hot rolled steel sheets, weighing 686.565 metric tons, with a total value of $219,380.00, then equivalent to P6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd., in Hongkong. On or about November 26, 1991, the 194 packages were loaded on board the vessel MV Indian Reliance at the Port of Gdynia, Poland, for transportation to the Philippines, under Bill of Lading No. 27 (Exh. C). The vessels owner/charterer is represented in the Philippines by defendant Iron Bulk Shipping Phils., Inc. (hereafter Iron Bulk for short). Remington had the cargo insured for P6,469,759.17 during the voyage by Marine Insurance Policy No. 7741 issued by defendant Pioneer Asia Insurance Corporation (hereafter Pioneer for short). On or about January 3, 1992, the MV Indian Reliance arrived in the Port of Manila, and the 194 packages of hot rolled steel sheets were discharged from the vessel. The cargo was inspected twice by SGS Far East Ltd. and found to be wet (with slight trace of salt) and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal claims for loss amounting to P544,875.17 with Pioneer, Iron Bulk, Manila Port Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such claims. Thus, plaintiff filed an action for collection, plus attorneys fees, against Wangs, Pioneer and Iron Bulk. . . .[3] and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit: The evidence on record shows that the direct and immediate cause of the rusting of the goods imported by the plaintiff was the water found inside the cargo hold of M/V Indian Reliance wherein those goods were stored during the voyage, particularly the water found on the surface of the merchandise and on the floor of the vessel hatch. And

even at the time the cargoes were being unloaded by crane at the Pier of Manila, Iron Bulks witnesses noticed that water was dripping from the cargoes. (TSN dated July 20, 1993, pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN dated June 3, 1994, pp. 31-32; TSN dated July 14, 1994, pp. 10-11). SGS Far East Limited, an inspection agency hired by defendant Wangs, issued Certificate of Inspection and Analysis No 6401/35071 stating the following findings: Results of tests indicated that a very slight trace of salt was present in the sample as confirmed by the test of Sodium. The results however does not necessarily indicate that the rusty condition of the material was caused by seawater. Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer, submitted a Report (Exh. 10Pioneer) dated February 20, 1992 to Pioneer which pertinently reads as follows: All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of cotton were rubbed by us on different rusty steel sheets and submitted to Precision Analytical Services, Inc. to determine the cause of wetting. Result thereof as per Laboratory Report No. 077-92 of this firm showed that: The sample was wetted/contaminated by fresh water. After considering the foregoing test results and the other evidence on record, the Court found no clear and sufficient proof showing that the water which stayed in the cargo hold of the vessel and which contaminated the merchandise was seawater. The Court, however, is convinced that the subject goods were exposed to salt conditions as evidenced by the presence of about 17% Sodium on the rust sample tested by SGS. As to the source of the water found in the cargo hold, there is also no concrete and competent evidence on record establishing that such water leaked from the pipe installed in Hatch No. 1 of M/V Indian Reliance, as claimed by plaintiff. Indeed, the plaintiff based such claim only from information it allegedly received from its supplier, as stated in its letter to defendant Iron Bulk dated March 28, 1992 (Exh. K-3). And no one took the witness stand to confirm or establish the alleged leakage. Nevertheless, since Iron Bulks own evidence shows that there was water inside the cargo hold of the vessel and that the goods stored therein were wet and full of rust, without sufficient explanation on its part as to when and how water found its way into the vessel holds, the Court finds and so holds that Iron Bulk failed to exercise the extraordinary diligence required by law in the handling and transporting of the goods. ..... Iron Bulk did not even exercise due diligence because admittedly, water was dripping from the cargoes at the time they were being discharged from the vessel. Had Iron Bulk done so, it could have discovered by ordinary inspection that the cargo holds and the cargoes themselves were affected by water and it could have provided some remedial measures to prevent or minimize the damage to the cargoes. But it did not, showing its lack of care and diligence over the goods. Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to establish by any clear and convincing evidence any of the exempting causes provided for in Article 1734 of the Civil Code, it is presumed to have been at fault or to have acted negligently. ..... WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby renders judgment in favor of it and against all the defendants herein as follows: 1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the following amounts:

c) the cost of suit. 2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by defendant Pioneer of the foregoing award to the plaintiff, to reimburse defendant Pioneer the total amount it paid to the plaintiff, in respect to its right of subrogation. 3. Denying the counterclaims of all the defendants and the cross-claim of defendant Wangs Company, Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit. 4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against defendant Iron Bulk by virtue of its right of subrogation. 5. Dismissing the case against defendant Wangs Company, Inc.

SO ORDERED.[4] Only Iron Bulk filed the present petition raising the following Assignment of Errors: FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of Lading to establish the condition of the cargo upon loading; SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo was not contaminated during the time the same was in possession of the vessel, as evidenced by the express finding of the lower court that the contamination and rusting was chemically established to have been caused by fresh water; THRIDLY, the Court of Appeals erred in making a sweeping finding that the petitioner as carrier failed to exercise the requisite diligence under the law, which is contrary to what is demonstrated by the evidence adduced; and FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated by the Court below, which is at best speculative and not supported by damages.[5] The general rule is that only questions of law are entertained in petitions for review by certiorari under Rule 45 of the Rules of Court. The trial courts findings of fact, which the Court of Appeals affirmed, are generally binding and conclusive upon this court.[6] There are recognized exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties.[7] Petitioner failed to demonstrate that its petition falls under any one of the above exceptions, except as to damages which will be discussed forthwith. Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma Bills of Lading to establish the condition of the cargo upon landing. There is no merit to petitioners contention that the Bill of Lading covering the subject cargo cannot be relied upon to indicate the condition of the cargo upon loading. It is settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. vs. United States Lines, we held that: [A] bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality and value. As a contract, it names the contracting parties, which include the consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties.[8]

a) P544,875.17 representing the loss allowance for the goods insured, plus interest at the legal rate (6% p.a.) reckoned from the time of filing of this case until full payment is made; b) P50,000.00 for and as attorneys fees; and

We find no error in the findings of the appellate court that the questioned bill of lading is a clean bill of lading, i.e., it does not indicate any defect in the goods covered by it, as shown by the notation, CLEAN ON BOARD[9] and Shipped at the Port of Loading in apparent good condition on board the vessel for carriage to Port of Discharge.[10] Petitioner presented evidence to prove that, contrary to the recitals contained in the subject bill of lading, the cargo therein described as clean on board is actually wet and covered with rust. Indeed, having the nature of a receipt, or an acknowledgement of the quantity and condition of the goods delivered, the bill of lading, like any other receipts, may be explained, varied or even contradicted.[11] However, we agree with the Court of Appeals that far from contradicting the recitals contained in the said bill, petitioners own evidence shows that the cargo covered by the subject bill of lading, although it was partially wet and covered with rust was, nevertheless, found to be in a fair, usually accepted condition when it was accepted for shipment.[12] The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is not truly reflective of the true condition of the cargo at the time of loading to the effect that the said cargo was indeed in a damaged state, the carrier could have refused to accept it, or at the least, made a marginal note in the bill of lading indicating the true condition of the merchandise. But it did not. On the contrary, it accepted the subject cargo and even agreed to the issuance of a clean bill of lading without taking any exceptions with respect to the recitals contained therein. Since the carrier failed to annotate in the bill of lading the alleged damaged condition of the cargo when it was loaded, said carrier and the petitioner, as its representative, are bound by the description appearing therein and they are now estopped from denying the contents of the said bill. Petitioner presented in evidence the Mates Receipts[13] and a Survey Report[14] to prove the damaged condition of the cargo. However, contrary to the asseveration of petitioner, the Mates Receipts and the Survey Report which were both dated November 6, 1991, are unreliable evidence of the true condition of the shipment at the time of loading since said receipts and report were issued twenty days prior to loading and before the issuance of the clean bill of lading covering the subject cargo on November 26, 1991. Moreover, while the surveyor, commissioned by the carrier to inspect the subject cargo, found the inspected steel goods to be contaminated with rust he, nonetheless, estimated the merchandise to be in a fair and usually accepted condition. Anent the second and third assigned errors: That the Court of Appeals erred in not finding that the contamination and rusting was chemically to have been caused by fresh water; and that the appellate court erred in finding that petitioner failed to exercise the requisite diligence under the law. Petitioners arguments in support of the assigned errors are not plausible. Even granting, for the sake of argument, that the subject cargo was already in a damaged condition at the time it was accepted for transportation, the carrier is not relieved from its responsibility to exercise due care in handling the merchandise and in employing the necessary precautions to prevent the cargo from further deteriorating. It is settled that the extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for safe carriage and delivery.[15] It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.[16] Under Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should be caused, among others, by the character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. This extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.[17] In the instant case, if the carrier indeed found the steel sheets to have been covered by rust at the time that it accepted the same for transportation, such finding should have prompted it to apply additional safety measures to make sure that the cargo is protected from corrosion. This, the carrier failed to do. Article 1734 of the Civil Code states that: 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) (2) Flood, storm, earthquake, lightning, or other natural disaster or calamity; Act of the public enemy in war, whether international or civil;

(3) (4) (5)

Act or omission of the shipper or owner of the goods; The character of the goods or defects in the packing or in the containers; Order or act of competent public authority.

Except in the cases mentioned under Article 1734, 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 under the law.[18] The Court of Appeals did not err in finding that no competent evidence was presented to prove that the deterioration of the subject cargo was brought about by any of the causes enumerated under the aforequoted Article 1734 of the said Code. We likewise agree with appellate courts finding that the carrier failed to present proof that it exercised extraordinary diligence in its vigilance over the goods. The presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Anent the last assigned error: That the Court of Appeals erred in affirming the amount of damages awarded by the trial court. We agree with the contention of the petitioner in its last assigned error that the amount of damages adjudicated by the trial court and affirmed by the appellate court is not in consonance with the evidence presented by the parties. The judgments of both lower courts are based on misapprehension of facts as we find no competent evidence to prove the actual damages sustained by respondent. Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel sheets, the cargo consigned to Remington consisted of hot rolled steel sheets with lengths of eight feet and twenty feet. The eight-foot length steel sheets contained in 142 packages had a weight of 491.54 metric tons while the twenty-foot steel sheets which were contained in 52 packages weighed 194.25 metric tons.[19] The goods were valued at $320.00 per metric ton. [20] It is not disputed that at the time of inspection of the subject merchandise conducted by SGS Far East Limited on January 21-24, 1992 and January 27-28, 1992, only 30% of said goods originally consigned to Remington was available for examination at Remingtons warehouse in Manila and that Remington had already disposed of the remaining 70%. In the Certificate of Inspection issued by SGS, dated February 18, 1992, it was reported that the surface of the steel sheets with length of twenty feet were found to be rusty extending from 60% to 80% per plate. [21] However, there was no proof to show how many metric tons of twenty-foot and eight-foot length steel sheets, respectively, comprise the remaining 30% of the cargo. No competent evidence was presented to prove the weight of the remaining twenty-foot length steel sheets, on the basis of which the amount of actual damages could have been ascertained. Remington claims that 70% of the twenty-foot length steel sheets were damaged. Remingtons general manager, Rowina Tan Saban, testified that the 70% figure was based on the reports submitted by SGS and Tan-Gatue and Remingtons independent survey to confirm these reports.[22] Saban further testified that on the basis of these reports, Remington came up with a summary of the amount of damages sustained by the subject cargo, to wit: Plates 8 ft lengths Quantity Damaged Loss Allowance Total Plates 8 ft lengths Plates 20 ft lengths Quantity Damaged Loss Allowance Total Plates 20 ft lengths 491.540 MT US$157,292.80 25% 13% US$ 15,211.56 US$ 62,088.00 70% 35% P544,875.71

194.025 MT

with the following detailed computation: Plates under 8 ft lengths 491.540 MT @ US $157,292.80 $320./MT

Multiply by 25% Qty. damaged 13% Loss allowance $ 5,112.02

$ 39,323.20

there competent evidence proving the actual extent of damage sustained by the eight-foot length steel sheets. Petitioner was therefore justified in refusing to satisfy the full amount of Remingtons claims. WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and the Resolution dated December 24, 1998, in CA-G.R. CV No. 49725 are MODIFIED as follows: The award of actual damages and attorneys fees are deleted. Respondent is awarded temperate damages in the amount of P165,000.00. In all other respects, the appealed decision and resolution are affirmed. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga. JJ., concur.

Plates under 20 ft. lengths 194.025 MT @ $320./MT US $ 62,088.00 Multiple 70% Qty. damaged US $ 43,461.60 35% Loss allowance $ 15,211.56 Total claim US US $ 5,112.02 $15,211.56 $20,323.58 @ $26.81 = P544,875.17

and which the trial court based the actual damages awarded in favor of Remington. However, after a careful examination of the reports submitted by SGS and Tan-Gatue, we find nothing in the said reports and computation to justify the claim of Remington that 70% of the twenty-foot length steel sheets were damaged. Neither does the alleged survey conducted by Remington consisting only of photographs,[23] prove the quantity of the damaged cargo. As to the eight-foot length steel sheets, SGS reported that they were found oiled all over which makes it hard to determine the rust condition on its surface.[24] On the other hand, the report issued by Tan-Gatue did not specify the extent of damage done to the said merchandise.[25] There is also no proof of the weight of the remaining eight-foot length steel sheets. From the foregoing, it is evident that the extent of actual damage to the subject cargo is likewise not satisfactorily proven. It is settled that actual or compensatory damages are not presumed and should be proven before they are awarded. In Spouses Quisumbing vs. Meralco[26], we held that Actual damages are compensation for an injury that will put the injured party in the position where it was before it was injured. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or stipulation, a party is entitled to an adequate compensation only for such pecuniary loss as it has duly proven. Hence, for failure of Remington to present sufficient evidence which is susceptible of measurement, it is not entitled to actual damages. Nonetheless, since it was established that the subject steel sheets sustained damage by reason of the negligence of the carrier, albeit no competent proof was presented to justify the award of actual damages, we find that Remington is entitled to temperate damages in accordance with Articles 2216, 2224 and 2225 of the Civil Code, to wit: Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case. Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. Art. 2225. Temperate damages must be reasonable under the circumstances.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 121824

January 29, 1998

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

ROMERO, J.: In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent Court of Appeals 1 promulgated on September 7, 1995, which affirmed the award of damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine Airlines (PAL). 2 The material and relevant facts are as follows: On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a ticket from BA where the following itinerary was indicated: 3 CARRIER FLIGHT DATE TIME STATUS

Thirty percent of the alleged cost of damages, i.e., P544, 875.17 or P165,000.00 is reasonable enough for temperate damages. We likewise agree with petitioners claim that it should not be held liable for the payment of attorneys fees because it was always willing to settle its liability by offering to pay 30% of Remingtons claim and that it is only Remingtons unwarranted refusal to accept such offer that led to the filing of the instant case. As found earlier, there is no evidence that the 70% of the 20-foot length steel sheets which had been disposed of had been damaged. Neither is

MANILA MNL

PR 310 Y 16 APR. 1730 OK HONGKONG HKG BA 20 M 16 APR. 2100 OK

On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising, as special and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on November 9, 1990, BA filed a thirdparty complaint 7 against PAL alleging that the reason for the non-transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay. On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer to BA. 8 After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of Mahtani, 9 the dispositive portion of which reads as follows: WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent (20%) of the total amount imposed against the defendant for attorney's fees and costs of this action. The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of cause of action.

BOMBAY SO ORDERED. BOM Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings. Thus: BA 19 M 23 APR. 0840 OK HONGKONG HKG PR 311 Y MANILA 8. MNL 1. Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA. Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be transferred to the BA flight bound for Bombay. Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon inquiry from the BA representatives, he was told that the same might have been diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing the "Property Irregularity Report." 4 Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076. 2. personal belonging P10,000.00 gifts for his parents and relatives $5,000.00 On the said travel, plaintiff took with him the following items and its corresponding value, to wit: Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since Mahtani in his complaint 12 stated the following as the value of his personal belongings: WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs against defendant-appellant. SO ORDERED. 10 BA is now before us seeking the reversal of the Court of Appeals' decision. In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal of its thirdparty complaint against PAL. 11

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the ticket, which reads: 13 Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and additional charges are paid: 1. For most international travel (including domestic corporations of international journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked baggage and U.S. $400 per passenger for unchecked baggage. Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination and a contract to transport passengers to their destination. A business intended to serve the traveling public primarily, it is imbued with

public interest, hence, the law governing common carriers imposes an exacting standard. 14 Neglect or malfeasance by the carrier's employees could predictably furnish bases for an action for damages. 15 In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of cases 16 we have assessed the airlines' culpability in the form of damages for breach of contract involving misplaced luggage. In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. 17 In this regard, the trial court granted the following award as compensatory damages: Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of the alleged gifts for the members of his family in Bombay, the most that can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand (P7,000.00) Pesos representing the purchase price of the two (2) suit cases. However, as earlier stated, it is the position of BA that there should have been no separate award for the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the luggage, 18 and therefore, its liability is limited, at most, only to the amount stated in the ticket. Considering the facts of the case, we cannot assent to such specious argument. Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover a greater amount. Article 22(1) of the Warsaw Convention, 19 provides as follows: xxx xxx xxx

A Q A Q A Q A

Exemplary damages. How much? P100,000.00. What else? The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00. What about the filing of this case? The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the adverse party to be inadmissible for any reason, the latter has the right to object. However, such right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest silence when there is opportunity to speak may operate as a waiver of objections. 25 BA has precisely failed in this regard. To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted his own cross-examination as well. 26 In the early case of Abrenica v. Gonda, 27 we ruled that: . . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at the proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection is when, from the question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be inferred. Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great respect. 28 Since the actual value of the luggage involved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a finding not reviewable by this Court. 29 As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals justified its ruling in this wise, and we quote: 30 Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL. The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically provided on the "Conditions of Contract," paragraph 4 thereof that: 4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor has made, at time the package was handed over to the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the actual value to the consignor at delivery. American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent thereto. 20 This doctrine is recognized in this jurisdiction. 21 Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts where the facts and circumstances justify that they should be disregarded. 22 In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely objections during the trial when questions and answers regarding the actual claims and damages sustained by the passenger were asked. 23 Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of stenographic notes of Mahtani's direct testimony: 24 Q A Q How much are you going to ask from this court? P100,000.00. What else?

The rule that carriage by plane although performed by successive carriers is regarded as a single operation and that the carrier issuing the passenger's ticket is considered the principal party and the other carrier merely subcontractors or agent, is a settled issue. We cannot agree with the dismissal of the third-complaint. In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we expounded on the nature of a thirdparty complaint thus: The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts, as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity,

subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts. Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter naturally denies. In other words, BA and PAL are blaming each other for the incident. In resolving this issue, it is worth observing that the contract of air transportation was exclusively between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts" of the ticket 32 issued by BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay. 4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the purpose of a third-party complaint is precisely to avoid delay and circuitry of action and to enable the controversy to be disposed of in one suit. 38 It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of Mahtani's unfortunate experience, instead of totally absolving PAL from any liability. WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British Airways dated November 9, 1990 against Philippine Airlines. No costs. SO ORDERED. Narvasa, C.J., Melo and Francisco, JJ., concur. Panganiban, J., concurs in the result.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA. Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent is also responsible for any negligence in the performance of its function. 33 and is liable for damages which the principal may suffer by reason of its negligent act. 34 Hence, the Court of Appeals erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor. Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the tickets and other matters pertaining to their relationship. 35 Therefore, in the instant case, the contractual relationship between BA and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed ticket, and the latter the agent. Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda to a specific destination "bumped" him off. An action for damages was filed against Lufthansa which, however, denied any liability, contending that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya. In rejecting Lufthansa's argument, we ruled: In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip abroad successive carriers concretely attest to this. Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals, 37 while not exactly in point, the case, however, illustrates the principle which governs this particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or omission in the performance of its duties.

FIRST DIVISION [G.R. No. 161730. January 28, 2005] JAPAN AIRLINES, petitioner, vs. MICHAEL ASUNCION and JEANETTE ASUNCION, respondents. DECISION YNARES-SANTIAGO, J.: This petition for review seeks to reverse and set aside the October 9, 2002 decision[1] of the Court of Appeals and its January 12, 2004 resolution,[2] which affirmed in toto the June 10, 1997 decision of the Regional Trial Court of Makati City, Branch 61 in Civil Case No. 92-3635.[3] On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines (JAL) Flight 742 bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore pass and directed them to the Japanese immigration official.[4] A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours. During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were brought instead to the Narita Airport Rest House where they were billeted overnight. The immigration official also handed Mrs. Higuchi a Notice[5] where it was stated that respondents were to be watched so as not to escape. Mr. Atsushi Takemoto of the International Service Center (ISC), the agency tasked by Japans Immigration Department to handle passengers who were denied shore pass entries, brought respondents to the Narita Airport Rest House where they stayed overnight until their departure the following day for Los Angeles. Respondents were charged US$400.00 each for their accommodation, security service and meals. On December 12, 1992, respondents filed a complaint for damages[6] claiming that JAL did not fully apprise them of their travel requirements and that they were rudely and forcibly detained at Narita Airport. JAL denied the allegations of respondents. It maintained that the refusal of the Japanese immigration authorities to issue shore passes to respondents is an act of state which JAL cannot interfere with or prevail upon. Consequently, it cannot impose upon the immigration authorities that respondents be billeted at Hotel Nikko instead of the airport resthouse.[7] On June 10, 1997, the trial court rendered its decision, the dispositive portion of which reads:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiffs ordering defendant JAL to pay plaintiffs as follows: 1. the sum of US$800.00 representing the expenses incurred at the Narita Airport with interest at 12% per annum from March 27, 1992 until the sum is fully paid; 2. the sum of P200,000.00 for each plaintiff as moral damages; 3. the amount of P100,000.00 for each plaintiff as exemplary damages;

Q A Q

Are you sure? Yes, Sir. Did you give a copy?

A No, Sir, I did not give a copy but verbally I explained to her the procedure they have to undergo when they get to narita airport. .

4. the amount of P100,000.00 as attorneys fees; and Q 5. costs of suit. SO ORDERED.[8] The trial court dismissed JALs counterclaim for litigation expenses, exemplary damages and attorneys fees. On October 9, 2002, the Court of Appeals affirmed in toto the decision of the trial court. Its motion for reconsideration having been denied,[9] JAL now files the instant petition. The basic issue for resolution is whether JAL is guilty of breach of contract. Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger has every right to expect that he be transported on that flight and on that date and it becomes the carriers obligation to carry him and his luggage safely to the agreed destination.[10] If the passenger is not so transported or if in the process of transporting he dies or is injured, the carrier may be held liable for a breach of contract of carriage.[11] We find that JAL did not breach its contract of carriage with respondents. It may be true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondents shore pass applications. Prior to their departure, respondents were aware that upon arrival in Narita, they must secure shore pass entries for their overnight stay. Respondents mother, Mrs. Imelda Asuncion, insisted though that Ms. Linda Villavicencio of JAL assured her that her children would be granted the passes.[12] This assertion was satisfactorily refuted by Ms. Villavicencios testimony during the cross examination, to wit: ATTY. GONZAGA: Q I will show to you Exh. 9 which is the TIM and on page 184 hereof, particularly number 10, and I quote, Those holding tickets with confirmed seats and other documents for their onward journey and continuing their journey to a third country provided that they obtain an indorsement with an application of shore pass or transit pass from the airline ground personnel before clearing the immigration formality? WITNESS: A: A Q A Yes, Sir. Q: Did you tell this provision to Mrs. Asuncion? Yes, Sir. I did. Why not? No, I couldnt do so. A No, Sir, I did not read it to her but I explained to her the procedure that each passenger has to go through before when they get to narita airport before they line up in the immigration counter. Q In other words, you told Mrs. Asuncion the responsibility of securing shore passes bears solely on the passengers only? A Q A Yes, Sir. That the airline has no responsibility whatsoever with regards (sic) to the application for shore passes? Yes, Sir.[13] And you read the contents of this [TIM]?

Next, respondents claimed that petitioner breached its contract of carriage when it failed to explain to the immigration authorities that they had overnight vouchers at the Hotel Nikko Narita. They imputed that JAL did not exhaust all means to prevent the denial of their shore pass entry applications. To reiterate, JAL or any of its representatives have no authority to interfere with or influence the immigration authorities. The most that could be expected of JAL is to endorse respondents applications, which Mrs. Higuchi did immediately upon their arrival in Narita. As Mrs. Higuchi stated during her deposition: ATTY. QUIMBO Q: A: Q: A: . Q: During the time that you were in that room and you were given this notice for you to sign, did you tell the immigration agent that Michael and Jeanette Asuncion should be allowed to stay at the Hotel Nikko Narita because, as passengers of JAL, and according to the plaintiff, they had vouchers to stay in that hotel that night? Madam Witness, what assistance did you give, if any, to the plaintiffs during this interview? No, I was not present during their interview. I cannot assist. Why not? It is forbidden for a civilian personnel to interfere with the Immigration agents duties.[14]

A: This notice is evidence which shows the decision of immigration authorities. It shows there that the immigration inspector also designated Room 304 of the Narita Airport Resthouse as the place where the passengers were going to wait for their outbound flight. I cannot interfere with that decision.[15] Mrs. Higuchi did all she could to assist the respondents. Upon being notified of the denial of respondents applications, Mrs. Higuchi immediately made reservations for respondents at the Narita Airport Rest House which is really more a hotel than a detention house as claimed by respondents.[16] More importantly, nowhere in respondent Michaels testimony did he state categorically that Mrs. Higuchi or any other employee of JAL treated them rudely or exhibited improper behavior throughout their stay. We therefore find JAL not remiss in its obligations as a common carrier. Moral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach of contract where the other party acts fraudulently or in bad faith. Exemplary damages are imposed by way of example or correction for the public good, when the party to a contract acts in wanton, fraudulent, oppressive or malevolent manner. Attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest.[17] There being no breach of contract nor proof that JAL acted in wanton, fraudulent or malevolent manner, there is no basis for the award of any form of damages. Neither should JAL be held liable to reimburse respondents the amount of US$800.00. It has been sufficiently proven that the amount pertained to ISC, an agency separate and distinct from JAL, in payment for the accommodations provided to respondents. The payments did not in any manner accrue to the benefit of JAL. However, we find that the Court of Appeals correctly dismissed JALs counterclaim for litigation expenses, exemplary damages and attorneys fees. The action was filed by respondents in utmost good faith and not manifestly frivolous. Respondents honestly believed that JAL breached its contract. A persons right to litigate should not be penalized by holding him liable for damages. This is especially true when the filing of the case is to enforce what he believes to be his rightful claim against another although found to be erroneous.[18] WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED. The October 9, 2002 decision of the Court of Appeals and its January 12, 2004 resolution in CA-G.R. CV No. 57440, are REVERSED and SET ASIDE insofar as the finding of breach on the part of petitioner and the award of damages, attorneys fees and costs of the suit in favor of respondents is concerned. Accordingly, there being no breach of contract on the part of petitioner, the award of actual, moral and exemplary damages, as well as attorneys fees and costs of the suit in favor of respondents Michael and Jeanette Asuncion, is DELETED for lack of basis. However, the dismissal for lack of merit of petitioners counterclaim for litigation expenses, exemplary damages and attorneys fees, is SUSTAINED. No pronouncement as to costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Carpio, and Azcuna, JJ., concur. Quisumbing, J., no part.

Board of Consultants, and Lawyer GENARO LUALHATI, petitioners, vs. MANILA ELECTRIC COMPANY (MERALCO), respondent. DECISION PUNO, J.: In third world countries like the Philippines, equal justice will have a synthetic ring unless the economic rights of the people, especially the poor, are protected with the same resoluteness as their right to liberty. The cases at bar are of utmost significance for they concern the right of our people to electricity and to be reasonably charged for their consumption. In configuring the contours of this economic right to a basic necessity of life, the Court shall define the limits of the power of respondent MERALCO, a giant public utility and a monopoly, to charge our people for their electric consumption. The question is: should public interest prevail over private profits? The facts are brief and undisputed. On December 23, 1993, MERALCO filed with the ERB an application for the revision of its rate schedules. The application reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the Public Service Act and Section 8 of Executive Order No. 172. On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to the following condition: In the event, however, that the Board finds, after hearing and submission by the Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a lesser increase in rates, all excess amounts collected from the applicants customers as a result of this Order shall either be refunded to them or correspondingly credited in their favor for application to electric bills covering future consumptions.[1] In the same Order, the ERB requested the Commission on Audit (COA) to conduct an audit and examination of the books and other records of account of the applicant for such period of time, which in no case shall be less than 12 consecutive months, as it may deem appropriate and to submit a copy thereof to the ERB immediately upon completion.[2] On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the COA Report) which contained, among others, the recommendation not to include income taxes paid by MERALCO as part of its operating expenses for purposes of rate determination and the use of the net average investment method for the computation of the proportionate value of the properties used by MERALCO during the test year for the determination of the rate base. [3] Subsequently, the ERB rendered its decision adopting the above recommendations and authorized MERALCO to implement a rate adjustment in the average amount of P0.017 per kwh, effective with respect to MERALCOs billing cycles beginning February 1994. The ERB further ordered that the provisional relief in the amount of P0.184 per kilowatthour granted under the Boards Order dated January 28, 1994 is hereby superseded and modified and the excess average amount of P0.167 per kilowatthour starting with [MERALCOs] billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to [MERALCOs] customers or correspondingly credited in their favor for future consumption.[4] The ERB held that income tax should not be treated as operating expense as this should be borne by the stockholders who are recipients of the income or profits realized from the operation of their business hence, should not be passed on to the consumers.[5] Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in computing the rate base, only the proportionate value of the property should be included, determined in accordance with the number of months the same was actually used in service during the test year.[6] On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the MERALCO rates by an average of P0.167 per kwh and the refund of such amount to MERALCOs customers beginning February 1994 and until its billing cycle beginning February 1998.[7] Separate Motions for Reconsideration filed by the petitioners were denied by the Court of Appeals.[8] Petitioners are now before the Court seeking a reversal of the decision of the Court of Appeals by arguing primarily that the Court of Appeals erred: a) in ruling that income tax paid by MERALCO should be treated as part of its

THIRD DIVISION [G.R. No. 141314. November 15, 2002] REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY BOARD petitioner, vs. MANILA ELECTRIC COMPANY, respondent. [G.R. No. 141369. November 15, 2002] LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of CEFERINO PADUA, Chairman, G. FULTON ACOSTA,GALILEO BRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES, EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME FERNANDEZ, JR.,

operating expenses and thus considered in determining the amount of increase in rates imposed by MERALCO and b) in rejecting the net average investment method used by the COA and the ERB and instead adopted the average investment method used by MERALCO. We grant the petition. The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation.[9] In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of the property performing the service and one that is reasonable to the public for the services rendered.[10] The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.[11] In his famous dissenting opinion in the 1923 case of Southwestern Bell Tel. Co. v. Public Service Commission,[12] Mr. Justice Brandeis wrote: The thing devoted by the investor to the public use is not specific property, tangible and intangible, but capital embarked in an enterprise. Upon the capital so invested, the Federal Constitution guarantees to the utility the opportunity to earn a fair return The Constitution does not guarantee to the utility the opportunity to earn a return on the value of all items of property used by the utility, or of any of them. . The investor agrees, by embarking capital in a utility, that its charges to the public shall be reasonable. His company is the substitute for the State in the performance of the public service, thus becoming a public servant. The compensation which the Constitution guarantees an opportunity to earn is the reasonable cost of conducting the business. While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegated through an administrative agency, a determination of whether the rates so fixed are reasonable and just is a purely judicial question and is subject to the review of the courts.[13] The ERB was created under Executive Order No. 172 to regulate, among others, the distribution of energy resources and to fix rates to be charged by public utilities involved in the distribution of electricity. In the fixing of rates, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just. It has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied.[14] What is a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility.[15] Settled jurisprudence holds that factual findings of administrative bodies on technical matters within their area of expertise should be accorded not only respect but even finality if they are supported by substantial evidence even if not overwhelming or preponderant.[16] In one case, [17] we cautioned that courts should "refrain from substituting their discretion on the weight of the evidence for the discretion of the Public Service Commission on questions of fact and will only reverse or modify such orders of the Public Service Commission when it really appears that the evidence is insufficient to support their conclusions."[18] In the cases at bar, findings and conclusions of the ERB on the rate that can be charged by MERALCO to the public should be respected.[19] The function of the court, in exercising its power of judicial review, is to determine whether under the facts and circumstances, the final order entered by the administrative agency is unlawful or unreasonable.

[20] Thus, to the extent that the administrative agency has not been arbitrary or capricious in the exercise of its power, the time-honored principle is that courts should not interfere. The principle of separation of powers dictates that courts should hesitate to review the acts of administrative officers except in clear cases of grave abuse of discretion.[21] In determining the just and reasonable rates to be charged by a public utility, three major factors are considered by the regulating agency: a) rate of return; b) rate base and c) the return itself or the computed revenue to be earned by the public utility based on the rate of return and rate base.[22] The rate of return is a judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public.[23] The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements. This Court has consistently adopted a 12% rate of return for public utilities.[24] The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.[25] In the cases at bar, the resolution of the issues involved hinges on the determination of the kind and the amount of operating expenses that should be allowed to a public utility to generate a fair return and the proper valuation of the rate base or the value of the property entitled to a return. I Income Tax as Operating Expense Cannot be Allowed For Rate-Determination Purposes In determining whether or not a rate yields a fair return to the utility, the operating expenses of the utility must be considered. The return allowed to a public utility in accordance with the prescribed rate must be sufficient to provide for the payment of such reasonable operating expenses incurred by the public utility in the provision of its services to the public. Thus, the public utility is allowed a return on capital over and above operating expenses. However, only such expenses and in such amounts as are reasonable for the efficient operation of the utility should be allowed for determination of the rates to be charged by a public utility. The ERB correctly ruled that income tax should not be included in the computation of operating expenses of a public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income. They are items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses should be a requisite of or necessary in the operation of a utility, recurring, and that it redounds to the service or benefit of customers.[26] Income tax, it should be stressed, is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income.[27] In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralcos alone and should not be shifted to the consumers by including the same in the computation of its operating expenses. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility. To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified and inequitable. While the public utility is entitled to a reasonable return on the fair value of the property being used for the service of the public, no less than the Federal Supreme Court of the United States emphasized: [t]he public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends If a corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and them which the Constitution does not require to be remedied by imposing unjust burdens on the public.[28]

We are not impressed by the reliance by MERALCO on some American case law allowing the treatment of income tax paid by a public utility as operating expense for rate-making purposes. Suffice to state that with regard to ratedetermination, the government is not hidebound to apply any particular method or formula.[29] The question of what constitutes a reasonable return for the public utility is necessarily determined and controlled by its peculiar environmental milieu. Aside from the financial condition of the public utility, there are other critical factors to consider for purposes of rate regulation. Among others, they are: particular reasons involved for the request of the rate increase, the quality of services rendered by the public utility, the existence of competition, the element of risk or hazard involved in the investment, the capacity of consumers, etc.[30] Rate regulation is the art of reaching a result that is good for the public utility and is best for the public. For these reasons, the Court cannot give in to the importunings of MERALCO that we blindly apply the rulings of American courts on the treatment of income tax as operating expenses in rate regulation cases. An approach allowing the indiscriminate inclusion of income tax payments as operating expenses may create an undesirable precedent and serve as a blanket authority for public utilities to charge their income tax payments to operating expenses and unjustly shift the tax burden to the customer. To be sure, public utility taxation in the United States is going through the eye of criticism. Some commentators are of the view that by allowing the public utility to collect its income tax payment from its customers, a form of sales tax is, in effect, imposed on the public for consumption of public utility services. By charging their income tax payments to their customers, public utilities virtually become tax collectors rather than taxpayers.[31] In the cases at bar, MERALCO has not justified why its income tax should be treated as an operating expense to enable it to derive a fair return for its services. It is also noteworthy that under American laws, public utilities are taxed differently from other types of corporations and thus carry a heavier tax burden. Moreover, different types of taxes, charges, tolls or fees are assessed on a public utility depending on the state or locality where it operates. At a federal level, public utilities are subject to corporate income taxes and Social Security taxesin the same manner as other business corporations. At the state and local levels, public utilities are subject to a wide variety of taxes, not all of which are imposed on each state. Thus, it is not unusual to find different taxes or combinations of taxes applicable to respective utility industries within a particular state.[32] A significant aspect of state and local taxation of public utilities in the United States is that they have been singled out for special taxation, i.e., they are required to pay one or more taxes that are not levied upon other industries. In contrast, in this jurisdiction, public utilities are subject to the same tax treatment as any other corporation and local taxes paid by it to various local government units are substantially the same. The reason for this is that the power to tax resides in our legislature which may prescribe the limits of both national and local taxation, unlike in the federal system of the United States where state legislature may prescribe taxes to be levied in their respective jurisdictions. MERALCO likewise cites decisions of the ERB[33] allowing the application of a tax recovery clause for the imposition of an additional charge on consumers for taxes paid by the public utility. A close look at these decisions will show they are inappropos. In the said cases, the ERB approved the adoption of a formula which will allow the public utility to recover from its customers taxes already paid by it. However, in the cases at bar, the income tax component added to the operating expenses of a public utility is based on an estimate or approximate figure of income tax to be paid by the public utility. It is this estimated amount of income tax to be paid by MERALCO which is included in the amount of operating expenses and used as basis in determining the reasonable rate to be charged to the customers. Accordingly, the varying factual circumstances in the said cases prohibit a square application of the rule under the previous ERB decisions. II Use of Net Average Investment Method is Not Unreasonable In the determination of the rate base, property used in the operation of the public utility must be subject to appraisal and evaluation to determine the fair value thereof entitled to a fair return. With respect to those properties which have not been used by the public utility for the entire duration of the test year, i.e., the year subject to audit examination for rate-making purposes, a valuation method must be adopted to determine the proportionate value of the property. Petitioners maintain that the net average investment method (also known as actual number of months use method) recommended by COA and adopted by the ERB should be used, while MERALCO argues that the average investment method (also known as the trending method) to determine the proportionate value of properties should be applied.

Under the net average investment method, properties and equipment used in the operation of a public utility are entitled to a return only on the actual number of months they are in service during the period.[34] In contrast, the average investment method computes the proportionate value of the property by adding the value of the property at the beginning and at the end of the test year with the resulting sum divided by two.[35] The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness of net average investment method is borne by the records of the case. In its report, the COA explained that the computation of the proportionate value of the property and equipment in accordance with the actual number of months such property or equipment is in service for purposes of determining the rate base is favored, as against the trending method employed by MERALCO, to reflect the real status of the property.[36] By using the net average investment method, the ERB and the COA considered for determination of the rate base the value of properties and equipment used by MERALCO in proportion to the period that the same were actually used during the period in question. This treatment is consistent with the settled rule in rate regulation that the determination of the rate base of a public utility entitled to a return must be based on properties and equipment actually being used or are useful to the operations of the public utility.[37] MERALCO does not seriously contest this treatment of actual usage of property but opposes the method of computation or valuation thereof adopted by the ERB and the COA on the ground that the net average investment method assumes an ideal situation where a utility, like MERALCO, is able to record in its books within any given month the value of all the properties actually placed in service during that month.[38] MERALCO contends that immediate recordal in its books of the property or equipment is not possible as MERALCOs franchise covers a wide area and that due to the volume of properties and equipment put into service and the amount of paper work required to be accomplished for recording in the books of the company, it takes three to six months (often longer) before an asset placed in service is recorded in the books of MERALCO.[39] Hence, MERALCO adopted the average investment method or the trending method which computes the average value of the property at the beginning and at the end of the test year to compensate for the irregular recording in its books. MERALCOS stance is belied by the COA Report which states that the verification of the records, as confirmed by the Management Staff, disclosed that properties are recorded in the books as these are actually placed in service.[40] Moreover, while the case was pending trial before the ERB, the ERB conducted an ocular inspection to examine the assets in service, records and books of accounts of MERALCO to ascertain the physical existence, ownership, valuation and usefulness of the assets contained in the COA Report.[41] Thus, MERALCOs contention that the date of recordal in the books does not reflect the date when the asset is placed in service is baseless. Further, computing the proportionate value of assets used in service in accordance with the actual number of months the same is used during the test year is a more accurate method of determining the value of the properties of a public utility entitled to a return. If, as determined by COA, the date of recordal in the books of MERALCO reflects the actual date the equipment or property is used in service, there is no reason for the ERB to adopt the trending method applied by MERALCO if a more precise method is available for determining the proportionate value of the assets placed in service. If we were to sustain the application of the trending method, the public utility may easily manipulate the valuation of its property entitled to a return (rate base) by simply including a highly capitalized asset in the computation of the rate base even if the same was used for a limited period of time during the test year. With the inexactness of the trending method and the possibility that the valuation of certain properties may be subject to the control of and abuse by the public utility, the Court finds no reasonable basis to overturn the recommendation of COA and the decision of the ERB. MERALCO further insists that the Court should sustain the trending method in view of previous decisions by the Public Service Commission and of this Court which upheld the use of this method. By refusing to adopt the trending method, MERALCO argues that the ERB violated the rule on stare decisis. Again, we are not impressed. It is a settled rule that the goal of rate-making is to arrive at a just and reasonable rate for both the public utility and the public which avails of the formers products and services.[42] However, what is a just and reasonable rate cannot be fixed by any immutable method or formula. Hence, it has been held that no public utility has a vested right to any particular method of valuation.[43] Accordingly, with respect to a determination of the proper method to be used in the valuation of property and equipment used by a public utility for rate-making purposes, the administrative agency is not bound to apply any one particular formula or method simply because the

same method has been previously used and applied. In fact, nowhere in the previous decisions cited by MERALCO which applied the trending method did the Court rule that the same should be the only method to be applied in all instances. At any rate, MERALCO has not adequately shown that the rates prescribed by the ERB are unjust or confiscatory as to deprive its stockholders a reasonable return on investment. In the early case of Ynchausti S.S. Co. v. Public Utility Commissioner, this Court held: [t]here is a legal presumption that the rates fixed by an administrative agency are reasonable, and it must be conceded that the fixing of rates by the Government, through its authorized agents, involves the exercise of reasonable discretion and, unless there is an abuse of that discretion, the courts will not interfere.[44] Thus, the burden is upon the oppositor, MERALCO, to prove that the rates fixed by the ERB are unreasonable or otherwise confiscatory as to merit the reversal of the ERB. In the instant cases, MERALCO was unable to discharge this burden. WHEREFORE, in view of the foregoing, the instant petitions are GRANTED and the decision of the Court of Appeals in C.A. G.R. SP No. 46888 is REVERSED. Respondent MERALCO is authorized to adopt a rate adjustment in the amount of P0.017 per kilowatthour, effective with respect to MERALCOs billing cycles beginning February 1994. Further, in accordance with the decision of the ERB dated February 16, 1998, the excess average amount of P0.167 per kilwatthour starting with the applicants billing cycles beginning February 1998 is ordered to be refunded to MERALCOs customers or correspondingly credited in their favor for future consumption. SO ORDERED. Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

The doctrines of primary jurisdiction and exhaustion of administrative remedies are conceived for the effective functioning of the administrative agencies and the courts. They cannot simply be disregarded, more so, in these cases where the crux of the controversy is whether or not the toll rate is excessive, oppressive or confiscatory. It will be in the interest of both parties that the same be addressed first to the agency concerned, it being essentially a question of fact that requires reception of evidence. It must be understood that rate fixing involves a series of technical operations into the details of which the Supreme Court is ill-equipped to enter.[3] What is a just and reasonable rate is not merely a question of formula but of sound business judgment based upon the evidence;[4] it is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment.[5] In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility. This, we cannot effectively do without the facts upon which we can base our judgment. Time and again we have ruled that this Court is not a trier of facts.[6] Necessarily, it will work to both parties' advantage if they are given the fullest opportunity to establish the merits of their claims before the proper administrative agencies. Indeed, the focal point for judicial review of an administrative action should be the administrative record already in existence, not some new record made initially in the reviewing court.[7] The task of the reviewing court is to apply the appropriate standards of review to the agency decision based on the record the agency presents to the reviewing court and the reviewing court is not generally empowered to conduct a de novo inquiry into the matter being reviewed and to reach its own conclusion based on such inquiry.[8] Here, the Court maintains its resolve not to interfere in matters which are addressed to the sound discretion of government agencies entrusted with the regulations of activities coming under the special technical knowledge and training of such agencies.[9] Until the proper recourse is exhausted, a suit before the court is premature and must be dismissed. This is required as a matter of preventing premature interference with agency processes, so that the agency may: (1) function efficiently and have an opportunity to correct its own errors; (2) afford the parties and the court the benefit of its experience and expertise without the threat of litigious interruption; and (3) compile a record which is adequate for judicial review. This means that the exhaustion doctrine does not preclude, but only defers, judicial review until after the expert administrative body has built a factual record and rendered a final decision.[10] WHEREFORE, the motions for reconsideration are hereby DENIED.

[G.R. No. 141949. August 11, 2003] PADUA vs. RANADA THIRD DIVISION Gentlemen:

SO ORDERED. Quoted hereunder, for your information, is a resolution of this Court dated AUG 11 2003. G.R. No. 141949 (Ceferino Padua vs. Hon. Santiago Ranada, Presiding Judge of Makati, RTC, Branch 137, Philippine National Construction Corp., Toll Regulatory Board, Department of Public Works and Highways, and Republic of the Philippines.) G.R. No. 151108 (Eduardo C. Zialcita, vs. Toll Regulatory Board and Citra Metro Manila Toll Ways Corporation.) RESOLUTION At bar are two (2) motions for reconsideration, separately filed by petitioners Ceferino Padua and Eduardo Zialcita, of our Decision dated October 14, 2002 dismissing the "Urgent Motion for Temporary Restraining Order"[1] and "Petition for Prohibition"[2] for being procedurally impermissible and in violation of the doctrines of primary jurisdiction and exhaustion of administrative remedies. In the main, movants want this Court to disregard the doctrines of primary jurisdiction and exhaustion of administrative remedies, contending that these are merely procedural rules which should not defeat substantive rights. In their comment, public respondents Judge Santiago Ranada, the Toll Regulatory Board (TRB), and the Department of Public Works and Highways (DPWH), through the Solicitor General, merely lifted portions of the assailed Decision and prayed that the motions be denied for being a rehash of petitioners' allegations in their petition. Private respondent Citra Metro Manila Tollways Corporation (CITRA) likewise invoked our pronouncement, praying that the motions be dismissed for lack of merit. For its part, public respondent Philippine National Construction Corporation (PNCC) rebuked petitioner Padua for ignoring the remedies suggested in the Decision. Justice Panganiban reiterates his Separate Opinion. Very truly yours, (Sgd.) JULIETA Y. CARREON Clerk of Court