Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
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 (in local
Idiom as "a sideline"). 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 1733 deliberaom 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:
... 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,
ice-refrigeration 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. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the

foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case the hijacking of the carrier's truck does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted
negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on
the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary
diligence required private respondent to retain a security guard to ride with the truck and to engage
brigands in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or

robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) holduppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and
KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to
40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were
also subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the
charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
and then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage. 5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steel bodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause). 6 The hatches remained open throughout the duration of the discharge.
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of
corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between
and alongside the trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11The survey report submitted by CSCI to the consignee (PPI)
dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea
fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for short landed certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the
Court of First Instance of Manila. The defendant carrier argued that the strict public policy governing
common carriers does not apply to them because they have become private carriers by reason of
the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff
against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be. Even
if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with

their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common
carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the case at bar. Thus

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee

to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its
cause of action, i.e. the alleged negligence of defendant carrier. It appears that the
plaintiff was under the impression that it did not have to establish defendant's negligence.
Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing
its obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel
remain with the shipowner, absent any stipulation to the contrary, such shipowner should made liable
for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the
presumption of negligence against respondent carrier, and instead shifting the onus probandi on the
shipper to show want of due deligence on the part of the carrier, when he was not even at hand to
witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter
parties are of two types: (a) contract of affreightment which involves the use of shipping space on
vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by

demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for
the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage,
the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray
the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the business, such that if the undertaking is a
single transaction, not a part of the general business or occupation, although involving the carriage
of goods for a fee, the person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving otherwise
rests on them. 26 On the contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of proving that the cause was
the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a

more exacting interpretation of admiralty laws, more particularly, the rules governing common
carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and
a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of
the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo and the

representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore under his
control and supervision, not when the same is done by the consignee or stevedores under the
employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

Planters Products vs. CA Case Digest

Planters Products vs. Court of Appeals
G.R. No. 101503 September 15, 1993
Facts: Planters Product Inc. purchased from Mitsubishi international corporation metric tons of Urea
fertilizer, which the latter shipped aboard the cargo vessel M/V Sun Plum owned by private
respondent Kyosei Kisen Kabushiki Kaisha. Prior to its voyage, a time charter-party on the vessel
respondent entered into between Mitsubishi as shipper/charterer and KKKK as ship owner, in Tokyo,
Japan.
Before loading the fertilizer aboard the vessel, (4) of her holds were presumably inspected by the
charterers representative and found fit to take a load of urea in bulk. After the Urea fertilizer was
loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel hatches
were closed with heavy iron lids. Upon arrival of vessel at port, the petitioner unloaded the cargo
pursuant to the terms and conditions of the charter-party. The hatches remained open throughout the
duration of the discharge.
Upon arrival at petitioners warehouse a survey conducted over the cargo revealed a shortage and
the most of the fertilizer was contaminated with dirt. As such, Planters filed an action for damages.

The defendant argued that the public policy governing common carriers do not apply to them
because they have become private carriers by reason of the provisions of the charter-party.
Issue: Whether or not the charter-party contract between the ship owner and the charterer
transforms a common carrier into a private carrier?
Held: A charter party may either here be (1.) Time charter wherein the vessel is leased to the
charterer, wherein the ship is leased to the charterer for a fixed period of time or (2.) Voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charter party provides for the hire
of the vessel only, either for a determinate time or for a single or consecutive voyage.
It is therefore imperative that such common carrier shall remain as such, notwithstanding the charter
of the whole or part of the vessel by one or more persons, provided the charter is limited to the ship
only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both ship
and its crew as in bareboat or demise that it becomes a private carrier. Undoubtedly, a ship-owner in
a time or voyage charter retains in possession and control of the ship, although her holds may be the
property of the charterer.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401,
which affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in
Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co.
(hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the compliant until
fully paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19 November
1997, 3 denying LOADSTAR's motion for reconsideration of said decision.
The facts are undisputed.

1wphi1.nt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the
following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGyhjkAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along
with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee
made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid
P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt
therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped
as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed its
decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground
that there was a single shipper on that fateful voyage. The court noted
that the charter of the vessel was limited to the ship, but LOADSTAR
retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil

Code, which should be applied in determining the rights and liabilities
of the parties.
3) The vessel was not seaworthy because it was undermanned on the
day of the voyage. If it had been seaworthy, it could have withstood the
"natural and inevitable action of the sea" on 20 November 1984, when
the condition of the sea was moderate. The vessel sank, not because of
force majeure, but because it was not seaworthy. LOADSTAR'S
allegation that the sinking was probably due to the "convergence of the
winds," as stated by a PAGASA expert, was not duly proven at the trial.
The "limited liability" rule, therefore, is not applicable considering that, in
this case, there was an actual finding of negligence on the part of the
carrier. 5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do

not apply because said provisions bind only the shipper/consignee and
the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latter's rights as against the carrier, LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the

shipper's goods never reached their destination. LOADSTAR's
defense of "diligence of a good father of a family" in the training and
selection of its crew is unavailing because this is not a proper or
complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially construed to
mean that when goods are delivered on board a ship in good order and
condition, and the ship-owner delivers them to the shipper in bad order
and condition, it then devolves upon the ship-owner to both allege and
prove that the goods were damaged by reason of some fact which legally
exempts him from liability." Transportation of the merchandise at the risk
and venture of the shipper means that the latter bears the risk of loss or
deterioration of his goods arising from fortuitous events, force majeure,
or the inherent nature and defects of the goods, but not those caused by
the presumed negligence or fault of the carrier, unless otherwise
proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these
premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was
not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only "one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19
November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly
inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that the ship
was fit to undertake a voyage. Its crew at the time was experienced, licensed and unquestionably
competent. With all these precautions, there could be no other conclusion except that LOADSTAR
exercised the diligence of a good father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan Del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1
was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the
convergence of winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and
not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the
case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from
the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo
was due to force majeure, because the same concurred with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certificate of public convenience, and this public character is not altered by
the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo
or chartering the vessel to a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent is void only if the strict policy governing common carriers is
upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood eand Industrial
Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which
upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no

charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 15 the
Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
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 ancillary activity (in local idiom, as "a sideline". 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 1733 deliberately
refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory
statute and implementing regulations and has been granted a certificate of public
convenience or other franchise. To exempt private respondent from the liabilities of a
common carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with applicable statutory
requirements The business of a common carrier impinges directly and intimately
upon the safety and well being and property of those members of the general

community who happen to deal with such carrier. The law imposes duties and
liabilities upon common carriers for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the
time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied
in this case. The doctrine of limited liability does not apply where there was negligence on the part of
the vessel owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy
vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any
event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the
wind condition in the performance of its duties, LOADSTAR cannot hide behind the "limited liability"
doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods,
in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray &
Co., Inc., 18 andNational Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the insurance policy, the insurer
is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in
turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the
goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee
is necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the
cases relied on by LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the
bill of lading which the parties may enter into, provided that the same was freely and fairly agreed
upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces
the common carrier's liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at "owner's risk." Such stipulation is obviously null and void for being contrary to
public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of. freight.
According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it
was subrogated to all the rights which the latter has against the common carrier,
LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as 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.
This one-year prescriptive period also applies to the insurer of the goods. 22 In this case, the period
for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year
period is null and void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
1wphi1.nt

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION
C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal
year 1993 pursuant to the Local Government Code 3. The respondent City Treasurer assessed
a business tax on the petitioner amounting to P956,076.04 payable in four installments based
on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under
protest in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from
paying tax on gross receipts under Section 133 of the Local Government Code
of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code
does not include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized
under Section 147 of the Local Government Code. The said section limits the
imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of
regulation, inspection and licensing. The fee is already a revenue raising measure,
and not a mere regulatory imposition. 4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities
to impose and collect a tax on the gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes
on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the
term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code
pertains to the mode or manner by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule
that tax exemptions are to be strictly construed against the taxpayer, taxes
being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act
387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses onlycommon carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities
to a single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically enacted
to give more and effective local autonomy to local
governments than the previous enactments, to make
them economically and financially viable to serve
the people and discharge their functions with a
concomitant obligation to accept certain devolution
of powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and
151 of the Code. 9

Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication. 10On November 29, 1995, the respondent court rendered a
decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Court
in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association 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 test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and
must hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and
4. The transportation must be for hire.

15

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation. The fact that petitioner has a limited clientele does not
exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16 we
ruled that:
The above article (Art. 1732, Civil Code) 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 (in local idiom, as a "sideline"). Article
1732 . . . 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
1877 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:
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, ice-refrigeration 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. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common
carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe
line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture,
refining, storage, or transportation by special methods of

petroleum, is hereby declared to be a public utility. (Emphasis

Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is
engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 . . . .
Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of
transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common carriers
by air, land or water, except as
provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on
the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government
units. May we know the reason why the transportation business
is being excluded from the taxing powers of the local
government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that
local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98
of Book II, one can see there that provinces have the power to
impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would
be subject to tax by the province. That is the exception, Mr.
Speaker.
What we want to guard against here, Mr. Speaker, is the
imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue
Code which is the so-called "common carriers tax." We do not
want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may
impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 112287 December 12, 1997

18

NATIONAL STEEL CORPORATION, petitioner,

vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's
responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The Court
also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. 1 The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant
on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED. 2

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the
award for demurrage to P44,000.00 and deleting the award for attorney's fees and expenses
of litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement
as to costs.
SO ORDERED. 3

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo
or shipment for the general public. Its services are available only to specific persons who enter into a
special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it
is in the capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or
contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire
(Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to make
one (1) voyage to load steel products at Iligan City and discharge them at North Harbor,
Manila, under the following terms and conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of
Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24
consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the
vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally
recognized Charter Party Agreement shall form part of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for "Freight In and Out including Stevedoring and
Trading", which means that the handling, loading and unloading of the cargoes are the
responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states,
"Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . .
(Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning
of the voyage, exercise due diligence to make the vessel seaworthy and properly manned,

equipped and supplied and to make the holds and all other parts of the vessel in which cargo
is carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable
for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused
by want of due diligence on the part of the owners to make the vessel seaworthy, and to
secure that the vessel is properly manned, equipped and supplied and to make the holds
and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; . . . ; perils, dangers and accidents of the sea or other navigable
waters; . . . ; wastage in bulk or weight or any other loss or damage arising from inherent
defect, quality or vice of the cargo; insufficiency of packing; . . . ; latent defects not
discoverable by due diligence; any other cause arising without the actual fault or privity of
Owners or without the fault of the agents or servants of owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default
of the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the
MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total
weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the
three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the corresponding bill of lading,
B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974.
The following day, August 13, 1974, when the vessel's three (3) hatches containing the
shipment were opened by plaintiff's agents, nearly all the skids of tinplates and hot rolled
sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by
stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after
incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading
operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of
the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the
NSC dated March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular inspection
conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO
reported that it found wetting and rusting of the packages of hot rolled sheets and metal
covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over. MASCO ventured the opinion that
"rusting of the tinplates was caused by contact with SEA WATER sustained while still on
board the vessel as a consequence of the heavy weather and rough seas encountered while
en route to destination (Exhibit "F"). It was also reported that MASCO's surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to
the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad
order samples of packing materials . . . shows that wetting was caused by contact with SEA
WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with
the defendant its claim for damages suffered due to the downgrading of the damaged
tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally

demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed
its complaint against defendant on April 21, 1976 which was docketed as Civil Case No.
23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of
P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the defendant
to make the vessel seaworthy and to make the holds and all other parts of the vessel in
which the cargo was carried, fit and safe for its reception, carriage and preservation all in
violation of defendant's undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
"VLASONS I" was seaworthy in all respects for the carriage of plaintiff's cargo; that said
vessel was not a "common carrier" inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan
City to Manila, the MV "VLASONS I" encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and big waves to continuously pound
against the vessel and seawater to overflow on its deck and hatch covers, that under the
Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the vessel, that the officers of said MV
"VLASONS I" exercised due diligence and proper seamanship and were not willfully
negligent; that furthermore the Voyage Charter Party provides that loading and discharging
of the cargo was on FIOST terms which means that the vessel was free of risk and expense
in connection with the loading and discharging of the cargo; that the damage, if any, was due
to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to
latent defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or servants
of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who
discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; land that the cargo was exposed to rain and seawater spray while on
the pier or in transit from the pier to plaintiff's warehouse after discharge from the vessel; and
that plaintiff's claim was highly speculative and grossly exaggerated and that the small stain
marks or sweat marks on the edges of the tinplates were magnified and considered total loss
of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations
under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In
turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its
obligations under the Voyage Charter Hire Contract, plaintiff failed and
refused to pay the agreed charter hire of P75,000.00 despite demands made
by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its
cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage
in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff
should be ordered to pay defendant attorney's fees and all expenses of
litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following
findings which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the
tramping service and is available for hire only under special contracts of
charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage
Charter Hire (Exh. "1"), the MV VLASONS I" was covered by the required
seaworthiness certificates including the Certification of Classification issued
by an international classification society, the NIPPON KAIJI KYOKAI (Exh.
"4"); Coastwise License from the Board of Transportation (Exh. "5");
International Loadline Certificate from the Philippine Coast Guard (Exh. "6");
Cargo Ship Safety Equipment Certificate also from the Philippine Coast
Guard (Exh. "7"); Ship Radio Station License (Exh. "8"); Certificate of
Inspection by the Philippine Coast Guard (Exh. "12"); and Certificate of
Approval for Conversion issued by the Bureau of Customs (Exh. "9"). That
being a vessel engaged in both overseas and coastwise trade, the MV
"VLASONS I" has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the
Contract of Voyage Charter Hire, the MV "VLASONS I" underwent
drydocking in Cebu and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessel's first voyage after the
drydocking. The evidence shows that the MV "VLASONS I" was seaworthy
and properly manned, equipped and supplied when it undertook the voyage.
It has all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship.
The hatch openings were covered by hatchboards which were in turn
covered by two or double tarpaulins. The hatch covers were water tight.
Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is
not supported by evidence. The provisions of the Civil Code on common
carriers pursuant to which there exists a presumption of negligence in case of
loss or damage to the cargo are not applicable. As to the damage to the
tinplates which was allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that tinplates "sweat" by
themselves when packed even without being in contract (sic) with water from
outside especially when the weather is bad or raining. The trust caused by
sweat or moisture on the tinplates may be considered as a loss or damage
but then, defendant cannot be held liable for it pursuant to Article 1734 of the
Civil Case which exempts the carrier from responsibility for loss or damage
arising from the "character of the goods . . ." All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It
was shown as claimed by plaintiff that the tinplates themselves were
wrapped in kraft paper lining and corrugated cardboards could not be
affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates
were negligent in not closing the hatch openings of the MV "VLASONS I"

when rains occurred during the discharging of the cargo thus allowing
rainwater to enter the hatches. It was proven that the stevedores merely set
up temporary tents to cover the hatch openings in case of rain so that it
would be easy for them to resume work when the rains stopped by just
removing the tent or canvas. Because of this improper covering of the
hatches by the stevedores during the discharging and unloading operations
which were interrupted by rains, rainwater drifted into the cargo through the
hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter
Party which was expressly made part of the Contract of Voyage Charter Hire,
the loading, stowing and discharging of the cargo is the sole responsibility of
the plaintiff charterer and defendant carrier has no liability for whatever
damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad
weather while en route from Iligan City to Manila causing sea water to splash
on the ship's deck on account of which the master of the vessel (Mr. Antonio
C. Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh. "15"); which
can be invoked by defendant as a force majeure that would exempt the
defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of
the Voyage Charter Hire contract that it was to insure the cargo because it
did not. Had plaintiff complied with the requirement, then it could have
recovered its loss or damage from the insurer. Plaintiff also violated the
charter party contract when it loaded not only "steel products", i.e. steel bars,
angular bars and the like but also tinplates and hot rolled sheets which are
high grade cargo commanding a higher freight. Thus plaintiff was able to ship
grade cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter hire
under Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable
to defendant carrier upon presentation of the bill of lading within fifteen (15)
days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands. The evidence also showed that the plaintiff was required and
bound under paragraph 7 of the same Voyage Charter Hire contract to pay
demurrage of P8,000.00 per day of delay in the unloading of the cargoes.
The delay amounted to eleven (11) days thereby making plaintiff liable to pay
defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned,
equipped and supplied, and that there is no proof of willful negligence of the vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.
III

The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSC's shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI. 4

As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses
of litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution 5 dated October
20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective
petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions. 6
The Issues
In its petition 7 and memorandum, 8 NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8",
"9", "11" and "12") were admissible in evidence and constituted evidence of the vessel's
seaworthiness at the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability
for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's
cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted
on their own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of
NSC's tinplates.

In its separate petition, 9 VSI submits for the consideration of this Court the following alleged errors of
the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of
P100,000 for attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: 10
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common carrier in
case of loss or damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including
the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as
a private carrier. The resolution of this preliminary question determines the law, standard of diligence
and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as "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." It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee. 11 A carrier which does not
qualify under the above test is deemed a private carrier. "Generally, private carriage is undertaken by
special agreement and the carrier does not hold himself out to carry goods for the general public.
The most typical, although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use and service of all
or some part of a ship for a period of time or a voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found
by the Regional Trial Court, it carried passengers or goods only for those it chose under a "special

contract of charter party." 13 As correctly concluded by the Court of Appeals, the MV Vlasons I "was
not a common but a private carrier." 14 Consequently, the rights and obligations of VSI and NSC,
including their respective liability for damage to the cargo, are determined primarily by stipulations in
their contract of private carriage or charter party. 15Recently, in Valenzuela Hardwood and Industrial
Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, 16 the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier, private
carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers. 17

Extent of VSI's Responsibility and

Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not
be responsible for losses except on proven willful negligence of the officers of the vessel." The
NANYOZAI Charter Party, which was incorporated in the parties' contract of transportation further
provided that the shipowner shall not be liable for loss of or a damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make
the vessel seaworthy or to ensure that the same was "properly manned, equipped and supplied,"
and to "make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for
its reception, carriage and preservation." 18 The NANYOZAI Charter Party also provided that
"[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden
of proof was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due
to fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for
the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned
in the preceding article if proofs against him show that they occurred on account of his
negligence or his omission to take the precautions usually adopted by careful persons,
unless the shipper committed fraud in the bill of lading, making him to believe that the goods
were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule,
places the prima faciepresumption of negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods
were lost or damaged while in the carrier's custody does not put the burden of proof on the
carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach
of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carrier's
possession does not cast on it the burden of proving proper care and diligence on its part or
that the loss occurred from an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier
is in a better position to know the cause of the loss and that it was not one involving its
liability, the law requires that it come forward with the information available to it, and its
failure to do so warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with evidence, do not
alter the burden of proof which remains on plaintiff, and, where the carrier comes forward
with evidence explaining the loss or damage, the burden of going forward with the evidence
is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff,
and proof that the goods were lost or damaged while in the carrier's possession does not cast on
it the burden of proving seaworthiness. . . . Where the contract of carriage exempts the carrier
from liability for unseaworthiness not discoverable by due diligence, the carrier has the
preliminary burden of proving the exercise of due diligence to make the vessel seaworthy. 20

In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position
in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's]
interpretation of Clause 12 is not even correct), it argues that 'a careful examination of the evidence
will show that VSI miserably failed to comply with any of these obligation's as if defendant-appellee
[VSI] had the burden of
proof." 21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly relevant:
(1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose
under the charter party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether
the rusting of the tinplates was caused by its own "sweat" or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties' conflicting claims and to carefully weigh their respective evidence.
The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are binding on this
Court. 22 We stress that, subject to some exceptional instances, 23 only questions of law not

questions of fact may be raised before this Court in a petition for review under Rule 45 of the
Rules of Court. After a thorough review of the case at bar, we find no reason to disturb the lower
court's factual findings, as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit
for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked
and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to
Manila under the contract of voyage charter hire. 24 The vessel's voyage from Iligan to Manila was the
vessel's first voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it
as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel. 25 The Court of
Appeals itself sustained the conclusion of the trial court that MV Vlasons Iwas seaworthy. We find no
reason to modify or reverse this finding of both the trial and the appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit
for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It
faults the Court of Appeals for failing to consider such claim as an "uncontroverted fact" 26 and denies
that MV Vlasons I "was equipped with new canvas covers in tandem with the old ones as indicated
in the Marine Protest . . ." 27 We disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition
to the new one used primarily to make the ship's hatches watertight. The foregoing are clear from
the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the
ship's boatswain, Jose Pascua. The salient portions of said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974,
loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National
Steel Corporation; that before departure, the vessel was rigged, fully equipped and cleared
by the authorities; that on or about August 9, 1974, while in the vicinity of the western part of
Negros and Panay, we encountered very rough seas and strong winds and Manila office was
advised by telegram of the adverse weather conditions encountered; that in the morning of
August 10, 1974, the weather condition changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing sea water to overflow on deck
andhatch (sic) covers and which caused the first layer of the canvass covering to give way
while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro;
that we re-secured the canvass covering back to position; that in the afternoon of August 10,
1974, while entering Maricaban Passage, we were again exposed to moderate seas and
heavy rains; that while approaching Fortune Island, we encountered again rough seas,
strong winds and big waves which caused the same canvass to give way and leaving the
new canvass holding on;

xxx xxx xxx 28

And the relevant portions of Jose Pascua's deposition are as follows:

q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch
opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing over
the sides and we place[d] a flat bar over the canvas on the side of the
hatches and then we place[d] a stopper so that the canvas could not be
removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the width
of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to cover
the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the whole hatch
opening?
a No, sir.

q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many pieces
of wood are put on top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the canvass cover.
How many canvas covers?
a Two, sir. 29

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not
give way and the ship's hatches and cargo holds remained waterproof. As aptly stated by the Court
of Appeals, ". . . we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; . . . 30
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who
were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the ship.
Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on August
14 you went on board the vessel upon notice from the National Steel

Corporation in order to conduct the inspection of the cargo. During the course
of the investigation, did you chance to see the discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all the
hatches were opened.
Q In connection with these cargoes which were unloaded, where is the place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular
matter . . . the transcript of stenographic notes shows the same was covered
in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of
the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and tents were
built at the opening of the hatches.
Q You also stated that the hatches were already opened and that there were
tents constructed at the opening of the hatches to protect the cargo from the
rain. Now, will you describe [to] the Court the tents constructed.
A The tents are just a base of canvas which look like a tent of an Indian camp
raise[d] high at the middle with the whole side separated down to the hatch,
the size of the hatch and it is soaks [sic] at the middle because of those
weather and this can be used only to temporarily protect the cargo from
getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents
proper?

A No, sir, at the time they were discharging the cargo, there was a typhoon
passing by and the hatch tent was not good enough to hold all of it to prevent
the water soaking through the canvass and enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the
water enter and soak into the canvass and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel Corporation
[of] the procedure adopted by its stevedores in discharging the cargo
particularly in this tent covering of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but
the stevedores did not mind at all, so, called the attention of the representative of
the National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. 31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores' negligence on the first day of unloading, pointing out that he
wrote his letter to petitioner only seven days later. 32 The Court is not persuaded. Angliongto's candid
answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed because
he first called the attention of the stevedores, then the NSC's representative, about the negligent and
defective procedure adopted in unloading the cargo. This series of actions constitutes a reasonable
response in accord with common sense and ordinary human experience. Vicente Angliongto could
not be blamed for calling the stevedores' attention first and then the NSC's representative on
location before formally informing NSC of the negligence he had observed, because he was not
responsible for the stevedores or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the stevedores it had hired and the
performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of NSC's shipment. We do not think so. Such
negligence according to the trial court is evident in the stevedores hired by [NSC], not closing the
hatch of MV 'VLASONS I' when rains occurred during the discharging of the cargo thus allowing
rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was
proven that the stevedores merely set up temporary tents or canvas to cover the hatch openings
when it rained during the unloading operations so that it would be easier for them to resume work
after the rains stopped by just removing said tents or canvass. It has also been shown that on
August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner
the stevedores hired by [NSC] were discharging the cargo on rainy days and the improper closing
of the hatches which allowed continuous heavy rain water to leak through and drip to the
tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos
rains with strong winds that the hatches be totally closed down and covered with canvas and the
hatch tents lowered. (Exh. "13"). This letter was received by [NSC] on 22 August 1974 while
discharging operations were still going on (Exhibit "13-A"). 33

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be
noted that the NSC may seek indemnification, subject to the laws on prescription, from the

stevedoring company at fault in the discharge operations. "A stevedore company engaged in
discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence . . . and where the officers and members and
crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores . . .
the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ." 34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by
themselves when packed even without being in contact with water from outside especially when the
weather is bad or
raining . . ." 35 The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I.
Clearly, therefore, NSC's failure to insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the latter's willful negligence. We do not
find anything in the charter party that would make the liability of VSI for damage to the cargo
contingent on or affected in any manner by NSC's obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of
the certificates of seaworthiness offered in evidence by VSI. The said certificates include the
following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs 36
NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of
public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications or
certified true copies" as required by Sections 25 and 26, Rule 132, of the Rules of Court. 37

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12
are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven by one who saw the writing
executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence
rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made
in the performance of a duty by a public officer of the Philippines, or by a person in the performance
of a duty specially enjoined by law, areprima facie evidence of the facts therein stated." 38 Exhibit 11
is an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade
Noli C. Flores to the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG Inspectors
were sent on board for inspection . . . After completion of drydocking and duly inspected by PCG
Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast
Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's claim, therefore, is obviously
misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to
discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in
damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient
proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39

The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo. 40 It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in
"running days," this means days when the ship would be run continuously, and holidays are not
excepted. A qualification of "weather permitting" excepts only those days when bad weather
reasonably prevents the work contemplated. 41

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. 42 The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. 43 Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable
weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was
error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding
by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court
also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorney's fees under Article 2208 of the Civil Code when ". . . no sufficient showing of bad
faith would be reflected in a party's persistence in a case other than an erroneous conviction of the
righteousness of his cause . . ." 44 Moreover, attorney's fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is tantamount to
imposing a premium on one's right to litigate or seek judicial redress of legitimate grievances. 45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain and seawater seeped through
the cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that
factual findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one
of them. Second, the agreement between the parties the Contract of Voyage Charter Hire
placed the burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such
stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of
private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a
parry from the effects of a private contract freely entered into, on the ground that it is allegedly onesided or unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations
are agreed upon in consideration of many factors, not the least of which is the transport price which
is determined not only by the actual costs but also by the risks and burdens assumed by the shipper
in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even
stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under
the charter party. That NSC failed or neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.

NATIONAL STEEL CORPORATION vs. CA and VLASONS SHIPPING, INC.

[G.R. No. 112287. December 12, 1997]

FACTS:
National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI)
as Owner, entered into a Contract of Voyage Charter Hire (Affreightment) whereby NSC
hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila. VSI carried passengers or goods
only for those it chose under a special contract of charter party.
The vessel arrived with the cargo in Manila, but when the vessels three (3) hatches
containing the shipment were opened, nearly all the skids of tin plates and hot rolled sheets
were allegedly found to be wet and rusty.
NSC filed its complaint against defendant before the CFI wherein it claimed that it sustained
losses as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the defendant
to make the vessel seaworthy -- all in violation of defendants undertaking under their
Contract of Voyage Charter Hire.
In its answer, defendant denied liability for the alleged damage claiming that the MV
VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo; that said
vessel was not a common carrier inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party.
The trial court ruled in favor of VSI; it was affirmed by the CA on appeal.
ISSUE:
Whether or not Vlazons is a private carrier.
HELD:
Yes.
At the outset, it is essential to establish whether VSI contracted with NSC as a common
carrier or as a private carrier. The resolution of this preliminary question determines the law,
standard of diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as 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. It has
been held that the true test of a common carrier is the carriage of passengers or goods,
provided it has space, for all who opt to avail themselves of its transportation service for a
fee. A carrier which does not qualify under the above test is deemed a private carrier.
Generally, private carriage is undertaken by special agreement and the carrier does not
hold himself out to carry goods for the general public. The most typical, although not the

only form of private carriage, is the charter party, a maritime contract by which the charterer,
a party other than the ship-owner, obtains the use and service of all or some part of a ship
for a period of time or a voyage or voyages.
In the instant case, it is undisputed that VSI did not offer its services to the general public.
As found by the Regional Trial Court, it carried passengers or goods only for those it chose
under a special contract of charter party. As correctly concluded by the Court of Appeals,
the MV Vlasons I was not a common but a private carrier. Consequently, the rights and
obligations of VSI and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or charter party.
Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and
Seven Brothers Shipping Corporation, the Court ruled:
x x x [I]n a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving
common carriers.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149038

April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,

vs.
PKS SHIPPING COMPANY, respondent.
VITUG, J.:
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV
No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional
Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner
Insurance Corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags
of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00).
DUMC insured the goods for its full value with petitioner Philippine American General Insurance

Company (Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS
Shipping. On the evening of 22 December 1988, about nine oclock, while Limar I was being towed
by respondents tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa
Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly
made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been
caused either by a fortuitous event, in which case the ship owner was not liable, or through the
negligence of the captain and crew of the vessel and that, under Article 587 of the Code of
Commerce adopting the "Limited Liability Rule," the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the
trial court. The appellate court ruled that evidence to establish that PKS Shipping was a common
carrier at the time it undertook to transport the bags of cement was wanting because the peculiar
method of the shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not being a common
carrier, was not expected to observe the stringent extraordinary diligence required of common
carriers in the care of goods. The appellate court, moreover, found that the loss of the goods was
sufficiently established as having been due to fortuitous event, negating any liability on the part of
PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent error in
ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such carrier can be held
exempt for the loss of the cargo would be if the loss were caused by natural disaster or calamity.
Petitioner avers that typhoon "APIANG" has not entered the Philippine area of responsibility and
that, even if it did, respondent would not be exempt from liability because its employees, particularly
the tugmaster, have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen
seeks is not a review on points or errors of law but a review of the undisputed factual findings of the
RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of
whether it is a private carrier or a common carrier and, in either case, to the other question of
whether or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a
common carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent
with those of the trial court, may not at liberty be reviewed by this Court in a petition for review under
Rule 45 of the Rules of Court.1 The conclusions derived from those factual findings, however, are not
necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a
requisite appreciation of the applicable law. In such instances, the conclusions made could well be
raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether

a carrier is private or common on the basis of the facts found by a trial court or the appellate court
can be a valid and reviewable question of law.
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."
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines "public service" to be
"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, 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, 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, ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communication systems, wire or wireless broadcasting stations and other similar
public services. x x x. (Underscoring supplied)."
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs.
Court of Appeals.2 Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public
Service Act, this Court has held:
"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 (in local idiom, as `a sideline). 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."
Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the
business or occupation, and the carrier does not hold itself out to carry the goods for the general
public or to a limited clientele, although involving the carriage of goods for a fee, the person or
corporation providing such service could very well be just a private carrier. A typical case is that of a
charter party which includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a period of time or a
voyage or voyages4 and gets the control of the vessel and its crew.5 Contrary to the conclusion made
by the appellate court, its factual findings indicate that PKS Shipping has engaged itself in the

business of carrying goods for others, although for a limited clientele, undertaking to carry such
goods for a fee. The regularity of its activities in this area indicates more than just a casual activity on
its part. Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of entering into those distinct
agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. 7The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of
the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.8
The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective
vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or the
tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barges hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to
the seaworthiness of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are
contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when
the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court
of Appeals failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence but such findings
are contradicted by the evidence on record would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for
the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 147246

August 19, 2003

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February
21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial
Court of Manila which found petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on board the
vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in
Manila, evidenced by Bill of Lading No. PTD/Man-4.5The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody
of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee
as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of
an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering
Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A few days after, the
barge developed a list because of a hole it sustained after hitting an unseen protuberance
underneath the water. The petitioner filed a Marine Protest on August 28, 1990. 8 It likewise secured
the services of Gaspar Salvaging Corporation which refloated the barge. 9 The hole was then patched
with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf
on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to
strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred to
three other barges.10

The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in
the total loss of the remaining cargo.11 A second Marine Protest was filed on September 7, 1990. 12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges. 13 The total proceeds from the sale of the salvaged cargo
was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the petitioner,
but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia
Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc.
the sum of P4,104,654.22 with interest from the date complaint was filed on July 3, 1991
until fully satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's
counterclaim is hereby DISMISSED. With costs against defendant. 18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate
court affirmed the decision of the trial court with modification. The dispositive portion of its decision
reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the
sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate
court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE
BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON

CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN
ALL CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence
in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as 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.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged
to carry indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it
does not hold out its services to the general public. 20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732
of the Civil Code 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. We also
did not distinguish 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.
Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to
the general public, and one who offers services or solicits business only from a narrow segment of
the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage 22 and it
offers its barges to the public for carrying or transporting goods by water for compensation.
Petitioner is clearly a common carrier. In De Guzman, supra,23 we considered private respondent
Ernesto Cendaa to be a common carrier even if his principal occupation was not the carriage of
goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these
items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need
not have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part of the

business engaged in by the carrier which he has held out to the general public as his occupation
rather than the quantity or extent of the business transacted." 25 In the case at bar, the petitioner
admitted that it is engaged in the business of shipping and lighterage, 26 offering its barges to the
public, despite its limited clientele for carrying or transporting goods by water for compensation. 27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.28 They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated.29 To overcome the presumption of negligence in the case
of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code
enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of
its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for
the loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only
cause of the loss of the goods, and that it has exercised due diligence before, during and after the
occurrence of the typhoon to prevent or minimize the loss. 30 The evidence show that, even before
the towing bits of the barge broke, it had already previously sustained damage when it hit a sunken
object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be
solely attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched
with only clay and cement. The patch work was merely a provisional remedy, not enough for the
barge to sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly
exposed the cargo to further damage. A portion of the cross-examination of Alfredo Cunanan, cargosurveyor of Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
xxx
q

xxx

xxx

Can you tell us what else transpired after that incident?

a - After the first accident, through the initiative of the barge owners, they tried to pull
out the barge from the place of the accident, and bring it to the anchor terminal for safety,
then after deciding if the vessel is stabilized, they tried to pull it to the consignee's

warehouse, now while on route another accident occurred, now this time the barge totally
hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?
a

The sinking, sir.

q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on
the bottom part of the barge.
xxx

xxx

xxx

This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming
typhoon. During the time that the barge was heading towards the consignee's wharf on September
5, 1990, typhoon "Loleng" has already entered the Philippine area of responsibility.32 A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
xxx

xxx

xxx

q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to
lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since
they needed badly the wheat that was loaded in PSTSI-3. It was needed badly by the
consignee.
q

And this is the reason why you towed the Barge as you did?

Yes, sir.
xxx

xxx

xxx

CROSS-EXAMINATION BY ATTY. IGNACIO:34

xxx

xxx

xxx

q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have
stated.
q

Despite of the threats of an incoming typhoon as you testified a while ago?

a - It is already in an inner portion of Pasig River. The typhoon would be coming and it
would be dangerous if we are in the vicinity of Manila Bay.
q

But the fact is, the typhoon was incoming? Yes or no?

Yes.

q - And yet as a standard operating procedure of your Company, you have to secure a
sort of Certification to determine the weather condition, am I correct?
a

Yes, sir.

So, more or less, you had the knowledge of the incoming typhoon, right?

Yes, sir.

And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you
are already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape
liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls
short of due diligence required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke that caused its
sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the
typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e.,
negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV
No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 186312

June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.

DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 1 against
Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages
arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September
11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto
Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned
and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by
virtue of a tour package-contract with respondent that included transportation to and from the Resort
and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of
the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the
Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of
strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was sheltered
from the wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into
the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the
captain to step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B
Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the
captain, Matute and the other passengers who reached the surface asked him what they could do to
save the people who were still trapped under the boat. The captain replied "Iligtas niyo na lang ang
sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons,
consisting of 18 passengers and four crew members, who were brought to Pisa Island. Eight
passengers, including petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900. 3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death
of their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility for the incident
which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the
amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that
respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. 6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to
the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that
it exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners
allegation, there was no storm on September 11, 2000 as the Coast Guard in fact cleared the
voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an award for attorneys
fees and litigation expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the
Resorts assistant manager.8 He added that M/B Coco Beach III met all four conditions on
September 11, 2000,9 but a subasco or squall, characterized by strong winds and big waves,
suddenly occurred, causing the boat to capsize. 10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners Complaint
and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008, 13 the appellate court denied petitioners appeal, holding, among
other things, that the trial court correctly ruled that respondent is a private carrier which is only
required to observe ordinary diligence; that respondent in fact observed extraordinary diligence in
transporting its guests on board M/B Coco Beach III; and that the proximate cause of the incident
was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a common
carrier since by its tour package, the transporting of its guests is an integral part of its resort
business. They inform that another division of the appellate court in fact held respondent liable for
damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it
is a common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to
its business as no income is derived therefrom; that it exercised extraordinary diligence as shown by
the conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and that the other case
wherein the appellate court held it liable for damages involved different plaintiffs, issues and
evidence.16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing respondent as a
common carrier.
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 (in local
idiom, as "a sideline"). 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 1733 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:
. . . 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, ice-refrigeration 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 . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business
as to be properly considered ancillary thereto. The constancy of respondents ferry services in its
resort operations is underscored by its having its own Coco Beach boats. And the tour packages it
offers, which include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. The Court is aware of the
practice of beach resort operators offering tour packages to factor the transportation fee in arriving at
the tour package price. That guests who opt not to avail of respondents ferry services pay the same
amount is likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately
refrained from making distinctions on whether the carrying of persons or goods is the carriers
principal business, whether it is offered on a regular basis, or whether it is offered to the general
public. The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling

how many other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. 19 They are bound 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
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the
common carrier is at fault or negligent. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common carrier. This statutory presumption
may only be overcome by evidence that the carrier exercised extraordinary diligence. 21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of
voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents position
does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone
warnings for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern
Luzon which would also affect the province of Mindoro. 22 By the testimony of Dr. Frisco Nilo,
supervising weather specialist of PAGASA, squalls are to be expected under such weather
condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy weather
and put other peoples lives at risk. The extraordinary diligence required of common carriers
demands that they take care of the goods or lives entrusted to their hands as if they were their own.
This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d)
the obligor must have been free from any participation in the aggravation of the resulting injury to the
creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been the proximate
and only causeof the loss. And it should have exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the fortuitous event. 25
Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned
M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach III
suffered engine trouble before it capsized and sank. 26 The incident was, therefore, not completely
free from human intervention.

The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of
the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living
expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death] 30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses. 32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his dependents or
heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs. 33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency Corp.
v. Borja34teaches that when, as in this case, there is no showing that the living expenses constituted
the smaller percentage of the gross income, the living expenses are fixed at half of the gross
income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 35 which, when
converted to Philippine peso applying the annual average exchange rate of $1 = P44 in
2000,36 amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:
Net Earning
Capacity

= life expectancy x (gross annual income - reasonable and necessary

living expenses).
= 35 x (P475,200 - P237,600)

= 35 x (P237,600)
Net Earning
Capacity

= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract of
carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the
Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary
damages, which are granted in contractual obligations if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral
damages andP100,000 as exemplary damages.38
1avvphi1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary
damages are awarded. The Court finds that 10% of the total amount adjudged against respondent is
reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with certainty only in the present
petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline
in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE.
Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the following:
(1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos loss
of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5) 10%
of the total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
computed from the finality of this decision until full payment.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25599

April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers
1 and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home
Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71
the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement
by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of

First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's
fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the
goods and that as a mere forwarding agent, it was not responsible for losses or damages to the
cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in the
same condition and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71
with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also
civilly liable for damages in favor of third persons due to the conduct of the captain of the
carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against
public policy under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if
any, otherwise, the bills of lading prevail over all the agreements. 2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or viceversa,5 loading, stowing and discharging at its risk and expense. 6 Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of

the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587
of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the shipper or owner limiting
the liability of the former for loss or destruction of the goods to a degree less than extraordinary
diligence is valid provided it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public policy on common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy,9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such policy has no force where the
public at large is not involved, as in the case of a ship totally chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.

Home Insurance vs. American Steamship Case Digest

Home Insurance vs. American Steamship
23 SCRA 24
Facts: The Consorcio Pesquero del Peru of South America shipped jute bags of Peruvian fishmeal
through SS Crowborough, consigned to San Miguel Brewery, Inc. The cargo, which was insured by
Home Insurance Company, arrived at the port of Manila and was discharged to the lighters of the
Luzon Stevedoring Corporation. When the same was delivered to the consignee, there were
shortages amounting to P 12, 033.85, prompting the latter to pay against Luzon Stevedoring Co.

Because the others denied liability, Home Insurance paid San Miguel the insurance value loss. This
cost was brought by the former to recover indemnity from Luzon Stevedoring and the ship owner.
Luzon Stevedoring raised the defense that it deliver with due diligence in the same from the carrier.
Mexican Steamship Agencies denied liability on the ground that the charter party referred to in the
bills of lading, the charter, not the ship owner, was responsible for any loss or damage of the cargo.
Furthermore, it claimed to have exercised due diligence in stowing the goods and as a mere
forwarding agent, it was not responsible for losses or damages to the cargo.
Issue: Whether or not the stipulation in the charter party to owners non-liability was valid as to
absolve the American Steamship from liability loss?
Held: The Civil Code provision on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent is void only if the strict public policy governing
common carriers is applied. Such policy has no force where the public at large is not involved, as in
the case of a ship totally chartered for the use of a single party.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS,
INC., respondents.

GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea can be considered as a
continuation of the highway. The corollary issue is whether a land transportation company can be
authorized to operate a ferry service or coastwise or interisland shipping service along its authorized
route as an incident to its franchise without the need of filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic
corporation engaged in the land transportation business with PUB service for passengers and freight
and various certificates for public conveniences CPC to operate passenger buses from Metro Manila
to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to
Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V
"Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and

Allen, Samar that will provide service to company buses and freight trucks that have to cross San
Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot
give due course to the request on the basis of the following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and
Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new
operators to Liner trade routes where these are adequately serviced by
existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of additional tonnage;
vessel acquisitions intended for operations therein are necessarily limited to those
intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million
pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it
proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen
and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public
Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its
franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of
continuing the highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and obligation of
transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no
need ... to obtain a separate certificate for public convenience to operate a ferry service between
Allen and Matnog to cater exclusively to its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting
Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the
application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO
from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should
not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are
franchise holders of the ferry service in this area interposed their opposition. They claim they
adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked
the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC
between Pasay City and Tacloban City may still be required to secure another certificate in order to
operate a ferry service between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus
operators to secure a separate CPC to operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a certificate of public convenience is
expected to provide efficient, convenient and adequate service to the riding public.
(Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville
and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the public which
has accepted the service of a public utility operator to demand that the service should be
conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus,
when the bus company in the case at bar proposes to add a ferry service to its Pasay
Tacloban route, it merely does so in the discharge of its duty under its current certificate
of public convenience to provide adequate and convenient service to its riders. Requiring
said bus company to obtain another certificate to operate such ferry service when it
merely forms a part and constitutes an improvement of its existing transportation
service would simply be duplicitous and superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of
its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect
the same in this wise:
Let the original Certificate of public convenience granted to Pantranco South Express
Co., Inc. be amended to embody the grant of authority to operate a private ferry boat
service as one of the conditions for the grant of the certificate subject to the condition that
the ferryboat shall be for the exclusive use of Pantranco buses, its passengers and
freight trucks, and should it offer itself to the public for hire other than its own passengers,
it must apply for a separate certificate of public convenience as a public ferry boat
service, separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration
of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by
the BOT on July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the
issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of
said ferry service. San Pablo raised the following issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE
PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC
SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED
OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT
PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION
OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON ALLEN,
SAMAR EVEN AS THERE MUST BE A FORMAL APPLICATION FOR
AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF
OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG,
SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR
FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR
CONTINUATION OF THE HIGHWAY IT BEING 23 KILOMETERS OF ROUGH
AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTERISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN
FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT
PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER,
NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT
THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF
HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE
FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT
PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF
THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT
APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PREREQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO

ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL

AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING
AUTHORIZATION MAY BE GRANTED UNDER BOT MARINA AGREEMENT OF
AUGUST 10, 1976 AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT
PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE
ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF
TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.)
IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues,
namely:
a. the decision did not conform to the procedures laid down by law for an amendment
of the original certificate of public convenience, and the authority to operate a private
ferry boat service to PANTRANCO was issued without ascertaining the established
essential requisites for such grant, hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service as a private
carrier on said route contravenes existing government policies relative to the
rationalization of operations of all water transport utilities;
c. it contravenes the memorandum of agreement between MARINA and the Board of
Transportation; d. the grant of authority to operate a ferry service as a private carrier
is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a
degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service cnstitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the
respondent Board which would more than amply justify review of the questioned decision
by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a
part of the authority originally granted PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the highway from one side of
the water over which passes to the other side for transportation of passengers or of
travellers with their teams vehicles and such other property as, they may carry or
have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431).
It maybe said to be a necessary service of a specially constructed boat to carry
passengers and property across rivers or bodies of water from a place in one shore

to a point conveniently opposite on the other shore and continuation of the highway
making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac.
N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but
also the use for that purpose of the respective landings with outlets therefrom. (Nole
vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a
private ferry. A public ferry service is one which all the public have the right to resort
to and for which a regular fare is established and the ferryman is a common carrier
be inbound to take an who apply and bound to keep his ferry in operation and good
repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly
for the use of the owner and though he may take pay for ferriage, he does not follow
it as a business. His ferry is not open to the public at its demand and he may or may
not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696),
Harrison, 140 Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed by its
buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through
San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used
exclusively to transport its own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own clientele (passengers on
board- Pantranco buses) and will not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore, Pantranco has the right to
operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog
(Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses,
passengers and freight trucks without the need of applying for a separate certificate
of public convenience or provisional authority. Since its operation is an integral part
of its land transport system, its original certificate of public convenience should be
amended to include the operation of such ferryboat for its own exclusive use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of boats, barges, or rafts, of a
highway or the connection of highways located on the opposite banks of a stream or
other body of water. The term necessarily implies transportation for a short distance,
almost invariably between two points, which is unrelated to other transportation .
(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by the
state or its authorized mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge toll for the use thereof by the
public. In this sense it has also been defined as a privilege, a liberty, to take tolls for
transporting passengers and goods across a lake or stream or some other body of
water, with no essential difference from a bridge franchise except as to the mode of
transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or thoroughfare
across a stream of water or river by boat instead of a bridge." (St. Clare Country v.
Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)
The term ferry is often employed to denote the right or franchise granted by the state
or its authorized mandatories to continue by means of boats, an interrupted land
highway over the interrupting waters and to charge toll for the use thereof by the

public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann.
Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach point across a stream lagoon,
lake, or bay.(U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but in law it
is treated as a franchise, and defined as the exclusive right to carry passengers
across a river, or arm of the sea, from one vill to another, or to connect a continuous
line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.
A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various subordinate
descriptions of waters, where the tide ebbs and flows. It may be a river, harbor,
creek, basin, or bay; and it is sometimes used to designate very extensive reaches of
waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach
C.C. 1093). (2) In an early case the court said: "The distinction between rivers
navigable and not navigable, that is, where the sea does, or does not, ebb and flow,
is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called
arms of the sea, while the latter pass under the denomination of private or inland
rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio &
Carillo and Municipality of Gattaran vs. Elizaga 17 this Court considered as ferry service such water
service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service and coastwise or
interisland service by holding that:
We are not unmindful of the reasons adduced by the Commission in considering the
motorboat service between Calapan and Batangas as ferry; but from our
consideration of the law as it stands, particularly Commonwealth Act No. 146, known
as the Public Service Act and the provisions of the Revised Administrative Code
regarding municipal ferries and those regarding the jurisdiction of the Bureau of
Customs over documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we have the
impression andwe are inclined to believe that the Legislature intended ferry to mean
the service either by barges or rafts, even by motor or steam vessels, between the
banks of a river or stream to continue the highway which is interrupted by the body of
water, or in some cases to connect two points on opposite shores of an arm of the
sea such as bay or lake which does not involve too great a distance or too long a
time to navigate But where the line or service involves crossing the open sea like the
body of water between the province of Batangas and the island of Mindoro which the
oppositors describe thus "the intervening waters between Calapan and Batangas are
wide and dangerous with big waves where small boat barge, or raft are not adapted
to the service," then it is more reasonable to regard said line or service as more
properly belonging to interisland or coastwise trade. According to the finding of the
Commission itself the distance between Calapan is about 24 nautical miles or about
44.5 kilometers. We do not believe that this is the short distance contemplated by the
Legislature in referring to ferries whether within the jurisdiction of a single
municipality or ferries between two municipalities or provinces. If we are to grant that
water transportation between Calapan and Batangas is ferry service, then there

would be no reason for not considering the same service between the different
islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of
Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao,
Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the
coastwise trade, thus:
A ferry service is distinguished from a motorship or motorboat service engaged in the
coastwise trade in that the latter is intended for the transportation of passengers
and/or freight for hire or compensation between ports or places in the Philippines
without definite routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A
boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu,
Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it
may not for that reason be regarded as engaged in ferry service. Again, a vessel of
the Compania Maritima makes the trip from Manila to Tacloban and back, twice a
week. Certainly, it has a definite route. But that service is not ferry service, but rather
interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to consider
steamboat or motorboat service between the different islands, involving more or less
great distance and over more or less turbulent and dangerous waters of the open sea, to
be coastwise or inter-island service. Anyway, whether said service between the different
islands is regarded as ferry service or coastwise trade service, as long as the water craft
used are steamboats, motorboats or motor vessels, the result will be the same as far as
the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the
Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of
Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San
Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance
between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As
the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be
choppy and rough so that it will not be safe to navigate the same by small boats or barges but only
by such steamboats or vessels as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks
and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland
shipping service. Under no circumstance can the sea between Matnog and Allen be considered a
continuation of the highway. While a ferry boat service has been considered as a continuation of the
highway when crossing rivers or even lakes, which are small body of waters - separating the land,
however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it
can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping service in accordance with
the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this
water service under the guise that it is a mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service operation is as a private
carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo

trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the
charges for the bus trips and issues separate tickets whenever they board the MV "Black Double"
that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers
it did so as a private carrier and not as a common carrier. The Court does not see any reason why
inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in
passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to
this effect has been submitted. 21 What is even more difficult to comprehend is that while in one
breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from its obligation as a
common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to
operate a private ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and
interests of its passengers and the cargo owners cannot be allowed.
What appears clear from the record is that at the beginning PANTRANCO planned to operate such
ferry boat service between Matnog and Alien as a common carrier so it requested authority from
MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for
by law for such application for a certificate of public convenience. 23 However when its request was
denied as the said routes "are adequately serviced by existing/authorized operators, 24 it
nevertheless purchased the vessel and started operating the same. Obviously to go about this
obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private
ferryboat service across a small body of water for the exclusive use of its buses, trucks and
passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City
to Tacloban so that it believes it need not secure a separate certificate of public
convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render
an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of
public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a
situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat
service but a coastwise or interisland shipping service. Before private respondent may be issued a
franchise or CPC for the operation of the said service as a common carrier, it must comply with the
usual requirements of filing an application, payment of the fees, publication, adducing evidence at a
hearing and affording the oppositors the opportunity to be heard, among others, as provided by
law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of
Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982
in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed
and set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined
from operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen
until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance
with the requirements of the law, with costs against respondent PANTRANCO.
SO ORDERED.

Epitacio San Pablo v. Pantranco South Express, Inc.

G.R. No. L-61461 August 21, 1987
Gancayco, J.

FACTS:

Pantranco engaged in the land transportation business with PUB service for
passengersand freight and various certificates for public conveniences to operate
passenger busesfrom Metro Manila to Bicol Region and Eastern Samar;
through
its
counsel,
it
wrote
toMaritime Industry Authority (MARINA) requesting authority to lease/purchas
e a vesselnamed M/V Black Double to be used for its project to operate a ferryboat
service fromMatnog, Sorsogon and Allen, Samar that will provide service to company
buses and freighttrucks that have to cross San Bernardo Strait; request was denied by
MARINA

It nevertheless acquired the vessel MV Black Double; it wrote the Chairman of

the Boardof Transportation that it proposes to operate a ferry service to carry its
passenger busesand freight trucks between Allen and Matnog in connection with its
trips to Tacloban Cityfor the purpose of continuing the highway, which is interrupted by a
small body of water,the said proposed ferry operation being merely a necessary and
incidental service to itsmain service and obligation of transporting its passengers; that
being so, it believed thatthere was no need for it to obtain a separate certificate for
public convenience to operatea ferry service Matnog to cater exclusively to its
passenger
buses
and
freight
trucks.
BOTg r a n t e d t h e r e q u e s t . C a r d i n a l S h i p p i n g C o r p o r a t i o n a n d t h e h e i r s
o f S a n P a b l o f i l e d separate motions for reconsideration.
ISSUES:
1. WON a ferry service is an extension of the highway and thus is a part
of theauthority originally granted PANTRANCO; 2. WON a land transportation
company can beauthorized to operate a ferry service or coastwise or interisland
shipping
service
along
itsa u t h o r i z e d r o u t e a s a n i n c i d e n t t o i t s
f r a n c h i s e w i t h o u t t h e n e e d o f f i l i n g a s e p a r a t e application for the same
HELD:
1. No.

ferry
- continuation by means of boats, barges, or rafts, of a highway or the connection
of highways located on the opposite banks of a stream or other body of water.
The
termnecessarily implies transportation for a short distance, almost invariably
between twopoints, which is unrelated to other transportation

ferry service
- service either by barges or rafts, even by motor or steam vessels, betweenthe banks
of a river or stream to continue the highway which is interrupted by the body of water,
or in some cases to connect two points on opposite shores of an arm of the
seas u c h a s b a y o r l a k e w h i c h d o e s n o t i n v o l v e t o o g r e a t a d i s t a n c e
o r t o o l o n g a t i m e t o navigate

coastwise
or
interisland service
- service which involves crossing the open sea

motorship
,
steamboat
or
motorboat service
( e n g a g e d i n t h e c o a s t w i s e t r a d e ) service between the different islands,
involving more or less great distance and over moreor less turbulent and dangerous
waters of the open sea, to be coastwise or inter-island service; considered coastwise
or inter-island service

conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a
ferryboat service but a coastwise or interisland shipping service. Under no circumstance
canthe sea between Matnog and Allen be considered a continuation of the highway.
While aferry boat service has been considered as a continuation of the
highway when crossingrivers or even lakes, which are small body of waters separating the land, however, whenas in this case the two terminals, Matnog and Allen
are separated by an open sea it cannot be considered as a continuation of the highway.
PANTRANCO
should
secure
a
separateC P C f o r t h e o p e r a t i o n o f a n i n t e r i s l a n d o r c o a s t w i s
e s h i p p i n g . I t s C P C a s a b u s transportation
cannot
be
merely
amended to include this water service under the guise that it is a mere private
ferry service.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 114222 April 6, 1995

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

QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit
System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus
B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications
(DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized
under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass
transit system along EDSA and alleviate the congestion and growing transportation problem in the
metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by
Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a BuildOperate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project
with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other
Purposes," was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer
(BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or
Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway,
DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the
Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the
financing and implementation of the project The notice, advertising the prequalification of bidders,
was published in three newspapers of general circulation once a week for three consecutive weeks
starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended
to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell
Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan,
and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser
Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD

Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial
Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed
by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as
follows: (a) Legal aspects 10 percent; (b) Management/Organizational capability 30 percent;
and (c) Financial capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring
that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at
least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of
at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT
contractor-applicant meet the requirements specified in the Constitution and other pertinent laws
(Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President
Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award of
the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for
authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the
Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to
the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted
its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA
LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law
(Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested
approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in
compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only
mode to award BOT projects, and the prequalification proceedings was not the public bidding
contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT
Law which authorized negotiated award of contract in addition to public bidding was of doubtful
legality; and (4) that congressional approval of the list of priority projects under the BOT or BT
Scheme provided in the law had not yet been granted at the time the contract was awarded (Rollo,
pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents renegotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78)
inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the

Agreement without need of approval by the President pursuant to the provisions of Executive Order
No. 380 and that certain events [had] supervened since November 7, 1991 which necessitate[d] the
revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration
and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said
Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak
Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150
million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III
will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from
F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility
(Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger
stations and one depot in 16-hectare government property at North Avenue (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target
completion date is 1,080 days or approximately three years from the implementation date of the
contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental
Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private
respondent shall deliver the use and possession of the completed portion to DOTC which shall
operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec.
5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an
Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally
accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo,
pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be
paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and
Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed
payment of the rentals, ownership of the project shall be transferred to the latter for a consideration
of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957,
Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the
President. The law was published in two newspapers of general circulation on May 12, 1994, and
took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and
allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE
SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA
LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF

EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE,
IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS
IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING
RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A.
NO. 6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT
CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR
FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT
Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent;
(5) The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of
award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into
by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the
same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is
limited by the Constitution to Filipino citizens and domestic corporations, not foreign
corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the
BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects
under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and
existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the
EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for
the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT
III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a

public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . .
(Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the rights
of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point
to another point, their loading and unloading at designated places and the movement of the trains at
pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7
A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d
868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may
not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning
them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec.
3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion
date, private respondent will immediately deliver possession of the LRT system by way of lease for
25 years, during which period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated
Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of
providing (1) repair and maintenance facilities for the depot and rail lines, services for routine
clearing and security; and (2) producing and distributing maintenance manuals and drawings for the
entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash
from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel

of DOTC will work under the direction and control of private respondent only during training (Revised
and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that
upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall
have in their employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue operation, DOTC shall be able to
operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing cost,
plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from
any losses, damages, injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account
of the defective condition of equipment or facilities or the defective maintenance of such equipment
facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It
will have no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between
PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint
venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain
a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the
same. Upon due examination of the contract, the Court found that PGMC's participation was not
confined to the construction and setting up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the
highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to
PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are
owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984,
987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of authorization for
that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized
in the BOT Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme A contractual arrangement whereby the

contractor undertakes the construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor operates the
facility over a fixed term during which it is allowed to charge facility users appropriate
tolls, fees, rentals and charges sufficient to enable the contractor to recover its
operating and maintenance expenses and its investment in the project plus a
reasonable rate of return thereon. The contractor transfers the facility to the
government agency or local government unit concerned at the end of the fixed term
which shall not exceed fifty (50) years. For the construction stage, the contractor may
obtain financing from foreign and/or domestic sources and/or engage the services of
a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of
the contractor of an infrastructure facility whose operation requires a public utility
franchise must be in accordance with the Constitution: Provided, however, That in
the case of corporate investors in the build-operate-and-transfer corporation, the
citizenship of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in the
case of foreign constructors [sic], Filipino labor shall be employed or hired in the
different phases of the construction where Filipino skills are available: Provided,
furthermore, that the financing of a foreign or foreign-controlled contractor from
Philippine government financing institutions shall not exceed twenty percent (20%) of
the total cost of the infrastructure facility or project: Provided, finally, That financing
from foreign sources shall not require a guarantee by the Government or by
government-owned or controlled corporations. The build-operate-and-transfer
scheme shall include a supply-and-operate situation which is a contractual
agreement whereby the supplier of equipment and machinery for a given
infrastructure facility, if the interest of the Government so requires, operates the
facility providing in the process technology transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and
its turnover after completion to the government agency or local government unit
concerned which shall pay the contractor its total investment expended on the
project, plus a reasonable rate of return thereon. This arrangement may be employed
in the construction of any infrastructure project including critical facilities which for
security or strategic reasons, must be operated directly by the government
(Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing in infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus
a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers
the ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec.
6).

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility. No
such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for
the payment by the government of the project cost. The law must not be read in such a way as to
rule out or unduly restrict any variation within the context of the two schemes. Indeed, no statute can
be enacted to anticipate and provide all the fine points and details for the multifarious and complex
situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA
1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made
lighter by allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly
basis according to a schedule of rates through and under the terms of a confirmed Irrevocable
Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years
and when full payment shall have been made to and received by private respondent, it shall transfer
to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only
U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo,
pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use
of a thing for a certain price and for a period which may be definite or indefinite but not longer than
99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the
lease period. But if the parties stipulate that title to the leased premises shall be transferred to the
lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a
lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the
National Economic and Development Authority as falling under the Investment Priorities Plan of
Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act
(R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provisions
purports to give the obligee the right to require payment in gold or in a particular kind
of coin or currency other than Philippine currency or in an amount of money of the
Philippines measured thereby, be as it is hereby declared against public policy, and
null, void, and of no effect, and no such provision shall be contained in, or made with
respect to, any obligation hereafter incurred. The above prohibition shall not apply to
(a) . . .; (b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National

Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does
not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls,
amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international
public bidding where qualified internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was
left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant
will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:
Bidding. Construction projects shall generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and the President of the
Philippines, upon recommendation of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general
law on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects.
The two laws are not inconsistent with each other but are inpari materia and should be read together
accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why
none of the competing firms ever brought the matter before the PBAC, or intervened in this case
before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992];
Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract

from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the circumstances, to require the parties to go back
to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red
tape" should be eschewed because it discourages private sector participation, the "main engine" for
national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project
proponent is authorized to finance and construct an infrastructure or development
facility and upon its completion turns it over to the government agency or local
government unit concerned on a lease arrangement for a fixed period after which
ownership of the facility is automatically transferred to the government unit
concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there
is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it
meets the prequalification requirements, after which it is required to submit a bid
proposal which is subsequently found by the agency/local government unit (LGU) to
be complying.
(b) If, after advertisement, more than one contractor applied for prequalification but
only one meets the prequalification requirements, after which it submits bid/proposal
which is found by the agency/local government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which
is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is
found by the agency/LGU to be complying. Provided, That, any of the disqualified
prospective bidder [sic] may appeal the decision of the implementing agency,
agency/LGUs prequalification bids and awards committee within fifteen (15) working
days to the head of the agency, in case of national projects or to the Department of
the Interior and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder: Provided, furthermore,
That the implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by
the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law
authorizes all government infrastructure agencies, government-owned and controlled corporations
and local government units to enter into contract with any duly prequalified proponent for the
financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-addoperate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein
(Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a
climate of minimum government regulations and procedures and specific government undertakings
in support of the private sector" (Sec. 1). A curative statute makes valid that which before enactment
of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent
and DOTC may have engendered and committed in entering into the questioned contracts, these
have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of
Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng
Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most productive years of the
project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a
period of 25 years, exclusive rights over the depot and the air space above the stations for
development into commercial premises for lease, sublease, transfer, or advertising (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private
respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the
amounts set forth in the Supplemental Agreement (Sec. 11;Rollo, p. 93). In the event that DOTC
shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls
from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental
Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination
by the proper administrative agencies and officials who have acquired expertise, specialized skills
and knowledge in the performance of their functions should be accorded respect absent any
showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190
SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable
rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is
better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In
all cases where a party enters into a contract with the government, he does so, not out of charity and
not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems
as well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in

particular that has the power, authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED

Francisco Tatad, John Osmea and Rodolfo Biazon v. Jesus Garcia,

Jr. (DOTC Sec.),EDSA LRT Corp. Ltd.
G.R. No. 114222 April 6, 1995
Quiason, J.
FACTS:

DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare
inMetropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong
andMakati

RA No. 6957 entitled An Act Authorizing the Financing, Construction,

Operation andMaintenance of Infrastructure Projects by the Private Sector, and For
Other Purposes
orB O T L a w p r o v i d e d f o r t w o s c h e m e s f o r t h e f i n a n c i n g , c o n s t r u c t i o n
a n d o p e r a t i o n o f government projects through private initiative and investm
ent: Build-Operate-Transfer(BOT) or Build-Transfer (BT)

Prequalification Bids and Awards Committee (PBAC) and the Technical

Committee werecreated by the DOTC in relation to EDSA Light Rail Transit III project

only the EDSA LRT Consortium (later called EDSA LRT Corpor
a t i o n , L t d . ) m e t t h e requirements of PBAC

DOTC requested presidential approval of the contract but then Exe. Sec. Drilon
conveyedthat the Pres. could not sign the same. So DOTC and private respondents renegotiated theagreement.

The agreement provided inter alia that upon full or partial completion and viability
thereof,private respondent shall deliver the use and possession of the completed
portion to DOTCwhich shall operate the same.

RA No. 7718 amended RA No. 6957; it expressly provides for BLT scheme
and allowsdirect negotiation of BLT contracts
ISSUE:
WON EDSA LRT Corp., Ltd., a foreign corporation can own EDSA LRT III, a
publicutility
HELD:

Yes.

What private respondent owns are the rail tracks, rolling stocks like the
coaches, railstations, terminals and the power plant, not a public utility. While a
franchise is needed tooperate these facilities to serve the public, they do not by
themselves constitute a publicutility. What constitutes a public utility is not their
ownership but their use to serve the public.

Sec. 11, Art. XII of the Const.: No franchise, certificate or any other form of
authorizationfor the operation of a public utility shall be granted except to citizens of the
Philippines orto corporations or associations organized under the laws of the Philippines
at least sixtyper centum of whose capital is owned by such citizens, nor shall such
franchise, certificateor authorization be exclusive character or for a longer period than
fifty years.

there is a distinction between the operation of a public utility and the ownership of
thefacilities and equipment used to serve the public

ownership
- a relation in law by virtue of which a thing pertaining to one person
i s completely subjected to his will in everything not prohibited by law or the
concurrencewith the rights of another

operation of a rail system as a public utility includes the transportation of

passengersfrom one point to another point, their loading and unloading at designated
places and themovement of the trains at pre-scheduled times

right to operate a public utility may exist independently and s

e p a r a t e l y f r o m t h e ownership of the facilities thereof. One can own said facilities
without operating them as apublic utility, or conversely, one may operate a public utility
without owning the facilitiesused to serve the public

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND

REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE

PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
Jose F. Miravite for movants.

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to the
general public. They are enterprises which specially cater to the needs of the public and conduce to
their comfort and convenience. As such, public utility services are impressed with public interest and
concern. The same is true with respect to the business of common carrier which holds such a
peculiar relation to the public interest that there is superinduced upon it the right of public regulation
when private properties are affected with public interest, hence, they cease to be juris privati only.
When, therefore, one devotes his property to a use in which the public has an interest, he, in effect
grants to the public an interest in that use, and must submit to the control by the public for the
common good, to the extent of the interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions as the instant
petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is
inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda,
circulars and/or orders of the Department of Transportation and Communications (DOTC) and the
Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize
provincial bus and jeepney operators to increase or decrease the prescribed transportation fares
without application therefor with the LTFRB and without hearing and approval thereof by said agency
in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public
Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by
delegating that function to bus operators, and (b) establish a presumption of public need in favor of
applicants for certificates of public convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA
146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and
reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden
to prove his own affirmative allegations. 3 The offending provisions contained in the questioned
issuances pointed out by petitioner, have resulted in the introduction into our highways and
thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven,
and have exposed our consumers to the burden of spiraling costs of public transportation without
hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant
petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the
implementation of a fare range scheme for provincial bus services in the country; (b) DOTC
Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services;
(c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement
Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing

implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated
March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge
passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of
one (1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the
priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987
1992) is the liberalization of regulations in the transport sector. Along this line, the
Government intends to move away gradually from regulatory policies and make
progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging
passenger rates above and below the official fare declared by LTFRB on many
provincial routes. It is in this context that some form of liberalization on public
transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range
scheme for all provincial bus routes in country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official
rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in
coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando
submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which
the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a
fare range scheme for all provincial bus routes in the country (except those operating
within Metro Manila)" that will allow operators "to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official
rate for a period of one year" the undersigned is respectfully adverting the
Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for
the fixing and determination of rates (a) the rates to be approved
should be proposed by public service operators; (b) there should be a
publication and notice to concerned or affected parties in the territory
affected; (c) a public hearing should be held for the fixing of the rates;
hence, implementation of the proposed fare range scheme on August

6 without complying with the requirements of the Public Service Act

may not be legally feasible.
2. To allow bus operators in the country to charge fares fifteen (15%)
above the present LTFRB fares in the wake of the devastation, death
and suffering caused by the July 16 earthquake will not be socially
warranted and will be politically unsound; most likely public criticism
against the DOTC and the LTFRB will be triggered by the
untimely motu propioimplementation of the proposal by the mere
expedient of publicizing the fare range scheme without calling a
public hearing, which scheme many as early as during the
Secretary's predecessor know through newspaper reports and
columnists' comments to be Asian Development Bank and World
Bank inspired.
3. More than inducing a reduction in bus fares by fifteen percent
(15%) the implementation of the proposal will instead trigger an
upward adjustment in bus fares by fifteen percent (15%) at a time
when hundreds of thousands of people in Central and Northern
Luzon, particularly in Central Pangasinan, La Union, Baguio City,
Nueva Ecija, and the Cagayan Valley are suffering from the
devastation and havoc caused by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies involved in
public transportation can consider measures and reforms in the
industry that will be socially uplifting, especially for the people in the
areas devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that
the implementation of the proposed fare range scheme this year be further studied
and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines,
Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a
half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare
range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the
said minimum-maximum fare range applying only to ordinary, first class and premium class buses
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an acrossthe-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The
decrease was due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista
alleging that the proposed rates were exorbitant and unreasonable and that the application
contained no allegation on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate
increase in accordance with the following schedule of fares on a straight computation method, viz:
AUTHORIZED FARES

LUZON
MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37

STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete
Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of the said
order is reproduced below in view of the importance of the provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of
Transportation and Communications (DOTC) as the primary policy, planning,
regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable
transportation system, the transportation regulatory agencies under or attached to
the DOTC have to harmonize their decisions and adopt a common philosophy and
direction;
WHEREAS, the government proposes to build on the successful liberalization
measures pursued over the last five years and bring the transport sector nearer to a
balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the
following policies and principles in the economic regulation of land, air, and water
transportation services are hereby adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against
monopoly, no franchise holder shall be permitted to maintain a monopoly on any
route. A minimum of two franchise holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public
convenience, shall be: proof of Filipino citizenship, financial capability, public need,
and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in
favor of the applicant. The burden of proving that there is no need for a proposed
service shall be with the oppositor(s).
In the interest of providing efficient public transport services, the use of the "prior
operator" and the "priority of filing" rules shall be discontinued. The route measured
capacity test or other similar tests of demand for vehicle/vessel fleet on any route
shall be used only as a guide in weighing the merits of each franchise application
and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban
areas, or at airports and ports, the use of demand management measures in
conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business decision,
subject only to the filing of appropriate notice and following a phase-out period, to
inform the public and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government
controls. Passenger fares shall also be deregulated, except for the lowest class of
passenger service (normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of particular services may
fix their own fares within a range 15% above and below the indicative or reference
rate.
Where there is lack of effective competition for services, or on specific routes, or for
the transport of particular commodities, maximum mandatory freight rates or
passenger fares shall be set temporarily by the government pending actions to
increase the level of competition.
For unserved or single operator routes, the government shall contract such services
in the most advantageous terms to the public and the government, following public
bids for the services. The advisability of bidding out the services or using other kinds
of incentives on such routes shall be studied by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the
government shall not engage in special financing and incentive programs, including
direct subsidies for fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be considered. Existing
programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics
Board, the Maritime Industry Authority are hereby directed to submit to the Office of
the Secretary, within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set forth. In the formulation
of such rules, the concerned agencies shall be guided by the most recent studies on
the subjects, such as the Provincial Road Passenger Transport Study, the Civil
Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping
Industry, and the Inter-island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and

Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB
suggesting swift action on the adoption of rules and procedures to implement above-quoted
Department Order No. 92-587 that laid down deregulation and other liberalization policies for the
transport sector. Attached to the said memorandum was a revised draft of the required rules and
procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from
the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration Loan from the World
Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92587. The Circular provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public
need. The presumption of public need for a service shall be deemed in favor of the
applicant, while burden of proving that there is no need for the proposed service
shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition
complementary with the quality of service, subject to prior notice and public hearing.
Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for
provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with
the authorized fare to be replaced by an indicative or reference rate as the basis for
the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier
services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the
DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare
without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were
to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward
adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of
merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the
parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the aboveentitled case. This petition in this case was resolved with dispatch at the request of
petitioner to enable it to immediately avail of the legal remedies or options it is
entitled under existing laws.
SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining
order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and
preventing respondents from implementing the bus fare rate increase as well as the questioned
orders and memorandum circulars. This meant that provincial bus fares were rolled back to the
levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on
the issuance of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB
to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased
to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized
fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second,
the establishment of a presumption of public need in favor of an applicant for a proposed transport
service without having to prove public necessity, is illegal for being violative of the Public Service Act
and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by
the petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts
that the petitioner has no legal standing to sue or has no real interest in the case at bench and in
obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary
Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to
maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare
range scheme and establish a presumption of public need in applications for certificates of public
convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to
sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII
of the Constitution provides:
xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending
between parties who have the right to sue in the courts of law and equity. Corollary to this provision
is the principle of locus standiof a party litigant. One who is directly affected by and whose interest is
immediate and substantial in the controversy has the standing to sue. The rule therefore requires
that a party must show a personal stake in the outcome of the case or an injury to himself that can
be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to
justify the exercise of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and
irreparable injury and damage from the implementation of the questioned memoranda, circulars
and/or orders, has shown that it has a clear legal right that was violated and continues to be violated
with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who
avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost
of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise
the riding public. Certainly, their rights must be protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to
brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view
of the transcendental importance of the issues raised. And this act of liberality is not without judicial
precedent. As early as theEmergency Powers Cases, this Court had exercised its discretion and
waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto
Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the
same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in
the exercise of its discretion, set aside in view of the importance of the issues raised.
In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan);
G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055
(Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v.
Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as
taxpayers' suits are concerned, this Court had declared that it "is not devoid of
discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43
SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before
this court to question the constitutionality or validity of laws, acts, decisions, rulings,
or orders of various government agencies or instrumentalities. Among such cases
were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows

retirement gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of Congress (Philippine
Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order
No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant secretaries to hold
other government offices or positions (Civil Liberties Union v. Executive Secretary,
194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A.
No. 7056 on the holding of desynchronized elections (Osmea v. Commission on
Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is contrary to morals,
public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197
SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include
those attacking the validity or legality of (a) an order allowing the importation of rice
in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn
Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and
1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031
insofar as it directed the COMELEC to supervise, control, hold, and conduct the
referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on
Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the
approval without hearing by the Board of Investments of the amended application of
the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to
Batangas and the validity of such transfer and the shift of feedstock from naphtha
only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the
decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the
Fiscal Incentives Review Board exempting the National Power Corporation from
indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of
the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199
SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95
per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219
[1992]); (h) resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of Sanggunians (De
Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum
orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and
Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this
Court, despite its unequivocal ruling that the petitioners therein had no personality to
file the petition, resolved nevertheless to pass upon the issues raised because of the
far-reaching implications of the petition. We did no less in De Guia v. COMELEC
(Supra) where, although we declared that De Guia "does not appear to have locus
standi, a standing in law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue involved, concerning as
it does the political exercise of qualified voters affected by the apportionment, and

petitioner alleging abuse of discretion and violation of the Constitution by

respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. The
Commission shall have power, upon proper notice and hearing in accordance with
the rules and provisions of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or
schedules thereof, as well as commutation, mileage kilometrage, and other special
rates which shall be imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion, approve rates
proposed by public services provisionally and without necessity of any hearing; but it
shall call a hearing thereon within thirty days thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided, further, That in case the
public service equipment of an operator is used principally or secondarily for the
promotion of a private business, the net profits of said private business shall be
considered in relation with the public service of such operator for the purpose of
fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service
Commission the power of fixing the rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under Executive Order No. 202 dated
June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine,
prescribe, approve and periodically review and adjust, reasonable fares, rates and other
related charges, relative to the operation of public land transportation services provided by
motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the
difficulty of administering the laws. Hence, specialization even in legislation has become necessary.
Given the task of determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted
with the power of subordinate legislation. With this authority, an administrative body and in this case,
the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the
Legislature may neither have time or competence to provide. However, nowhere under the aforesaid
provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that
power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare
range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an

undue delegation of legislative authority. Potestas delegata non delegari potest. What has been
delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated
power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another. 10 A further
delegation of such power would indeed constitute a negation of the duty in violation of the trust
reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincial bus
operators to change and increase their fares at will would result not only to a chaotic situation but to
an anarchic state of affairs. This would leave the riding public at the mercy of transport operators
who may increase fares every hour, every day, every month or every year, whenever it pleases them
or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway
Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the
authority to change its freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate
to the Philippine Railway Co. the power of altering its freight rates whenever it should
find it necessary to do so in order to meet the competition of road trucks and
autobuses, or to change its freight rates at will, or to regard its present rates as
maximum rates, and to fix lower rates whenever in the opinion of the Philippine
Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is
enough to show that it is untenable. The Legislature has delegated to the Public
Service Commission the power of fixing the rates of public services, but it has not
authorized the Public Service Commission to delegate that power to a common
carrier or other public service. The rates of public services like the Philippine Railway
Co. have been approved or fixed by the Public Service Commission, and any change
in such rates must be authorized or approved by the Public Service Commission
after they have been shown to be just and reasonable. The public service may, of
course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but
it cannot lawfully make said new rates effective without the approval of the Public
Service Commission, and the Public Service Commission itself cannot authorize a
public service to enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they are submitted to it,
if the evidence shows them to be just and reasonable, otherwise it must disapprove
them. Clearly, the commission cannot determine in advance whether or not the new
rates of the Philippine Railway Co. will be just and reasonable, because it does not
know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its
freight rates at will. It may change them every day or every hour, whenever it deems it
necessary to do so in order to meet competition or whenever in its opinion it would be to
its advantage. Such a procedure would create a most unsatisfactory state of affairs and
largely defeat the purposes of the public service law. 13 (Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport
operators will be authorized to impose and collect an additional amount equivalent to 20% over and
above the authorized fare over a period of time, this will unduly prejudice a commuter who will be
made to pay a fare that has been computed in a manner similar to those of compounded bank
interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to
collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they
were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus

P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos)
is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five
(P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would
have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their
authority to impose an additional 20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is
P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but
to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the
pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the
authorized fare range. Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government
function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a
just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact,
have to be taken into consideration before a balance could be achieved. A rate should not be
confiscatory as would place an operator in a situation where he will continue to operate at a loss.
Hence, the rate should enable public utilities to generate revenues sufficient to cover operational
costs and provide reasonable return on the investments. On the other hand, a rate which is too high
becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and
fair and must be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions
of commuters, government must not relinquish this important function in favor of those who would
benefit and profit from the industry. Neither should the requisite notice and hearing be done away
with. The people, represented by reputable oppositors, deserve to be given full opportunity to be
heard in their opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party, an
interested party at that, to determine what the rate should be, will undermine the right of the other
parties to due process. The purpose of a hearing is precisely to determine what a just and
reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation
of land transportation services for public use as required by law. Pursuant to Section 16(a) of the
Public Service Act, as amended, the following requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or copartnership, association or joint-stock company constituted and organized under the laws of the
Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of
the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and

meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner. It is understood that there must be proper notice and
hearing before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum
Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the
issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public
need. The presumption of public need for a service shall be deemed in favor of the
applicant, while the burden of proving that there is no need for the proposed service
shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the
Public Service Act which requires that before a CPC will be issued, the applicant must prove by
proper notice and hearing that the operation of the public service proposed will promote public
interest in a proper and suitable manner. On the contrary, the policy guideline states that the
presumption of public need for a public service shall be deemed in favor of the applicant. In case of
conflict between a statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the
public need. 16 As one of the basic requirements for the grant of a CPC, public convenience and
necessity exists when the proposed facility or service meets a reasonable want of the public and
supply a need which the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be
established by evidence, real and/or testimonial; empirical data; statistics and such other means
necessary, in a public hearing conducted for that purpose. The object and purpose of such
procedure, among other things, is to look out for, and protect, the interests of both the public and the
existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress
hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience
of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that
fact alone must be consistently borne in mind. Also, existing operators in subject routes must be
given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all
times, be required to prove his capacity and capability to furnish the service which he has
undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates
the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending
provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court
by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131,
Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as
only this Court is mandated by law to promulgate rules concerning pleading, practice and
procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given
the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount

to an abdication by the government of its inherent right to exercise police power, that is, the right of
government to regulate public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to
regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC
Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department
Order No. 92-587, the said administrative issuances being amendatory and violative of the Public
Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare
increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a
public hearing is null and void and of no force and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum
dated October 8, 1992, the same being merely internal communications between administrative
officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB
Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to
provincial bus and jeepney operators the authority to increase or decrease the duly prescribed
transportation fares; and (b) creating a presumption of public need for a service in favor of the
applicant for a certificate of public convenience and placing the burden of proving that there is no
need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar
as it enjoined the bus fare rate increase granted under the provisions of the aforementioned
administrative circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.

KMU Labor Center vs. Garcia Case Digest

KMU Labor Center vs. Garcia (239 SCRA 386)
Facts: On June 26,1990, Secretary of DOTC, Oscar M. Orbos issued memorandum circular No. 90395 to then LTFRB, Chairman Remedios A.S. Fernando allowing provincial buses operators to
charge passengers within a range of 15% above and 15% below, the LTFRB official rate for a period
of one (1) year. On December 5, 1990 private respondent PBOAP filed an application for fare rate
increase to P0.085 and again it was reduced to P0.065 per kilometer rate. The application was
opposed by the Philippine Consumer Foundation Inc. that the proposed rate were exorbitant and
unreasonable and that the application contained no allegation on the rate o return on December 14,
1990. Public respondent LTFRB granted the fare rate increase on March 16, 1994. Petitioner KMU
filed a petition before the LTFRB opposing the upward adjustment of bus fares, it was dismissed for
lack of merit, hence this petition.
Issue: Whether or not the Provincial Bus Operators has the power to reduce and increase fare rated
based on the circular order issued by the LTFRB?

Held: Supreme Court held that the authority given by the LTFRB to the provincial bus operators to
set a fare range over and above the authorized existing fare is illegal and invalid as it is tantamount
to an undue delegation of legislative authority, Potestas delegata non delegari protest what has
been delegated further delegation of such power would indeed constitute a negation of the duty in
violation of the trust reposed in the delegate inandated to discharged it directly. Furthermore rate
fixing or making is a delicate and sensitive government function that requires dexterity of judgment
and sound discretion with the settle goal at arriving at a just and reasonable rate acceptable to both
public utility and the public.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:

+.wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the
defendants, now appellants, under the bill of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by,
the consignee at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup

whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of
discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods
were to be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus:
t.hqw

if goods are to be transshipped at port of discharge, show destination under the column
for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents":
t.hqw

PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means:
t.hqw

to transfer for further transportation from one ship or conveyance to another

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit:
t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)
and in Section 11 of the same Bill, which provides:

t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the goods
are placed at carrier's disposal at or consigned to a point where the ship does not expect
to load or discharge, the carrier or master may, without notice, forward the whole or any
part of the goods before or after loading at the original port of shipment, ... This carrier, in

making arrangements for any transshipping or forwarding vessels or means of

transportation not operated by this carrier shall be considered solely the forwarding agent
of the shipper and without any other responsibility whatsoever even though the freight for
the whole transport has been collected by him. ... Pending or during forwarding or
transshipping the carrier may store the goods ashore or afloat solely as agent of the
shipper and at risk and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom
the goods are entrusted or delivered for storage, handling or any service incidental
thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge
from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier
from liability for loss or damage to the goods when the same are not in its actual custody has been
upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674
(1968). Said case matches the present controversy not only as to the material facts but more
importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides:
t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with
all transshipping or forwarding of the goods or the use of any means of transportation or
forwarding of goods not used or operated by the carrier, shall be considered solely the
agent of the shipper and consignee and without any other responsibility whatsoever or for
the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public
policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the
aforecited case, the Court concluded that:
t.hqw

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge
of the cargo is Manila, but that the same was to be transshipped beyond the port of
discharge to Davao City. Pursuant to the terms of the long form Bill of Lading
( ), appellee's responsibility as a common carrier ceased the moment the goods were
unloaded in Manila and in the matter of transshipment, appellee acted merely as an
agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws. 16A careful perusal of the provisions of the New Civil Code
on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which
reads:
t.hqw

Article 1736. The extraordinary responsibility of the common carrier 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, without
prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus:

t.hqw

Article 1738. The extraordinary liability of the common carrier continues to be

operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved
of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same
by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is
actual delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the
goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is
FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE
TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of
the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from that of carrier to that
of agent of the consignee. Thus, the character of appellant's possession also changes, from
possession in its own name as carrier, into possession in the name of consignee as the latter's
agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as
carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from
that point onwards. This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency,

was not fully performed. However, appellant had commenced said performance, the completion of
which was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21 This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent:
t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby
DISMISSED.
No costs.
SO ORDERED.

1wph1.t

G.R. No. L-28673 October 23, 1984

Lessons Applicable: Bill of Lading (Transportation)
Laws Applicable: Article 1736, Article 1738,Article 1884,Article 1889,Article

1892,Article 1909

FACTS:

Samar Mining Company, Inc. imported1 crate of welded wedge wire

sieves shipped through Nordeutscher Lloyd

Bill of Lading No. 18:

transshipped at port of discharge: davao

Section 1, paragraph 3 of Bill of Lading No. 18

The carrier shall not be liable in any capacity

whatsoever for any delay, loss or damage occurring before the goods
enter ship's tackle to be loaded or after the goods leave ship's tackle to
be discharged, transshipped or forwarded ...

Section 11:

Whenever the carrier or m aster may deem it

advisable or in any case where the goods are placed at carrier's disposal
at or consigned to a point where the ship does not expect to load or
discharge, the carrier or master may, without notice, forward the whole
or any part of the goods before or after loading at the original port of
shipment, ... This carrier, in making arrangements for any transshipping
or forwarding vessels or means of transportation not operated by this
carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for
the whole transport has been collected by him. ... Pending or during
forwarding or transshipping the carrier may store the goods ashore or
afloat solely as agent of the shipper and at risk and expense of the goods
and the carrier shall not be liable for detention nor responsible for the
acts, neglect, delay or failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or any service incidental
thereto

When the goods arrived in the port of Davao, it was delivered in good order
and condition to the bonded warehouse of AMCYL but it was not delivered
and received by Samar Mining Company, Inc.

Samar filed a claim against Nordeutscher and C.F. Sharp who brought
in AMCYL as third party defendant

RTC: favored Samar

Nordeutscher and C.F. Sharp laible but may enforce judgment

against AMCYL
ISSUE: W/N the stipulations in bills of lading exempting the carrier from
liability for loss or damage to the goods when the same are not in its actual
custody is valid

HELD: YES. Reversed

Article 1736.

The extraordinary responsibility of the common carrier 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, without prejudice to the provisions of article 1738. - applicable

Article 1738.
The extraordinary liability of the common carrier continues to
be operative even during the time the goods are stored in a warehouse of the
carrier at the place of destination, until the consignee has been advised of the
arrival of the goods and has had reasonable opportunity thereafter to remove them
or otherwise dispose of them. - no applicable since article contemplates a

situation where the goods had already reached their place of destination
and are stored in the warehouse of the carrier
Article 1884.
The agent is bound by his acceptance to carry out
the agency, and is liable for the damages which, through his nonperformance, the principal may suffer.
Article 1889.
The agent shall be liable for damages if, there being
a conflict between his interests and those of the principal, he should
prefer his own.
Article 1892.
The agent may appoint a substitute if the principal
has not prohibited him from doing so; but he shall be responsible for the
acts of the substitute:
(1)

When he was not given the power to appoint one;

(2) When he was given such power but without designating the person
and the person appointed was notoriously incompetent or insolvent
Article 1909.
The agent is responsible not only for fraud, but also
for negligence which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation.
The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines. Neither
is there any showing of notorious incompetence or insolvency on the part
of AMCYT, which acted as appellant's substitute in storing the goods
awaiting transshipment

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION,respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD.,respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for
US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship
and cargo. The respective respondent Insurers paid the corresponding marine insurance values to
the consignees concerned and were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the
ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
(COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lowernumbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein, being
the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest
on the trial of another action to which he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were
transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by
the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8 Common carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man or
by human means. 10 It does not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or
privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases of 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 protection policy towards
agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735
of the Civil Code provides that all cases than those mention 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 deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in
hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea
water: that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the occurrence of fire at hatches
numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence
made by the crew, on orders, in the care of the cargoes. What appears is that after the
cargoes were stored in the hatches, no regular inspection was made as to their condition
during the voyage. Consequently, the crew could not have even explain what could have
caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew to prevent the occurrence of
the fire. The defendant, as a common carrier, is liable to the consignees for said lack of
deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the circumstances under which the
fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent

in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in
section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in bill of lading. This declaration if
embodied in the bill of lading shall be prima facie evidence, but all be conclusive on
the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration
of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it
and as much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1
7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a
higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case
"more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:
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 liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp.
at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there
is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,

whether or not forseeable by the COGSA promulgators, do not

warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages at least where, as here,
they were carrier owned and supplied would amount to just such a
distortion.
Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into
cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package
Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that
they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers
if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the
following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill
of Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to
do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.

Eastern Shipping Lines Inc. VS IAC Case Digest

Eastern Shipping Lines Inc. VS. Intermediate Appellate Court
(150 SCRA 463)
Facts: Sometime in or prior to June 1977, the M/S Asiatica, a vessel operated by petitioner Eastern
Shipping Lines Inc., loaded at Kobe, Japan for transportation to Manila loaded 5,000 pieces of
calorized pipes valued at P256,039.00 which was consigned to Philippine Blooming Mills Co, Inc.
and 7 cases of spare parts valued at P92, 361.75 consigned to Central Textile Mills. Both sets of
goods were inured against marine risk for their stated value with respondent Development Insurance
and Surety Corp.
In the same vessel, 2 containers of garment fabrics were also loaded which was consigned to
Mariveles Apparel Corp worth $46,583. The said cargoes were consigned to Nisshin Fire and Marine
Insurance. Another cargo loaded to the vessel was the surveying instruments consigned to Aman
Enterprises and General Merchandise and insured against respondent Dowa Fire & Marine
Insurance for $1,385.00.
On the way to Manila, M/S Asiatica caught fire and sank. This resulted to the loss of the ship and its
cargoes. The respective Insurers paid the corresponding marine insurance values and were thus
subrogated to the rights of the insured.
The insurers filed a suit against the petitioner carrier for recovery of the amounts paid to the insured.
However, petitioner contends that it is not liable on the ground that the loss was due to an
extraordinary fortuitous event.

Issue: Whether the Civil Code provisions on Common Carriers or the Carriage of the Goods by Sea
Act will govern the case at bar?
Held: The law of the country to which the goods are to be transported governs the liability of
common carrier in case of their loss, destruction or deterioration. The liability of petitioner is
governed primarily by the Civil Code however, in all matters not regulated by the Civil Code, the
Code of Commerce and Special Laws will govern with respect to the rights and obligations of the
carrier. Therefore COGSA is suppletory to the provisions of the Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49407 August 19, 1988
NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents-appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents- appellees.
Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company
of the Philippines and National Development Company defendant-appellants," affirming in toto the
decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial
District, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National
Development Company and Maritime Company of the Philippines, to pay jointly and
severally, to the plaintiff Development Insurance and Surety Corp., the sum of
THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN
PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon
from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN
THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the

defendant National Development Company, judgment is hereby rendered, ordering
the National Development Company to pay the cross-claimant Maritime Company of
the Philippines the total amount that the Maritime Company of the Philippines may
voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the
judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement
entered into between defendants NDC and MCP on September 13, 1962, defendant
NDC as the first preferred mortgagee of three ocean going vessels including one with
the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate
said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964
the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at
San Francisco, California, a total of 1,200 bales of American raw cotton consigned to
the order of Manila Banking Corporation, Manila and the People's Bank and Trust
Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who
represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also
loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui,
Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En
route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15,
1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of
which 550 bales of aforesaid cargo of American raw cotton were lost and/or
destroyed, of which 535 bales as damaged were landed and sold on the authority of
the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of
the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A,
K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of
Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation,
Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff
as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1
and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to
the consignees or their successors-in-interest, for the said lost or damaged cargoes.
Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC
and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo,
L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of
First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of
P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the action
has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC
filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal,
pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after

the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with
counterclaim and cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 2224). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40).
However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record
for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated
August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it
executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on
Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965,
but the trial court denied it in its order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court
rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the
sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on
April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial
court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970
after its motion to set aside the decision was denied by the trial court in its order dated February
13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision
of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On
August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for
decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE
AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE
CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF
CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE
YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR
REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for PetitionerAppellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:

I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING
THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF
ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY
EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS
BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION
OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH
VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT,
NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU
WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP
AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE
WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE
COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR
DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE
CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE
AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF
THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO
GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL
DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD
OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS
COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE
COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability
as well as the rules of prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should
apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of
said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or
default of the master, mariner, pilot or the servants of the carrier in the navigation or in the
management of the ship." Thus, NDC insists that based on the findings of the trial court which were
adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC
would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of
the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the
insurance company for the amount the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50
SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to
which the goods are to be transported governs the liability of the common carrier in case of their
loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down
that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code).
Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.
In the case at bar, it has been established that the goods in question are transported from San
Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision
which was found to have been caused by the negligence or fault of both captains of the colliding
vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is
immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, 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 circumstances of each
case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article
1734 thereof, the common carrier shall be presumed to have been at fault or to have acted
negigently, unless it proves that it has observed the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so
that no reversible error can be found in respondent courses application to the case at bar of Articles
826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to
the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages
incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same
Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own
damages and both shall be solidarily responsible for the losses and damages suffered by their
cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of
the universally accepted doctrine that the shipmaster or captain is merely the representative of the

owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng
Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only
to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act
(Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain
terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall
be construed as repealing any existing provision of the Code of Commerce which is now in force, or
as limiting its application." By such incorporation, it is obvious that said law not only recognizes the
existence of the Code of Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and
Surety Corporation, has no cause of action against it because the latter did not prove that its alleged
subrogers have either the ownership or special property right or beneficial interest in the cargo in
question; neither was it proved that the bills of lading were transferred or assigned to the alleged
subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee
in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the
duly endorsed bills of lading covering the shipments in question and an examination of the invoices
in particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said
consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a
cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No.
46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager
and operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to
MCP, it can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September
13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to
include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers
of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA
G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape
liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in
case of collision, both the owner and the agent are civilly responsible for the acts of the captain
(Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of
Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is
true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in
Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of
jurisprudence under the Civil Code but more specially as regards contractual obligations in Article
586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero)
should be declared jointly and severally liable, since the obligation which is the subject of the action
had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v.
Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the
vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages

occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to
the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking
et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP
argues that the law on averages should be applied in determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading
and corroborated no less by invoices offered as evidence ' during the trial. Besides, common
carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927])
"cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own
negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and
the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the
Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of
Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be
discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the
factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at
fault for not changing their excessive speed despite the thick fog obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow
trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on
April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might
not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo,
resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was
supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13
and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on
the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22,
1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should
have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea
Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30212 September 30, 1987
BIENVENIDO GELISAN, petitioner,
vs.
BENITO ALDAY, respondent.

PADILLA, J.:
Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, as
amended by its resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday,
plaintiff-appellant, vs. Roberto Espiritu and Bienvenido Gelisan, defendants-appellees," which
ordered the herein petitioner Bienvenido Gelisan to pay, jointly and severally, with Roberto Espiritu,
the respondent Benito Alday the amount of P5,397.30, with. legal interest thereon from the filing of
the complaint, and the costs of suit; and for the said Roberto Espiritu to pay or refund the petitioner
Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday by
virtue of the judgment.
The uncontroverted facts of the case are, as follows:
Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH2377. On January 31, 1962, defendant Bienvenido Gelisan and Roberto Espiritu
entered into a contract marked Exhibit 3-Gelisan under which Espiritu hired the same
freight truck of Gelisan for the purpose of hauling rice, sugar, flour and fertilizer at an
agreed price of P18.00 per trip within the limits of the City of Manila provided the
loads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and pay all
losses and damages attending the carriage of the goods to be hauled by him. The
truck was taken by a driver of Roberto Espiritu on February 1, 1962. Plaintiff Benito
Alday, a trucking operator, and who owns about 15 freight trucks, had known the
defendant Roberto Espiritu since 1948 as a truck operator. Plaintiff had a contract to
haul the fertilizers of the Atlas Fertilizer Corporation from Pier 4, North Harbor, to its
Warehouse in Mandaluyong. Alday met Espiritu at the gate of Pier 4 and the latter
offered the use of his truck with the driver and helper at 9 centavos per bag of
fertilizer. The offer was accepted by plaintiff Alday and he instructed his checker
Celso Henson to let Roberto Espiritu haul the fertilizer. Espiritu made two hauls of
200 bags of fertilizer per trip. The fertilizer was delivered to the driver and helper of
Espiritu with the necessary way bill receipts, Exhibits A and B. Espiritu, however, did
not deliver the fertilizer to the Atlas Fertolizer bodega at Mandaluyong. The
signatures appearing in the way bill receipts Exhibits A and B of the Alday
Transportation admittedly not the signature of any representative or employee of the
Atlas Fertilizer Corporation. Roberto Espiritu could not be found, and plaintiff
reported the loss to the Manila Police Department. Roberto Espiritu was later
arrested and booked for theft. ...
Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he notified
the Manila Police Department, and it was impounded by the police. It was claimed by
Bienvenido Gelisan from the Police Department after he had been notified by his
employees that the truck had been impounded by the police; but as he could not produce
at the time the registration papers, the police would not release the truck to Gelisan. As a
result of the impounding of the truck according to Gelisan, ... and that for the release of
the truck he paid the premium of P300 to the surety company. 1

Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of
P5,397.33, to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint
against Roberto Espiritu and Bienvenido Gelisan with the Court of First Instance of Manila, docketed
therein as Civil Case No. 49603, for the recovery of damages suffered by him thru the criminal acts
committed by the defendants.

The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that
he had no contractual relations with the plaintiff Benito Alday as regards the hauling and/or delivery
of the 400 bags of fertilizer mentioned in the complaint; that the alleged misappropriation or
nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of fertilizer, was entirely beyond his
(Gelisan's) control and knowledge, and which fact became known to him, for the first time, on 8
February 1962 when his freight truck, with plate No. TH-2377, was impounded by the Manila Police
Department, at the instance of the plaintiff; and that in his written contract of hire with Roberto
Espiritu, it was expressly provided that the latter will bear and pay all loss and damages attending
the carriage of goods to be hauled by said Roberto Espiritu.
After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito
Alday, since Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. The
dispositive portion of the decision reads, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Roberto Espiritu for the sum of P6,000 with interest at the legal rate from the
time of the filing of the complaint, and the costs of the suit. Plantiff's complaint is
dismissed with respect to defendant Bienvenido Gelisan, and judgment is rendered in
favor of defendant Bienvenido Gelisan and against the plaintiff for the sum of P350. 2

On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that
Bienvenido Gelisan is likewise liable for being the registered owner of the truck; and that the lease
contract, executed by and between Bienvenido Gelisan and Roberto Espiritu, is not binding upon
Benito Alday for not having been previously approved by the Public Service Commission.
Accordingly, it sentenced Bienvenido Gelisan to pay, jointly and severally with Roberto Espiritu,
Benito Alday the amount of P5,397.30, with legal interest thereon from the filing of the complaint;
and to pay the costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan
whatever amount the latter may have paid to Benito Alday by virtue of the judgment. 4
Hence, the present recourse by Bienvenido Gelisan.
The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to be
reviewed, is in accord with the facts and the law on the case and we find no cogent reason to disturb
the same. The Court has invariably held in several decisions that the registered owner of a public
service vehicle is responsible for damages that may arise from consequences incident to its
operation or that may be caused to any of the passengers therein. 5 The claim of the petitioner that
he is not hable in view of the lease contract executed by and between him and Roberto Espiritu
which exempts him from liability to third persons, cannot be sustained because it appears that the
lease contract, adverted to, had not been approved by the Public Service Commission. It is settled in
our jurisprudence that if the property covered by a franchise is transferred or leased to another
without obtaining the requisite approval, the transfer is not binding upon the public and third
persons. 6
We also find no merit in the petitioner's argument that the rule requiring the previous approval by the
Public Service Commission, of the transfer or lease of the motor vehicle, may be applied only in
cases where there is no positive Identification of the owner or driver, or where there are very scant
means of Identification, but not in those instances where the person responsible for damages has
been fixed or determined beforehand, as in the case at bar. The reason for the rule we reiterate in
the present case, was explained by the Court in Montoya vs. Ignacio, 7thus:

There is merit in this contention. The law really requires the approval of the Public
Service Commission in order that a franchise, or any privilege pertaining thereto,
may be sold or leased without infringing the certificate issued to the grantee. The
reason is obvious. Since a franchise is personal in nature any transfer or lease
thereof should be notified to the Public Service Commission so that the latter mav
take proper safeguards to protect the interest of the public. In fact, the law requires
that, before the approval is granted, there should be a public hearing, with notice to
all interested parties, in order that the Commission may determine if there are good
and reasonable grounds justifying the transfer or lease of the property covered by the
franchise, or if the sale or lease is detrimental to public interest. Such being the
reason and philosophy behind this requirement, it follows that if the property covered
by the franchise is transferred, or leased to another without obtaining the requisite
approval, the transfer is not binding against the Public Service Commission and in
contemplation of law the grantee continues to be responsible under the franchise in
relation to the Commission and to the Public. Since the lease of the jeepney in
question was made without such approval the only conclusion that can be drawn is
that Marcelino Ignacio still continues to be its operator in contemplation of law, and
as such is responsible for the consequences incident to its operation, one of them
being the collision under consideration.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be
indemnified by Roberto Espiritu for the amount titat he may be required to pay as damages for the
injury caused to Benito Alday, since the lease contract in question, although not effective against the
public for not having been approved by the Public Service Commission, is valid and binding between
the contracting parties. 8
We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has
consistently considered the registered owner/operator of a public service vehicle to be jointly and
severally liable with the driver for damages incurred by passengers or third persons as a
consequence of injuries sustained in the operation of said vehicles. Thus, in the case of Vargas vs.
Langcay, 9 the Court said:
We hold that the Court of Appeals erred in considering appellant-petitioner Diwata
Vargas only subsidiarily liable under Article 103 of the Revised Penal Code. This
court, in previous decisions, has always considered the registered owner/operator of
a passenger vehicle, jointly and severally liable with the driver, for damages incurred
by passengers or third persons as a consequence of injuries (or death) sustained in
the operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol vs. Osias,
G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506;
Necesito vs. Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquino
and Rayos vs Tamayo, 105 Phil., 949; 56 Off. Gaz. [36] 5617.) In the case of Erezo
vs. Jepte, Supra, We held:
* * * In synthesis, we hold that the registered owner, the defendant-appellant herein,
is primarily responsible for the damage caused * * * (Emphasis supplied)
In the case of Tamayo vs. Aquino, supra, We said:
* * * As Tamayo is the registered owner of the truck, his responsibffity to the public or
to any passenger riding in the vehicle or truck must be direct * * * (Emphasis
supplied)

WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.
SO ORDERED.

Gelisan vs. Alday Case Digest

Gelisan vs. Alday
(154 SCRA 388)
Facts: Bienvenido Gelisan and Roberto Espiritu entered into a contract where the former hired the
truck of Gelisan for the purpose of transporting goods at the price of P18.00. It is also agreed that
Espiritu shall bear and pay all losses and damages attending the carriage of the goods to be hauled
by him. Benito Alday, a trucking operator, had a contract to haul the fertilizers of the Atlas Fertilizer
Corporation from Pier 4, North Harbor, to its Warehouse in Mandaluyong. Alday met Espiritu at the
gate of Pier 4 and the latter offered the use of his truck with the driver and helper at 9 centavos per
bag of fertilizer. The offer was accepted by plaintiff Alday and he instructed his checker Celso
Henson to let Roberto Espiritu haul the fertilizer. Espiritu made two hauls of 200 bags of fertilizer per
trip. The fertilizer was delivered to the driver and helper of Espiritu with the necessary way bill
receipts, Exhibits A and B. Espiritu, however, did not deliver the fertilizer to the Atlas Fertilizer
bodega at Mandaluyong.
Subsequently, plaintiff Alday saw the truck in question on Sto. Cristo St. and he notified the Manila
Police Department, and it was impounded by the police. It was claimed by Bienvenido Gelisan. As a
result of the impounding of the truck according to Gelisan and that for the release of the truck he
paid the premium of P300 to the surety company.
Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of
P5,397.33, to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint
against Roberto Espiritu and Bienvenido Gelisan with the CFI Manila
Bienvenido Gelisan, upon the other hand, claimed that he had no contractual relations with the
plaintiff Benito Alday.
Issue: Whether Gelisan being a registered owner is responsible for damages?
Held: The Court has invariably held in several decisions that the registered owner of a public service
vehicle is responsible for damages that may arise from consequences incident to its operation or
that may be caused to any of the passengers therein. The claim of the petitioner that he is not able
in view of the lease contract executed by and between him and Roberto Espiritu which exempts him
from liability to third persons, cannot be sustained because it appears that the lease contract,
adverted to, had not been approved by the Public Service Commission. It is settled in our
jurisprudence that if the property covered by a franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding upon the public and third persons.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be
indemnified by Roberto Espiritu for the amount that he may be required to pay as damages for the
injury caused to Benito Alday, since the lease contract in question, although not effective against the
public for not having been approved by the Public Service Commission, is valid and binding between
the contracting parties.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70876 July 19, 1990
MA. LUISA BENEDICTO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD INDUSTRIES COMPANY,
INC.respondents.
Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner.
Abelardo V. Viray for private respondent.

FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court
dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the
Regional Trial Court ("RTC") of Dagupan City in Civil Case No. 5206. There, the RTC held petitioner
Ma. Luisa Benedicto liable to pay private respondent Greenhills Wood Industries Company, Inc.
("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills' lost
sawn lumber and attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City,
operates sawmill in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany,
Inc., ("Blue Star") a company with business operations in Valenzuela, Bulacan 100,000 board feet of
sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. 1 To
effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz,
contracted Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its
sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered in
the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business
enterprise engaged in hauling freight, with main office in B.F. Homes, Paraaque.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the
loading of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck.
Before the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices
Nos. 3259 and 3260 both of which were initialed by the latter at the bottom left corner. 2 The first
invoice was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber,
while the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz instructed
Licuden to give the original copies of the two (2) invoices to the consignee upon arrival in
Valenzuela, Bulacan 3 and to retain the duplicate copies in order that he could afterwards claim the
freightage from private respondent's Manila office. 4

On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills'
president, Henry Lee Chuy, informing him that the sawn lumber on board the subject cargo truck had
not yet arrived in Valenzuela, Bulacan. The latter in turn informed Greenhills' resident manager in its
Maddela saw-mill of what had happened. In a letter 5 dated 18 May 1980, Blue Star's administrative
and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general
manager that Blue Star still had not received the sawn lumber which was supposed to arrive on 15
May 1980 and because of this delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to
continue with their contract, private respondent Greenhill's filed Criminal Case No. 668 against driver
Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for
recovery of the value of the lost sawn lumber plus damages before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the
contract of carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28
February 1980 as evidenced by a deed of sale. 7 She claimed that the truck had remained registered
in her name notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00
out of the total agreed price of P68,000.00 However, she averred that Tee had been operating the
said truck in Central Luzon from that date (28 February 1980) onwards, and that, therefore, Licuden
was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the
subject truck, and holding that Licuden was her employee, the trial court adjudged as follows:
WHEREFORE, in the light of the foregoing considerations, this Court hereby renders
judgment against defendant Maria Luisa Benedicto, ordering her to pay the
Greenhills Wood Industries Co. Inc., thru its President and General Manager, the
amount of P16,016 cost of the sawn lumber loaded on the cargo truck, with legal rate
of interest from the filing of the complaint to pay attorney's fees in the amount of
P2,000.00; and to pay the costs of this suit.
SO ORDERED. 8

On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the
decision of the trial court in toto. Like the trial court, the appellate court held that since petitioner was
the registered owner of the subject vehicle, Licuden the driver of the truck, was her employee, and
that accordingly petitioner should be responsible for the negligence of said driver and bear the loss
of the sawn lumber plus damages. Petitioner moved for reconsideration, without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the facts and
applicable law, the appellate court was correct in finding that petitioner, being the registered owner of
the carrier, should be held liable for the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo, because the
doctrine which makes the registered owner of a common carrier vehicle answerable to the public for
the negligence of the driver despite the sale of the vehicle to another person, applies only to cases
involving death of or injury to passengers. What applies in the present case, according to petitioner,
is the rule that a contract of carriage requires proper delivery of the goods to and acceptance by the
carrier. Thus, petitioner contends that the delivery to a person falsely representing himself to be an
agent of the carrier prevents liability from attaching to the registered owner.

The Court considers that petitioner has failed to show that appellate court committed reversible error
in affirming the trial court's holding that petitioner was liable for the cost of the sawn lumber plus
damages.
There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged
in the business of hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in
brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences
flowing from the operations of the carrier, even though the specific vehicle involved may already
have been transferred to another person. This doctrine rests upon the principle that in dealing with
vehicles registered under the Public Service Law, the public has the right to assume that the
registered owner is the actual or lawful owner thereof It would be very difficult and often impossible
as a practical matter, for members of the general public to enforce the rights of action that they may
have for injuries inflicted by the vehicles being negligently operated if they should be required to
prove who the actual owner is. 11 The registered owner is not allowed to deny liability by proving the
identity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not
required to go beyond the vehicle's certificate of registration to ascertain the owner of the carrier. In
this regard, the letter presented by petitioner allegedly written by Benjamin Tee admitting that
Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented
in court to testify on this matter but also because of the aforementioned doctrine. To permit the
ostensible or registered owner to prove who the actual owner is, would be to set at naught the
purpose or public policy which infuses that doctrine.
In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a
contract of carriage on behalf of the registered owner. It appears that, earlier, in the first week of May
1980, private respondent Greenhills had contracted Licuden who was then driving the same cargo
truck to transport and carry a load of sawn lumber from the Maddela sawmill to Dagupan City. 12 No
one came forward to question that contract or the authority of Licuden to represent the owner of the
carrier truck.
Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the
freight truck for her own benefit and convenience, that is, to secure the payment of the balance of
the selling price of the truck. She may have been unaware of the legal security device of chattel
mortgage; or she, or her buyer, may have been unwilling to absorb the expenses of registering a
chattel mortgage over the truck. In either case, considerations both of public policy and of equity
require that she bear the consequences flowing from registered ownership of the subject vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving
negligence and resulting injury to or death of passengers, and not to cases involving merely carriage
of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is
burdened by the law with the duty of exercising extraordinary diligence not only in ensuring the
safety of passengers but also in caring for goods transported by it. 13 The loss or destruction or
deterioration of goods turned over to the common carrier for conveyance to a designated
destination, raises instantly a presumption of fault or negligence on the part of the carrier, save only
where such loss, destruction or damage arises from extreme circumstances such as a natural
disaster or calamity or act of the public enemy in time of war, or from an act or omission of the
shipper himself or from the character of the goods or their packaging or container. 14

This presumption may be overcome only by proof of extraordinary diligence on the part of the
carrier. 15 Clearly, to permit a common carrier to escape its responsibility for the passengers or goods
transported by it by proving a prior sale of the vehicle or means of transportation to an alleged
vendee would be to attenuate drastically the carrier's duty of extraordinary diligence. It would also
open wide the door to collusion between the carrier and the supposed vendee and to shifting liability
from the carrier to one without financial capability to respond for the resulting damages. In other
words, the thrust of the public policy here involved is as sharp and real in the case of carriage of
goods as it is in the transporting of human beings. Thus, to sustain petitioner Benedicto's contention,
that is, to require the shipper to go behind a certificate of registration of a public utility vehicle, would
be utterly subversive of the purpose of the law and doctrine.
Petitioner further insists that there was no perfected contract of carriage for the reason that there
was no proof that her consent or that of Tee had been obtained; no proof that the driver, Licuden was
authorized to bind the registered owner; and no proof that the parties had agreed on the freightage
to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a transparent
attempt to evade statutory responsibilities. Driver Licuden was entrusted with possession and control
of the freight truck by the registered owner (and by the alleged secret owner, for that matter). Driver
Licuden, under the circumstances, was clothed with at least implied authority to contract to carry
goods and to accept delivery of such goods for carriage to a specified destination. That the freight to
be paid may-not have been fixed before loading and carriage, did not prevent the contract of
carriage from arising, since the freight was at least determinable if not fixed by the tariff schedules in
petitioner's main business office. Put in somewhat different terms, driver Licuden is in law regarded
as the employee and agent of the petitioner, for whose acts petitioner must respond. A contract of
carriage of goods was shown; the sawn lumber was loaded on board the freight truck; loss or nondelivery of the lumber at Blue Star's premises in Valenzuela, Bulacan was also proven; and
petitioner has not proven either that she had exercised extraordinary diligence to prevent such loss
or non-delivery or that the loss or non-delivery was due to some casualty or force
majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills was thus
fixed and complete, without prejudice to petitioner's right to proceed against her putative transferee
Benjamin Tee and driver Licuden for reimbursement or contribution. 17
itc-asl

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former
Intermediate Appellate Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

Ma. Luisa Benedicto v. IAC, Greenhills Wood Industries Co., Inc.

G.R. No. 70876 July 19, 1990
Feliciano, J.
FACTS:

Greenhills Wood Industries - bound itself to sell and deliver to Blue Star
Mahogany, Inc.100,000 board feet of sawn lumber with the understanding that an
initial delivery would bemade.

Greenhills resident manager in Maddela, Dominador Cruz, contracted Virgilio Licuden,

thed r i v e r
of a cargo
truck, to transport
its sawn lumber
to the
c o n s i g n e e B l u e S t a r i n Valenzuela, Bulacan; this cargo truck was registered in the

name of Ma. Luisa Benedicto,the proprietor of Macoven Trucking, a business enterprise

engaged in hauling freight

the Manager of Blue Star called up Greenhills president informing him that
the sawnlumber on board the subject cargo truck had not yet arrived
in Valenzuela, Bulacan;because of the delay in delivery Blue Star was constrained to
look for other suppliers

Greenhills filed criminal case against driver Licuden for estafa; and
a c i v i l c a s e f o r recovery of the value of the lost sawn lumber plus damages against
Benedicto

Benedicto denied liability as she was a complete stranger to the contract of carriage,
thesubject truck having been earlier sold by her to Benjamin Tee; but the truck
had remainedregistered in her name because Tee have not yet fully paid the
amount of the truck; bethat as it may, Tee had been operating the said truck
in Central Luzon from that andLicuden was Tees employee and not hers
ISSUE:
WON Benedicto, being the registered owner of the carrier, should be held liable forthe
value of the undelivered or lost sawn lumber
HELD:
Yes. The registered owner liable for consequences flowing from the operations of
thecarrier, even though the specific vehicle involved may already have been
transferred
toa n o t h e r p e r s o n . T h i s d o c t r i n e r e s t s u p o n t h e p r i n c i p l e t h a t i n d e a l i
ng with vehiclesregistered under the
P u b l i c S e r v i c e L a w, t h e
p u b l i c h a s t h e r i g h t t o a s s u m e t h a t t h e registered owner is the actual or
lawful owner thereof It would be very difficult and often impossible as a practical
matter, for members of the general public to enforce the rights of action that they may
have for injuries inflicted by the vehicles being negligently operated if they should be
required to prove who the actual owner is. Greenhills is not required to gobeyond the
vehicles certificate of registration to ascertain the owner of the carrier.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 120553 June 17, 1997

PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner,

vs.
COURT OF APPEALS and HEIRS OF THE LATE RAMON ACUESTA, respondents.

DAVIDE, JR., J.:

The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of
Court from the 31 January 1995 Decision of the Court of Appeals in CA-G.R. CV No.
41140 1 affirming the 22 January 1993 2Decision of Branch 31 of the Regional Trial Court, Calbayog
City, in Civil Case No. 373, which ordered the petitioners to pay the private respondents damages as
a result of a vehicular accident.
Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of
Ramon A. Acuesta, namely, Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar
O. Acuesta; Rufino O. Acuesta; Maximo O. Acuesta; Neri O. Acuesta; Iluminada O. Acuesta; Rosario
Acuesta-Sanz; and Pamfilo O. Acuesta. Atty. Julio O. Acuesta also appeared as counsel for the
plaintiffs (herein private respondents). 3 The private respondents alleged that the petitioners were
guilty of gross negligence, recklessness, violation of traffic rules and regulations, abandonment of
victim, and attempt to escape from a crime.
To support their allegations, the private respondents presented eight witnesses. On 10 February
1992, after the cross-examination of the last witness, the private respondents' counsel made a
reservation to present a ninth witness. The case was then set for continuation of the trial on 30 and
31 March 1992. Because of the non-appearance of the petitioners' counsel, the 30 March 1992
hearing was cancelled. The next day, private respondents' counsel manifested that he would no
longer present the ninth witness. He thereafter made an oral offer of evidence and rested the case.
The trial court summarized private respondents' evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta
was riding in his easy rider bicycle (Exhibit "O"), along the Gomez Street of Calbayog
City. The Gomez Street is along the side of Nijaga Park. On the Magsaysay Blvd., also in
Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus
No. 4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was
being pushed by some persons in order to start its engine. The Magsaysay Blvd. runs
perpendicular to Gomez St. and the said Philtranco bus 4025 was heading in the general
direction of the said Gomez Street. Some of the persons who were pushing the bus were
on its back, while the others were on the sides. As the bus was pushed, its engine started
thereby the bus continued on its running motion and it occurred at the time when Ramon
A. Acuesta who was still riding on his bicycle was directly in front of the said bus. As the
engine of the Philtranco bus started abruptly and suddenly, its running motion was also
enhanced by the said functioning engine, thereby the subject bus bumped on the victim
Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over by the said
bus. The bus did not stop although it had already bumped and ran [sic] over the victim;
instead, it proceeded running towards the direction of the Rosales Bridge which is located
at one side of the Nijaga Park and towards one end of the Gomez St., to which direction
the victim was then heading when he was riding on his bicycle. P/Sgt. Yabao who was
then jogging thru the Gomez Street and was heading and meeting the victim Ramon A.
Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being
pushed by some passengers, when its engine abruptly started and when the said bus
bumped and ran over the victim. He approached the bus driver defendant Manilhig herein
and signalled to him to stop, but the latter did not listen. So the police officer jumped into

the bus and introducing himself to the driver defendant as policeman, ordered the latter to
stop. The said defendant driver stopped the Philtranco bus near the Nijaga Park and Sgt.
Yabao thereafter, told the driver to proceed to the Police Headquarter which was only 100
meters away from Nijaga Park because he was apprehensive that the said driver might
be harmed by the relatives of the victim who might come to the scene of the accident.
Then Sgt. Yabao cordoned the scene where the vehicular accident occurred and had
P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an investigation and make a
sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters away when he
saw the bus of defendant Philtranco bumped [sic] and [sic] ran over the victim. From the
place where the victim was actually bumped by the bus, the said vehicle still had run to a
distance of about 15 meters away. 4

For their part, the petitioners filed an Answer 5 wherein they alleged that petitioner Philtranco
exercised the diligence of a good father of a family in the selection and supervision of its employees,
including petitioner Manilhig who had excellent record as a driver and had undergone months of rigid
training before he was hired. Petitioner Manilhig had always been a prudent professional driver,
religiously observing traffic rules and regulations. In driving Philtranco's buses, he exercised the
diligence of a very cautious person.
As might be expected, the petitioners had a different version of the incident. They alleged that in the
morning of 24 March 1990, Manilhig, in preparation for his trip back to Pasay City, warmed up the
engine of the bus and made a few rounds within the city proper of Calbayog. While the bus was
slowly and moderately cruising along Gomez Street, the victim, who was biking towards the same
direction as the bus, suddenly overtook two tricycles and swerved left to the center of the road. The
swerving was abrupt and so sudden that even as Manilhig applied the brakes and blew the bus horn,
the victim was bumped from behind and run over by the bus. It was neither willful nor deliberate on
Manilhig's part to proceed with the trip after his bus bumped the victim, the truth being that when he
looked at his rear-view window, he saw people crowding around the victim, with others running after
his bus. Fearing that he might be mobbed, he moved away from the scene of the accident and
intended to report the incident to the police. After a man boarded his bus and introduced himself as a
policeman, Manilhig gave himself up to the custody of the police and reported the accident in
question.
The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles,
without taking precautions such as seeing first that the road was clear, which caused the death of
the victim. The latter did not even give any signal of his intention to overtake. The petitioners then
counterclaimed for P50,000 as and for attorney's fees; P1 million as moral damages; and P50,000
for litigation expenses.
However, the petitioners were not able to present their evidence, as they were deemed to have
waived that right by the failure of their counsel to appear at the scheduled hearings on 30 and 31
March 1992. The trial court then issued an Order 6 declaring the case submitted for decision. Motions
for the reconsideration of the said Order were both denied.
On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and
severally pay the private respondents the following amounts:
1) P55, 615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;

4) P500,000 by way of exemplary damages;

5) P50,000 as attorney's fees; and
6) the costs of suit. 7

Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the
trial court the following errors:
(1) in preventing or barring them from presenting their evidence;
(2) in finding that petitioner Manilhig was at fault;
(3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to,
his unfortunate accident;
(4) in awarding damages to the private respondents; and
(5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages.

In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held
that the petitioners were not denied due process, as they were given an opportunity to present their
defense. The records show that they were notified of the assignment of the case for 30 and 31
March 1992. Yet, their counsel did not appear on the said dates. Neither did he file a motion for
postponement of the hearings, nor did he appeal from the denial of the motions for reconsideration
of the 31 March 1992 Order of the trial court. The petitioners have thereby waived their right to
present evidence. Their expectation that they would have to object yet to a formal offer of evidence
by the private respondents was "misplaced," for it was within the sound discretion of the court to
allow oral offer of evidence.
As to the second and third assigned errors, the respondent court disposed as follows:
. . . We cannot help but accord with the lower court's finding on appellant Manilhig's
fault. First, it is not disputed that the bus driven by appellant Manilhig was being
pushed at the time of the unfortunate happening. It is of common knowledge and
experience that when a vehicle is pushed to a jump-start, its initial movement is far
from slow. Rather, its movement is abrupt and jerky and it takes a while before the
vehicle attains normal speed. The lower court had thus enough basis to conclude, as
it did, that the bumping of the victim was due to appellant Manilhig's actionable
negligence and inattention. Prudence should have dictated against jump-starting the
bus in a busy section of the city. Militating further against appellants' posture was the
fact that the precarious pushing of subject bus to a jumpstart was done where the
bus had to take a left turn, thereby making the move too risky to take. The possibility
that pedestrians on Gomez Street, where the bus turned left and the victim was
biking, would be unaware of a vehicle being pushed to a jumpstart, was too obvious
to be overlooked. Verily, contrary to their bare arguments, there was gross
negligence on the part of appellants.
The doctrine of last clear chance theorized upon by appellants, is inapplicable under
the premises because the victim, who was bumped from behind, obviously, did not of
course anticipate a Philtranco bus being pushed from a perpendicular street.

The respondent court sustained the awards of moral and exemplary damages and of attorney's fees,
for they are warranted under Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent
the solidary liability of petitioner Philtranco, the same finds support in Articles 2180 and 2194 of the
said Code. The defense that Philtranco exercised the diligence of a good father of a family in the
selection and supervision of its employees crumbles in the face of the gross negligence of its driver,
which caused the untimely death of the victim.
Their motion for reconsideration having been denied, the petitioners came to us claiming that the
Court of Appeals gravely erred
I
. . . IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT
THEIR EVIDENCE, AND THAT PETITIONERS WERE NOT DENIED DUE
PROCESS.
II
. . . IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND
IN HOLDING THAT PETITIONER PHILTRANCO CAN NOT INVOKE THE DEFENSE
OF DILIGENCE OF A GOOD FATHER OF A FAMILY.
III
. . . IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE
TRIAL COURT'S AWARD OF DAMAGES EXCESSIVE.
We resolved to give due course to the petition and required the parties to submit their respective
memoranda after due consideration of the allegations, issues, and arguments adduced in the
petition, the comment thereon by the private respondents, and the reply to the comment filed by the
petitioners. The petitioners filed their memorandum in due time; while the private respondents filed
theirs only on 3 January 1997, after their counsel was fined in the amount of P1,000 for failure to
submit the required memorandum.
The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were
duly notified in open court of the order of the trial court of 10 February 1992 setting the case for
hearing on 30 and 31 March 1992. 9 On both dates neither the petitioners nor their counsel
appeared. In his motion for reconsideration, 10Atty. Buban gave the following reasons for his failure to
appear on the said hearings:
1. That when this case was called on March 27, 1992, counsel was very much
indisposed due to the rigors of a very hectic campaign as he is a candidate for City
Councilor of Tacloban; he wanted to leave for Calbayog City, but he was seized with
slight fever on the morning of said date; but then, during the last hearing, counsel
was made to understand that plaintiffs would formally offer their exhibits in writing, for
which reason, counsel for defendants waited for a copy of said formal offer, but
counsel did not receive any copy as counsel for plaintiffs opted to formally offer their
exhibits orally in open court;
2. That counsel for defendants, in good faith believed that he would be given reasonable
time within which to comment on the formal offer in writing, only to know that counsel for

plaintiffs orally offered their exhibits in open court and that the same were admitted by the
Honorable Court; and that when this case was called on March 30 and 31, 1992, the
undersigned counsel honestly believed that said schedule would be cancelled, pending
on the submission of the comments made by the defendants on the formal offer; but it
was not so, as the exhibits were admitted in open court. 11

In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious
basis," as Atty. Buban could have filed a motion for postponement. 12 Atty. Buban then filed a motion
to reconsider 13 the order of denial, which was likewise denied by the trial court in its order of 12
August 1992. 14 Nothing more was done by the petitioners after receipt of the order of 12 August
1992. A perusal of the first and second motions for reconsideration discloses absence of any claim
that the petitioners have meritorious defenses. Clearly, therefore, the trial court committed no error in
declaring the case submitted for decision on the basis of private respondent's evidence.
The second imputed error is without merit either.
Civil Case No. 373 is an action for damages based on quasi-delict 15 under Article 2176 and 2180 of
the Civil Code against petitioner Manilhig and his employer, petitioner Philtranco, respectively. These
articles pertinently provide:
Art. 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter.
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.
xxx xxx xxx
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.
xxx xxx xxx
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.
We have consistently held that the liability of the registered owner of a public service vehicle, like
petitioner Philtranco, 16 for damages arising from the tortious acts of the driver is primary, direct, and
joint and several orsolidary with the driver. 17 As to solidarity, Article 2194 expressly provides:
Art. 2194. The responsibility of two or more persons who are liable for a quasidelict is solidary.

Since the employer's liability is primary, direct and solidary, its only recourse if the judgment
for damages is satisfied by it is to recover what it has paid from its employee who committed
the fault or negligence which gave rise to the action based on quasi-delict. Article 2181 of the
Civil Code provides:
Art. 2181. Whoever pays for the damage caused by his dependents or employees
may recover from the latter what he has paid or delivered in satisfaction of the claim.
There is, however, merit in the third imputed error.
The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents
defended the award in their Opposition to the Motion for Reconsideration by saying that "[i]n the
case of Philippine Airlines, Inc. vs.Court of Appeals, 185 SCRA 110, our Supreme Court held that the
award of damages for death is computed on the basis of the life expectancy of the deceased." In that
case, the "death indemnity" was computed by multiplying the victim's gross annual income by his life
expectancy, less his yearly living expenses. Clearly then, the "death indemnity" referred to was the
additional indemnity for the loss of earning capacity mentioned in Article 2206(1) of the Civil Code,
and not the basic indemnity for death mentioned in the first paragraph thereof. This article provides
as follows:
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall
be at least three thousand pesos, even though there may have been mitigating
circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased,
and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every
case be assessed and awarded by the court, unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning capacity
at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article
291, the recipient who is not an heir called to the decedent's inheritance by the law of
testate or intestate succession, may demand support from the person causing the
death, for a period of not exceeding five years, the exact duration to be fixed by the
court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of
the deceased.
We concur with petitioners' view that the trial court intended the award of "P200,000.00 as death
indemnity" not as compensation for loss of earning capacity. Even if the trial court intended the
award as indemnity for loss of earning capacity, the same must be struck out for lack of basis. There
is no evidence on the victim's earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which
has been fixed by current jurisprudence at P50,000. 18
The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis
and is excessive and unreasonable. This was based solely on the testimony of one of the heirs, Atty.
Julio Acuesta, contained in his "Direct Testimony . . . As Plaintiff, conducted by Himself," 19 to wit:

Q. What was your feeling or reaction as a result of the death of your

father Ramon A. Acuesta?
A. We, the family members, have suffered much from wounded
feelings, moral shock, mental anguish, sleepless nights, to which we
are entitled to moral damages at the reasonable amount of ONE
MILLION (P1,000,000.00) PESOS or at the sound discretion of this
Hon. Court.
Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for
its award of moral damages to those who did not testify thereon.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant.
They are awarded only to allow the former to obtain means, diversion, or amusements that will serve
to alleviate the moral suffering he has undergone due to the defendant's culpable action and must,
perforce, be proportional to the suffering inflicted. 20 In light of the circumstances in this case, an
award of P50,000 for moral damages is in order.
The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary
damages may be awarded if the party at fault acted with gross negligence. 21 The Court of Appeals
found that there was gross negligence on the part of petitioner Manilhig. 22 Under Article 2229 of the
Civil Code, exemplary damages are imposed by way of example or correction for the public good, in
addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it
must be fair and reasonable in every case and should not be awarded to unjustly enrich a prevailing
party. In the instant case, an award of P50,000 for the purpose would be adequate, fair, and
reasonable.
Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's
fees cannot be recovered as part of damages because of the policy that no premium should be
placed on the right to
litigate. 23 Stated otherwise, the grant of attorney's fees as part of damages is the exception rather
than the rule, as counsel's fees are not awarded every time a party prevails in a suit. 24 Such
attorney's fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in all
cases it must be reasonable. In the instant case, the counsel for the plaintiffs is himself a co-plaintiff;
it is then unlikely that he demanded from his brothers and sisters P100,000 as attorney's fees as
alleged in the complaint and testified to by
him. 25 He did not present any written contract for his fees. He is, however, entitled to a reasonable
amount for attorney's fees, considering that exemplary damages are awarded. Among the instances
mentioned in Article 2208 of the Civil Code when attorney's fees may be recovered is "(1) when
exemplary damages are awarded." Under the circumstances in this case, an award of P25,000 for
attorney's fees is reasonable.
The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such
award shall stand.
IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of
CA-G.R. CV No. 41140 is AFFIRMED, subject to modifications as to the damages awarded, which
are reduced as follows:
(a) Death indemnity, from P200,000 to P50,000;
(b) Moral damages, from P1 million to P50,000;

(c) Exemplary damages, from P500,000 to P50,000; and

(d) Attorney's fees, from P50,000 to P25,000.
No pronouncements as to costs in this instance.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26815 May 26, 19810
ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J.:

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The controversy in this case will be resolved on the basis of the following facts and expositions. Prior
to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized
passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos
(SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public
convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred
his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public
convenience. ln other words, SANTOS became what is known in ordinary parlance as
akabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the
former, which was to be a private document presumably to be registered if and where it was decided
that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a
passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG
filed a complaint for damages against VIDAD and Gragas with the Court of First Instance of
Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be
referred to as the BRANCH XVII CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas,
jointly and severally, to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral
damages; P500.00 as attorney's fees, and costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64,
registered in the name of VIDAD, and scheduled the public auction sale thereof on May 8,1964.

On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership
of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was
merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the
third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine
Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if
he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for
Damages and injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD;
and the Sheriff in Civil Case No. 56842 of Branch X, of the same Court of First Instance of Manila
(hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the
BONDING COMPANY as a party defendant although its bond had not become effective. ln the
Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of
levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for
purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that
SANTOS did not receive any payment from VIDAD in consideration of said sale; that to protect
SANTOS' proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of
Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII
CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that
SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger
jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not
restored to him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory
injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him
and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in
favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudging
SANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to
SANTOS as proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining
Order enjoining the Sheriff from conducting the public auction sale of the motor vehicle levied
upon. 3 The Restraining Order was issued wrongfully. Under the provisions of Section 17, Rule 39,
the action taken by the Sheriff cannot be restrained by another Court or by another Branch of the
same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he
can desist from conducting the public sale unless the attaching creditor files a bond securing him
against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As
said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional
power and personal liability." The mentioned discretional power and personal liability have been
further elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held.
1wph1.t

The duty of the sheriff in connection with the execution and satisfaction of judgment
of the court is governed by Rule 39 of the Rules of Court. Section 15 thereof provides
for the procedure to be. followed where the property levied on execution 'is claimed
by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it, is not
bound to proceed with the levy of the property, unless he is given by the judgment
creditor an indemnity bond against the claim (Mangaoang vs. Provincial Sheriff, 91
Phil., 368). Of course, the sheriff may proceed with the levy even without the
Indemnity bond, but in such case he will answer for any damages with his own
personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21
Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565).
And the rule also provides that nothing therein contained shall prevent a third person
from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39.).

It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff
has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide
whether to proceed. or to desist from proceeding, with the public auction. lf he decides to proceed,
he will incur personal liability in favor of the successful third-party claimant.
On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on
the evidence adduced, and decreed:
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WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding

with the sale of the vehicle in question ordering its return to the plaintiff and furthermore
sentencing the defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a day
from April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's fee's as
well as the costs. 4

This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by
SANTOS, to include the BONDING COMPANY as jointly slid severally liable with SIBUG. 5
1wph1.t

... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no
case exceed P6,500.00. Abraham Sibug is furthermore condemned to pay the
Philippine Surety & Insurance Co., Inc. the same sums it is ordered to pay under this
decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since
the undertaking furnished to the Sheriff by the BONDING COMPANY did not become effective for
the reason that the jeep was not sold, the public sale thereof having been restrained, there was no
reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the
Complaint against VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of
ownership to the vehicle in question, SANTOS candidly admitted his participation in the illegal and
pernicious practice in the transportation business known as the kabit system. Sec.. 20 (g) of the
Public Service Act, then the applicable law, specifically provided:
1wph1.t

... it shall be unlawful for any public service or for the owner, lessee or operator
thereof, without the approval and authorization of the Commission previously had
... (g) to sell, alienate, mortgage, encumber or lease its property, franchise,
certificates, privileges, or rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered
owner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale
to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true
owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is
directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as
a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on the
principle that the operator of record is considered the operator of the vehicle in contemplation of law
as regards the public and third persons 7 even if the vehicle involved in the accident had been sold to
another where such sale had not been approved by the then Public Service Commission. 8 For the
same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on
execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE
may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to
another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid
his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to

VIDAD. This is one way of curbing the pernicious kabit system that facilitates the commission of
fraud against the travelling public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go
against VIDAD, the actual operator who was responsible for the accident, for the recovery of
whatever damages SANTOS may suffer by reason of the execution. In fact, if SANTOS, as
the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held
jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for
exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for
immidiately execution. SIBUG opposed it on the ground that Branch X had no jurisdiction over the
BRANCH XVII CASE, and that Branch X had no power to interfere by injunction with the judgment of
Branch XVII a Court of concurrent or coordinate jurisdiction. 11
On November 13, 1965, Branch X released an order authorizing immediate execution on the theory
that the BRANCH X CASE is "principally an action for the issuance of a writ of prohibition to forbid
the Sheriff from selling at public auction property not belonging to the judgment creditor (sic) and
there being no attempt in this case to interfere with the Judgment or decree of another court of
concurrent jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from
respondent Appellate Court in a Petition for certiorari with Preliminary injunction. On November 18,
1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the
Order of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appeals
rendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and
permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled that:
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... the respondent Court Branch X, indeed, encroached and interfered with the judgment
of Branch XVII when it issued a restraining order and finally a decision permanently
enjoining the other court from excuting the decision rendered in Civil Case No. 54335.
This to our mind constitutes an interference with the powers and authority of the other
court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitably
lead to confusion which might hamper or hinder the proper administration of justice. ... 14

Respondent Court further held that SANTOS may not be permitted to prove his ownership over a
particular vehicle being levied upon but registered in another's name in a separated action,
observing that:
1wph1.t

As the vehicle in question was registered in the name of Vicente U. Vidad, the
government or any person affected by the representation that said vehicle is
registered under the name of a particular person had the right to rely on his
declaration of ownership and registration: and the registered owner or any other
person for that matter cannot be permitted to repudiate said declaration with the
objective of proving that said registered vehicle is owned by another person and not
by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code)
xxx xxx xxx
Were we to allow a third person to prove that he is the real owner of a particular
vehicle and not the registered owner it would in effect be tantamount to sanctioning
the attempt of the registered owner of the particular vehicle in evading responsibility

for it cannot be dispelled that the door would be opened to collusion between a
person and a registered owner for the latter to escape said responsibility to the public
or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that:

1wph1.t

1) The respondent Court of Appeals erred in holding that Branch X of the Court of
First Instance of Manila has no jurisdiction to restrain by Writ of Injunction the auction
sale of petitioner's motor vehicle to satisfy the judgment indebtedness of another
person:
2) The respondent Court of Appeals erred in holding that petitioner as owner of a
motor vehicle that was levied upon pursuant to a Writ of Execution issued by Branch
XVII of the Court of i stance of Manila in Civil Case No. 54335 cannot be allowed to
prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842)
that he is the true owner of the said motor vehicle and not its registered owner;
3) The respondent Court of Appeals erred in declaring null and void the decision of
the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered
the case submitted for decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First
Instance to issue, at the instance of a third-party claimant, an Injunction restraining the execution
sale of a passenger jeepney levied upon by a judgment creditor in another Court of First Instance.
The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the
vehicle levied upon through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin
Salvador, 15speaking through Mr. Justice Ramon Aquino, succinctly held:
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It is noteworthy that, generally, the rule, that no court has authority to interfere by
injunction with the judgments or decrees of a concurrent or coordinate jurisdiction
having equal power to grant the injunctive relief, is applied in cases, where no thirdparty claimant is involved, in order to prevent one court from nullifying the judgment
or process of another court of the same rank or category, a power which devolves
upon the proper appellate court.
xxx xxx xxx
When the sheriff, acting beyond the bounds of his authority, seizes a stranger's
property, the writ of injunction, which is issued to stop the auction sale of that
property, is not an interference with the writ of execution issued by another court
because the writ of execution was improperly implemented by the sheriff. Under that
writ, he could attach the property of the judgment debtor. He is not authorized to levy
upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan,
L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs.
Ramos, 88 Phil. 94, 102).
An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively:

1wph1.t

Courts; Jurisdiction Courts without power to interfere by injunction with judgments or

decrees of a court of concurrent jurisdiction. No court has power to interfere by
injunction with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by injunction.
Same, Same; Same; When applicable. For this doctrine to apply, the injunction
issued by one court must interfere with the judgment or decree issued by another
court of equal or coordinate jurisdiction and the relief sought by such injunction must
be one which could be granted by the court which rendered the judgment or issued
the decree.
Same, Same Same; Exception Judgment rendered by another court in favor of a
third person who claims property levied upon on execution. Under section 17 of
Rule 39 a third person who claims property levied upon on execution may vindicate
such claim by action. A judgment rendered in his favor - declaring him to be the
owner of the property - would not constitute interference with the powers or
processes of the court which rendered the judgment to enforce which the execution
was levied. lf that be so - and it is so because the property, being that of a stranger,
is not subject to levy - then an interlocutory order, such as injunction, upon a claim
and prima facie showing of ownership by the claimant, cannot be considered as such
interference either.
Execution; Where property levied on claimed by third person; "Action" in section l7,
Rule 39 of the Rules of Court, interpreted The right of a person who claims to be
the owner of property levied upon on execution to file a third-party claim with the
sheriff is not exclusive, and he may file an action to vindicate his claim even if the
judgment creditor files an indemnity bond in favor of the sheriff to answer for any
damages that may be suffered by the third party claimant. By "action", as stated in
the Rule, what is meant is a separate and independent action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of
respondent Court, it was appropriate, as a matter of procedure, for SANTOS, as an ordinary thirdparty claimant, to vindicate his claim of ownership in a separate action under Section 17 of Rule 39.
And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property,
did not as a basic proposition, constitute interference with the powers or processes of Branch
XVII which rendered the judgment, to enforce which the was levied upon. And this is so because
property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in
question was in custodia legis, and should not be interfered with without the permission of the proper
Court, the property must be one in which the defendant has proprietary interest. Where the Sheriff
seizes a stranger's property, the rule does not apply and interference with his custody is not
interference with another Court's Order of attachment. 17
However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court
nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally
speaking, it was not a "stranger's property" that was levied upon by the Sheriff pursuant to the
judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one
of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding
public, is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent
Court of Appeals to be in consonance with justice.
WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on
certiorari filed by Adolfo L. Santos is dismissed with costs against the petitioner.

SO ORDERED.

Adolfo Santos v. Abraham Sibug and CA

G.R. No. L-26815 May 26, 1981
Melencio-Herrera, J.
FACTS:

Vicente Vidad duly authorized passenger jeepney operator

prior to the accident date, Santos was the owner of a passenger

j e e p , b u t h e h a d n o certificate of public convenience for the operation of
the vehicle as a public passenger jeep; he then transferred his jeep to the name of
Vidad so that it could be operated underthe latters certificate of public convenience;
Santos, in effect, became a
kabit
operator

on the accident date Sibug was bumped by a passenger jeepney operated by Vidad
anddriven by Severe Gragas; as a result thereof, Sibug filed a complaint for damages
againstVidad and Gragas

the trial court sentenced Vidad and Gragas, jointly and severally, to pay
Sibug for thedamages he suffered

Sheriff of Manila levied on a motor vehicle registered in the name of Vidad (but owned
bySantos)

Santos presented a third-party claim with the Sheriff alleging actual

ownership of themotor vehicle levied upon, and stating that registration thereof in the
name of Vidad wasmerely to enable Santos to make use of Vidads CPC
ISSUE:
WON the subject motor vehicle owned by Santos should be attached to satisfy
themoney judgment against Vidad who is the registered owner of the same
HELD:
Yes.

Sec. 20 (g) of the Public Service Act: ... it shall be unlawful for any public service or
for theo w n e r , l e s s e e o r o p e r a t o r t h e r e o f , w i t h o u t t h e a p p r o v a l a
n d a u t h o r i z a t i o n o f t h e Commission previously had ... (g) to sell,
alienate, mortgage, encumber or lease its property, franchise, certificates,
privileges, or rights, or any part thereof.

Although Santos, as the kabit was the true owner, Vidad, as the registered
owner/operatora n d g r a n t e e o f t h e f r a n c h i s e , i s d i r e c t l y a n d p r i m a r i l y r e s
p o n s i b l e a n d l i a b l e f o r t h e damages caused to Sibug, the injured party, as a
consequence of the negligent or carelessoperation of the vehicle. (Ratio: the operator of

record is considered the operator of thevehicle in contemplation of law as regards the

public and third persons even if the vehicleinvolved in the accident had been sold
to another where such sale had not been approvedby the then Public Service
Commission)

S a n t o s r e m e d y, a s t h e
real
owner
of the
vehicle,
i s t o g o a g a i n s t V i d a d , t h e a c t u a l operator who was responsible for the
accident, for the recovery of whatever damages Santos may suffer by reason of
the execution

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.

ESCOLIN, J.:

+.wph!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.

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)
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

1. ...

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

Lita Enterprises, Inc. v. Second Civil Cases Division, IAC, Nicasio

Ocampo andFrancisca Garcia
G.R. No. L-64693 April 27, 1984
Escolin, J.
FACTS:

Ocampo and Garcia purchased in installment from the Delta Motor Sales Corporation
5 Toyota Corona Standard cars to be used as taxicabs; they had no franchise
to operatetaxicabs, so they contracted with Lita Enterprises for the use of the latters
certificate of public convenience in consideration of an initial payment of 1,000.00 and a
monthly rentalof 200.00 per taxicab unit; the aforesaid cars were then
registered in the name of LitaEnterprises

one of the taxicabs driven by Ocampo and Garcias employee, Emeterio Martin,
collidedwith a motorcycle whose driver, Florante Galvez, died from the head
injuries sustainedtherefrom

a criminal case was filed against the driver Martin, while a civil case for
damages wasinstituted by heir of the victim against Lita Enterprises
ISSUE:
WON Lita Enterprises is liable to the heir of the victim who died as a result of
thegross negligence of Ocampo and Garcias driver while driving one private
respondentstaxicabs
HELD:
Yes.

kabit system
system whereby a person who has been granted a certificate
o f convenience allows another person who owns motors vehicles to operate
under suchfranchise for a fee; contrary to public policy and, therefore, void
and inexistent underArticle 1409 of the Civil Code; as a result, the court will not aid
either party to enforce anillegal contract, but will leave them both where it finds them
(pari delicto rule)

Art. 1412: If the act in which the unlawful or forbidden cause consists does not
constitutea criminal offense, the following rules shall be observed; (1) when the fault, is

on the parto f b o t h c o n t r a c t i n g p a r t i e s , n e i t h e r m a y r e c o v e r w h a t h e h a s
g i v e n b y v i r t u e o f t h e contract, or demand the performance of the others
undertaking.

the defect of inexistence of a contract is permanent and incurable, and cannot be

cured byratification or by prescription

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.

PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-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." (Lita Enterprises
vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in
its now assailed decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete
accessories and a sidecar in the total consideration of P8,000.00 as shown by
Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance
within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in
monthly installments until January 1976 when he stopped paying anymore. The
plaintiff made demands but just the same the defendant failed to comply with the
same thus forcing the plaintiff to consult a lawyer and file this action for his damage
in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation.
The plaintiff also claims that as of February 20, 1978, the total account of the
defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B").
This amount includes not only the balance of P1,700.00 but an additional 12%

interest per annum on the said balance from January 26, 1976 to February 27, 1978;
a 2% service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a
security for the payment of the balance of the purchase price. It has been the
practice of financing firms that whenever there is a balance of the purchase price the
registration papers of the motor vehicle subject of the sale are not given to the buyer.
The records of the LTC show that the motorcycle sold to the defendant was first
mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and
Angel Jaucian are one and the same, because it was made to appear that way only
as the defendant had no franchise of his own and he attached the unit to the
plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation
Commission. Pursuant to this agreement the defendant on February 22, 1976 gave
the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle. The plaintiff, however failed to register the
motorcycle on that year on the ground that the defendant failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the
motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding
the motorcycle from him. Lastly, the plaintiff explained also that though the ownership
of the motorcycle was already transferred to the defendant the vehicle was still
mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the
reason that all motorcycle purchased from the plaintiff on credit was rediscounted
with the bank.
On his part the defendant did not dispute the sale and the outstanding balance of
P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the
plaintiff the motorcycle with the side car because of the condition that the plaintiff
would be the one to register every year the motorcycle with the Land Transportation
Commission. In 1976, however, the plaintfff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the
defendant gave him P90.00 for mortgage fee and registration fee and had the
motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also
by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered damages
when he failed to claim any insurance indemnity which would amount to no less than
P15,000.00 for the more than two times that the motorcycle figured in accidents
aside from the loss of the daily income of P15.00 as boundary fee beginning October
1976 when the motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff
the motorcycle resulting in its not being registered. The truth being that the
motorcycle was being used for transporting passengers and it kept on travelling from
one place to another. The motor vehicle sold to him was mortgaged by the plaintiff
with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims
that it is not true that the motorcycle was mortgaged because of re-discounting for
rediscounting is only true with Rural Banks and the Central Bank. The defendant puts
the blame on the plaintiff for not registering the motorcycle with the LTC and for not
giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain
the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx

... it also appears and the Court so finds that defendant purchased the motorcycle in
question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was attached to the
plaintiffs transportation line who had the franchise, so much so that in the registration
certificate, the plaintiff appears to be the owner of the unit.Furthermore, it appears to
have been agreed, further between the plaintiff and the defendant, that plaintiff would
undertake the yearly registration of the unit in question with the LTC. Thus, for the
registration of the unit for the year 1976, per agreement, the defendant gave to the
plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of
the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with
Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court
rendered judgment in favor of petitioner, the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and
ordering the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid
balance of the purchase price with legal rate of interest from the date of the filing of
the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as
attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to
pay the costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the
said Court promulgated its decision, the pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the
franchise of the private respondent Jaucian, pursuant to what is commonly known as
the "kabit system", without the prior approval of the Board of Transportation (formerly
the Public Service Commission) was an illegal transaction involving the fictitious
registration of the motor vehicle in the name of the private respondent so that he may
traffic with the privileges of his franchise, or certificate of public convenience, to
operate a tricycle service, the parties being in pari delicto, neither of them may bring
an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of
respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of
petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of
Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are
dismissed. No pronouncement as to costs.
SO ORDERED.

The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel
Jaucian presenting a lone assignment of error whether or not respondent court erred in applying
the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a certificate of public convenience allows another
person who owns motor 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.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent 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 both where it finds then. Upon this premise it would be error to accord the parties relief
from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:
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 that
he has given by virtue of the contract, or demand, the performance of the other's
undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by
prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the
Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.

Teja Marketing v. IAC Case Digest

Teja Marketing v. Intermediate Appellate Court
(148 SCRA 347)
Facts: Pedro Nale bought from Teja Marketing a motorcycle with complete accessories and a
sidecar. A chattel mortgage was constituted as a security for the payment of the balance of the
purchase price. The records of the Land Transportation Commission show that the motorcycle sold
to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja
Marketing and Angel Jaucian are one and the same, because it was made to appear that way only
as the defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line.
The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the
motorcycle with the Land Transportation Commission. The plaintiff, however failed to register the
motorcycle on that year on the ground that the defendant failed to comply with some requirements
such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for
stenciling, the plaintiff said that the defendant was hiding the motorcycle from him. Lastly, the plaintiff
also explained that though the ownership of the motorcycle was already transferred to the
defendant, the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of

Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted
with the bank.
Teja Marketing made demands for the payment of the motorcycle but just the same Nale failed to
comply, thus forcing Teja Marketing to consult a lawyer and file an action for damage before the City
Court of Naga in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation.
Teja Marketing also claimed that as of 20 February 1978, the total account of Nale was already P2,
731, 05 as shown in a statement of account; includes not only the balance of P1, 700.00 but an
additional 12% interest per annum on the said balance from 26 January 1976 to 27 February 1978; a
2% service charge; and P546.21 representing attorney's fees. On his part, Nale did not dispute the
sale and the outstanding balance of P1,700.00 still payable to Teja Marketing; but contends that
because of this failure of Teja Marketing to comply with his obligation to register the motorcycle, Nale
suffered damages when he failed to claim any insurance indemnity which would amount to no less
than P15,000.00 for the more than 2 times that the motorcycle figured in accidents aside from the
loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle
was impounded by the LTC for not being registered. The City Court rendered judgment in favor of
Teja Marketing, dismissing the counterclaim, and ordered Nale to pay Teja Marketing On appeal to
the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Nale filed a petition
for review with the Intermediate Appellate Court. On 18 July 1983, the appellate court set aside the
decision under review on the basis of doctrine of "pari delicto," and accordingly, dismissed the
complaint of Teja Marketing, as well as the counterclaim of Nale; without pronouncements as to
costs. Hence, the petition for review was filed by Teja Marketing and/or Angel Jaucian.
Issue: Whether the defendant can recover damages against the plaintiff?
Held: Unquestionably, the parties herein operated under an arrangement, commonly known as the
"kabit system" whereby a person who has been granted a certificate of public convenience allows
another person who owns motor 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. Although not out rightly penalized as a criminal
offense, the kabit system is invariably recognized as being contrary to public policy and, therefore,
void and in existent 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 both where it finds then. Upon this
premise it would be error to accord the parties relief from their predicament.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16790

April 30, 1963

URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees,

vs.
DELFIN BERNARDO, defendant-appellant.

Parades, Gaw and Associates for plaintiffs-appellees.

Bonifacio B. Camacho for defendant-appellant.
MAKALINTAL, J.:
Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter
to this Court on the ground that only questions of law are involved.
The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for
enforcement of his subsidiary liability as employer in accordance with Article 103, Revised Penal
Code. The trial court ordered defendant to pay plaintiffs P3,000.00 and costs upon the following
stipulated facts:
1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them
and was under their custody until his death on October 24,1956 when he was killed in a
motor vehicle accident, the fatal vehicle being a passenger jeepney with Plate No, AC-1963
(56) owned by the defendant;
2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque;
3. That the contract between Conrado Roque and defendant Delfin Bernardo was that Roque
was to pay to defendant the sum of P8.00, which he paid to said defendant, for privilege of
driving the jeepney on October 24, 1956, it being their agreement that whatever earnings
Roque could make out of the use of the jeepney in transporting passengers from one point to
another in the City of Manila would belong entirely to Conrado Roque;
4. That as a consequence of the accident and as a result of the death of Cesar Magboo in
said accident, Conrado Roque was prosecuted for homicide thru reckless imprudence before
the Court of First Instance of Manila, the information having been docketed as Criminal Case
No. 37736, and that upon arraignment Conrado Roque pleaded guilty to the information and
was sentenced to six (6) months of arresto mayor, with the accessory penalties of the law; to
indemnify the heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment in
case of insolvency, and to pay the costs;
5. That pursuant to said judgment Conrado Roque served his sentence but he was not able
to pay the indemnity because he was insolvent."
Appellant assails said decision, assigning three errors which boil down to the question of whether or
not an employer-employee relationship exists between a jeepney-owner and a driver under a
"boundary system" arrangement. Appellant contends that the relationship is essentially that of lessor
and lessee.
A similar contention has been rejected by this Court in several cases. In National Labor Union v.
Dinglasan, 52 O.G., No. 4, 1933, it was held that the features which characterize the "boundary
system" namely, the fact that the driver does not receive a fixed wage but gets only the excess of
the receipt of fares collected by him over the amount he pays to the jeep-owner and that the
gasoline consumed by the jeep is for the account of the driver are not sufficient to withdraw the
relationship between them from that of employer and employee. The ruling was subsequently cited
and applied in Doce v. Workmen's Compensation Commission, L-9417, December 22, 1958, which
involved the liability of a bus owner for injury compensation to a conductor working under the
"boundary system."

The same principle applies with greater reason in negligence cases concerning the right of third
parties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29,
1953, the owner and operator of a passenger jeepney leased it to another, but without the approval
of the Public Service Commission. In a subsequent collision a passenger died. We ruled that since
the lease was made without such approval, which was required by law, the owner continued to be
the operator of the vehicle in legal contemplation and as such was responsible for the consequences
incident to its operation. The same responsibility was held to attach in a case where the injured party
was not a passenger but a third person, who sued on the theory of culpa aquiliana (Timbol vs. Osias,
L-7547, April 30, 1955). There is no reason why a different rule should be applied in a subsidiary
liability case under Article 103 of the Revised Penal Code. As in the existence of an employeremployee relationship between the owner of the vehicle and the driver. Indeed to exempt from
liability the owner of a public vehicle who operates it under the "boundary system" on the ground that
he is a mere lessor would be not only to abet flagrant violations of the Public Service law but also to
place the riding public at the mercy of reckless and irresponsible drivers - reckless because the
measure of their earnings depends largely upon the number of trips they make and, hence, the
speed at which they drive; and irresponsible because most if not all of them are in no position to pay
the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1wph1.t

Appellant further argues that he should not have been held subsidiarily liable because Conrado
Roque (the driver of the jeepney) pleaded guilty to the charge in the criminal case without appellant's
knowledge and contrary to the agreement between them that such plea would not be entered but,
instead evidence would be presented to prove Roque's innocence. On this point we quote with
approval the pertinent portion of the decision appealed from:
"'With respect to the contention of the defendant that he was taken unaware by the
spontaneous plea of guilt entered by the driver Conrado Roque, and that he did not have a
chance to prove the innocence of said Conrado Roque, the Court holds that at this stage, it
is already too late to try the criminal case all over again. Defendant's allegation that he relied
on his belief that Conrado Roque would defend himself and they had sufficient proof to show
that Roque was not guilty of the crime charged cannot be entertained. Defendant should
have taken it to himself to aid in the defense of Conrado Roque. Having failed to take this
step and the accused having been declared guilty by final judgment of the crime of homicide
thru reckless imprudence, there appears no more way for the defendant to escape his
subsidiary liability as provided for in Article 103 of the Revised Penal Code."'
WHEREFORE, the judgment appealed from, being in accordance with law, is hereby affirmed, with
costs against defendant-appellant.

Magboo v. Bernardo Case Digest

Magboo v. Bernardo
7 SCRA 952
Facts: Urbano and Emilia Magboo are the parents of Cesar Magboo, a child of 8 years old, who
lived with them and was under their custody until his death on 24 October 1956 when he was killed
in a motor vehicle accident, the fatal vehicle being a passenger jeepney owned by Delfin Bernardo.
At the time of the accident, said passenger jeepney was driven by Conrado Roque. The contract
between Roque and Bernardo was that Roque was to pay to Bernardo the sum of P8.00, which he
paid to Bernardo, for privilege of driving the jeepney, it being their agreement that whatever earnings

Roque could make out of the use of the jeepney in transporting passengers from one point to
another in the City of Manila would belong entirely to Roque.
As a consequence of the accident and as a result of the death of Cesar Magboo in said accident,
Roque was prosecuted for homicide thru reckless imprudence before the CFI Manila. Roque was
sentenced to 6 months of arresto mayor, with the accessory penalties of the law; to indemnify the
heirs of the deceased in, with subsidiary imprisonment in case of insolvency, and to pay the costs.
Pursuant to said judgment Roque served his sentence but he was not able to pay the indemnity
because he was insolvent. An action was filed by the spouses Magboo against Bernardo is for
enforcement of his subsidiary liability. The trial court ordered Bernardo to pay the. Bernardo
appealed to the Court of Appeals, which certified the case to the Supreme Court on the ground that
only questions of law are involved.
Issue: Whether or not an employer-employee relationship between the jeepney operator and the
driver?
Held: An employer-employee relationship exists between a jeepney owner and a driver under a
boundary system arrangement. The features which characterize the boundary system - namely the
fact that the driver does not receive a fixed wage but gets only the excess of the amount of fares
collected by him over the amount he pays to the jeep-owner, and the gasoline consumed by the jeep
is for the amount of the driver - are not sufficient to withdraw the relationship between them from that
of employee and employer. Consequently, the jeepney owner is subsidiary liable as employer in
accordance with Art.103, Revised Penal Code.