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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, 20011 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 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.

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.

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.

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:

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

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.

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
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests and crew members. Nonetheless, it claimed that it exercised the
guests including petitioners son and his wife trekked to the other side of utmost diligence in ensuring the safety of its passengers; contrary to
the Coco Beach mountain that was sheltered from the wind where they petitioners allegation, there was no storm on September 11, 2000 as the
boarded M/B Coco Beach III, which was to ferry them to Batangas.
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
Shortly after the boat sailed, it started to rain. As it moved farther away Counterclaim, respondent alleged that it is entitled to an award for
from Puerto Galera and into the open seas, the rain and wind got stronger, attorneys fees and litigation expenses amounting to not less than
causing the boat to tilt from side to side and the captain to step forward to P300,000.
the front, leaving the wheel to one of the crew members.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
The waves got more unwieldy. After getting hit by two big waves which customarily requires four conditions to be met before a boat is allowed to
came one after the other, M/B Coco Beach III capsized putting all sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast
passengers underwater.
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

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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 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.)

The Civil Code defines "common carriers" in the following terms:

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.

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.

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

The petition is impressed with merit.


Petitioners correctly rely on De Guzman v. Court of Appeals17 in
characterizing respondent as a common carrier.

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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 cause of 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

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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. Borja34 teaches 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,
expectancy as follows:

the

Court

determines

Ruelito's

life

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 $90035 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 and P100,000 as exemplary
damages.381avvphi1

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 Appeals40 teaches that
when an obligation, regardless of its source, i.e., law, contracts, quasicontracts, 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.

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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.

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G.R. No. 200289

November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,


vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC.,
Respondents.
x-----------------------x
G.R. No. 200314
ORIENT FREIGHT INTERNATIONAL INC., Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC.,
Respondents.
DECISION
PERALTA, J.:
These two consolidated cases challenge, by way of petition for certiorari
under Rule 45 of the 1997 Rules of Civil Procedure, September 13, 2011
Decision1 and January 19, 2012 Resolution2 of the Court of Appeals (CA) in
CA-G.R. CV No. 86752, which reversed and set aside the January 27, 2006
Decision3 of the Manila City Regional Trial Court Branch (RTC) 30. The
facts, as established by the records, are as follows:
On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of
Kobe, Japan, 197 metal containers/skids of tin-free steel for delivery to the
consignee, San Miguel Corporation (SMC). The shipment, covered by Bill of
Lading No. KBMA-1074,4 was loaded and received clean on board M/V
Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind
Shipping Corporation (Westwind).
SMC insured the cargoes against all risks with UCPB General Insurance Co.,
Inc. (UCPB) for US Dollars: One Hundred Eighty-Four Thousand Seven
Hundred Ninety-Eight and Ninety-Seven Centavos (US$184,798.97), which,
at the time, was equivalent to Philippine Pesos: Six Million Two Hundred
Nine Thousand Two Hundred Forty-Five and Twenty-Eight Centavos
(P6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and was
discharged in the custody of the arrastre operator, Asian Terminals, Inc.
(ATI), formerly Marina Port Services, Inc.5 During the unloading operation,
however, six containers/skids worth Philippine Pesos: One Hundred
Seventeen Thousand Ninety-Three and Twelve Centavos (P117,093.12)
sustained dents and punctures from the forklift used by the stevedores of

Ocean Terminal Services, Inc. (OTSI) in centering and shuttling the


containers/skids. As a consequence, the local ship agent of the vessel,
Baliwag Shipping Agency, Inc., issued two Bad Order Cargo Receipt dated
September 1, 1993.
On September 7, 1993, Orient Freight International, Inc. (OFII), the
customs broker of SMC, withdrew from ATI the 197 containers/skids,
including the six in damaged condition, and delivered the same at SMCs
warehouse in Calamba, Laguna through J.B. Limcaoco Trucking (JBL). It
was discovered upon discharge that additional nine containers/skids valued
at Philippine Pesos: One Hundred Seventy-Five Thousand Six Hundred
Thirty-Nine and Sixty-Eight Centavos (P175,639.68) were also damaged
due to the forklift operations; thus, making the total number of 15
containers/skids in bad order.
Almost a year after, on August 15, 1994, SMC filed a claim against UCPB,
Westwind, ATI, and OFII to recover the amount corresponding to the
damaged 15 containers/skids. When UCPB paid the total sum of Philippine
Pesos: Two Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and
Eighty Centavos (P292,732.80), SMC signed the subrogation receipt.
Thereafter, in the exercise of its right of subrogation, UCPB instituted on
August 30, 1994 a complaint for damages against Westwind, ATI, and
OFII.6
After trial, the RTC dismissed UCPBs complaint and the counterclaims of
Westwind, ATI, and OFII. It ruled that the right, if any, against ATI already
prescribed based on the stipulation in the 16 Cargo Gate Passes issued, as
well as the doctrine laid down in International Container Terminal Services,
Inc. v. Prudential Guarantee & Assurance Co. Inc.7 that a claim for
reimbursement for damaged goods must be filed within 15 days from the
date of consignees knowledge. With respect to Westwind, even if the action
against it is not yet barred by prescription, conformably with Section 3 (6)
of the Carriage of Goods by Sea Act (COGSA) and Our rulings in E.E. Elser,
Inc., et al. v. Court of Appeals, et al.8 and Belgian Overseas Chartering and
Shipping N.V. v. Phil. First Insurance Co., Inc.,9 the court a quo still opined
that Westwind is not liable, since the discharging of the cargoes were done
by ATI personnel using forklifts and that there was no allegation that it
(Westwind) had a hand in the conduct of the stevedoring operations.
Finally, the trial court likewise absolved OFII from any liability, reasoning
that it never undertook the operation of the forklifts which caused the dents
and punctures, and that it merely facilitated the release and delivery of the
shipment as the customs broker and representative of SMC.
On appeal by UCPB, the CA reversed and set aside the trial court. The fallo
of its September 13, 2011 Decision directed:

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WHEREFORE, premises considered, the instant appeal is hereby GRANTED.


The Decision dated January 27, 2006 rendered by the court a quo is
REVERSED AND SET ASIDE. Appellee Westwind Shipping Corporation is
hereby ordered to pay to the appellant UCPB General Insurance Co., Inc.,
the amount of One Hundred Seventeen Thousand and Ninety-Three Pesos
and Twelve Centavos (Php117,093.12), while Orient Freight International,
Inc. is hereby ordered to pay to UCPB the sum of One Hundred SeventyFive Thousand Six Hundred Thirty-Nine Pesos and Sixty-Eight Centavos
(Php175,639.68). Both sums shall bear interest at the rate of six (6%)
percent per annum, from the filing of the complaint on August 30, 1994
until the judgment becomes final and executory. Thereafter, an interest rate
of twelve (12%) percent per annum shall be imposed from the time this
decision becomes final and executory until full payment of said amounts.
SO ORDERED.10
While the CA sustained the RTC judgment that the claim against ATI already
prescribed, it rendered a contrary view as regards the liability of Westwind
and OFII. For the appellate court, Westwind, not ATI, is responsible for the
six damaged containers/skids at the time of its unloading. In its rationale,
which substantially followed Philippines First Insurance Co., Inc. v. Wallem
Phils. Shipping, Inc.,11 it concluded that the common carrier, not the
arrastre operator, is responsible during the unloading of the cargoes from
the vessel and that it is not relieved from liability and is still bound to
exercise extraordinary diligence at the time in order to see to it that the
cargoes under its possession remain in good order and condition. The CA
also considered that OFII is liable for the additional nine damaged
containers/skids, agreeing with UCPBs contention that OFII is a common
carrier bound to observe extraordinary diligence and is presumed to be at
fault or have acted negligently for such damage. Noting the testimony of
OFIIs own witness that the delivery of the shipment to the consignee is
part of OFIIs job as a cargo forwarder, the appellate court ruled that Article
1732 of the New Civil Code (NCC) does not distinguish between one whose
principal business activity is the carrying of persons or goods or both and
one who does so as an ancillary activity. The appellate court further ruled
that OFII cannot excuse itself from liability by insisting that JBL undertook
the delivery of the cargoes to SMCs warehouse. It opined that the delivery
receipts signed by the inspector of SMC showed that the containers/skids
were received from OFII, not JBL. At the most, the CA said, JBL was
engaged by OFII to supply the trucks necessary to deliver the shipment,
under its supervision, to SMC.
Only Westwind and OFII filed their respective motions for reconsideration,
which the CA denied; hence, they elevated the case before Us via petitions
docketed as G.R. Nos. 200289 and 200314, respectively.

Westwind argues that it no longer had actual or constructive custody of the


containers/skids at the time they were damaged by ATIs forklift operator
during the unloading operations. In accordance with the stipulation of the
bill of lading, which allegedly conforms to Article 1736 of the NCC, it
contends that its responsibility already ceased from the moment the
cargoes were delivered to ATI, which is reckoned from the moment the
goods were taken into the latters custody. Westwind adds that ATI, which is
a completely independent entity that had the right to receive the goods as
exclusive operator of stevedoring and arrastre functions in South Harbor,
Manila, had full control over its employees and stevedores as well as the
manner and procedure of the discharging operations.
As for OFII, it maintains that it is not a common carrier, but only a customs
broker whose participation is limited to facilitating withdrawal of the
shipment in the custody of ATI by overseeing and documenting the turnover
and counterchecking if the quantity of the shipments were in tally with the
shipping documents at hand, but without participating in the physical
withdrawal and loading of the shipments into the delivery trucks of JBL.
Assuming that it is a common carrier, OFII insists that there is no need to
rely on the presumption of the law that, as a common carrier, it is
presumed to have been at fault or have acted negligently in case of
damaged goods considering the undisputed fact that the damages to the
containers/skids were caused by the forklift blades, and that there is no
evidence presented to show that OFII and Westwind were the
owners/operators of the forklifts. It asserts that the loading to the trucks
were made by way of forklifts owned and operated by ATI and the
unloading from the trucks at the SMC warehouse was done by way of
forklifts owned and operated by SMC employees. Lastly, OFII avers that
neither the undertaking to deliver nor the acknowledgment by the
consignee of the fact of delivery makes a person or entity a common
carrier, since delivery alone is not the controlling factor in order to be
considered as such.
Both petitions lack merit.
The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping,
Inc.12 applies, as it settled the query on which between a common carrier
and an arrastre operator should be responsible for damage or loss incurred
by the shipment during its unloading. We elucidated at length:
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 transported by them. Subject to certain exceptions
enumerated under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the

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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.
For marine vessels, Article 619 of the Code of Commerce provides that the
ship captain is liable for the cargo from the time it is turned over to him at
the dock or afloat alongside the vessel at the port of loading, until he
delivers it on the shore or on the discharging wharf at the port of unloading,
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,
the Court interpreted the ship captains liability as ultimately that of the
shipowner by regarding the captain as the representative of the shipowner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3 (2) thereof then states that
among the carriers responsibilities are to properly and carefully load,
handle, stow, carry, keep, care for, and discharge the goods carried.
xxxx
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment of
the consignee or shipper and the ship's tackle. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good
care of the goods and to turn them over to the party entitled to their
possession.
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody.
In Firemans Fund Insurance Co. v. Metro Port Service, Inc., the Court
explained the relationship and responsibility of an arrastre operator to a
consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman. The relationship between
the consignee and the common carrier is similar to that of the consignee
and the arrastre operator. Since it is the duty of the ARRASTRE to take good
care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with
and obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)

The liability of the arrastre operator was reiterated in Eastern Shipping


Lines, Inc. v. Court of Appeals with the clarification that the arrastre
operator and the carrier are not always and necessarily solidarily liable as
the facts of a case may vary the rule.
Thus, in this case, the appellate court is correct insofar as it ruled that an
arrastre operator and a carrier may not be held solidarily liable at all times.
But the precise question is which entity had custody of the shipment during
its unloading from the vessel?
The aforementioned Section 3 (2) of the COGSA states that among the
carriers responsibilities are to properly and carefully load, care for and
discharge the goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carriers liability for loss or damage to
the goods ceases after its discharge from the vessel. Article 619 of the
Code of Commerce holds a ship captain liable for the cargo from the time it
is turned over to him until its delivery at the port of unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M/V
Farland, it was ruled that like the duty of seaworthiness, the duty of care of
the cargo is non-delegable, and the carrier is accordingly responsible for the
acts of the master, the crew, the stevedore, and his other agents. It has
also been held that it is ordinarily the duty of the master of a vessel to
unload the cargo and place it in readiness for delivery to the consignee, and
there is an implied obligation that this shall be accomplished with sound
machinery, competent hands, and in such manner that no unnecessary
injury shall be done thereto. And the fact that a consignee is required to
furnish persons to assist in unloading a shipment may not relieve the
carrier of its duty as to such unloading.
xxxx
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier x x x.13
In Regional Container Lines (RCL) of Singapore v. The Netherlands
Insurance Co. (Philippines), Inc.14 and Asian Terminals, Inc. v. Philam
Insurance Co., Inc.,15 the Court echoed the doctrine that cargoes, while
being unloaded, generally remain under the custody of the carrier. We
cannot agree with Westwinds disputation that "the carrier in Wallem clearly
exercised supervision during the discharge of the shipment and that is why
it was faulted and held liable for the damage incurred by the shipment
during such time." What Westwind failed to realize is that the extraordinary
responsibility of the common carrier lasts until the time the goods are
actually or constructively delivered by the carrier to the consignee or to the
person who has a right to receive them. There is actual delivery in contracts
for the transport of goods when possession has been turned over to the

TRANSPO | 06Dec | 9

consignee or to his duly authorized agent and a reasonable time is given


him to remove the goods.16 In this case, since the discharging of the
containers/skids, which were covered by only one bill of lading, had not yet
been completed at the time the damage occurred, there is no reason to
imply that there was already delivery, actual or constructive, of the cargoes
to ATI. Indeed, the earlier case of Delsan Transport Lines, Inc. v. American
Home Assurance Corp.17 serves as a useful guide, thus:
Delsans argument that it should not be held liable for the loss of diesel oil
due to backflow because the same had already been actually and legally
delivered to Caltex at the time it entered the shore tank holds no water. It
had been settled that the subject cargo was still in the custody of Delsan
because the discharging thereof has not yet been finished when the
backflow occurred. Since the discharging of the cargo into the depot has
not yet been completed at the time of the spillage when the backflow
occurred, there is no reason to imply that there was actual delivery of the
cargo to the consignee. Delsan is straining the issue by insisting that when
the diesel oil entered into the tank of Caltex on shore, there was legally, at
that moment, a complete delivery thereof to Caltex. To be sure, the
extraordinary responsibility of 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 a person who has the
right to receive them. The discharging of oil products to Caltex Bulk Depot
has not yet been finished, Delsan still has the duty to guard and to preserve
the cargo. The carrier still has in it the responsibility to guard and preserve
the goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in
vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case. The mere proof of
delivery of goods in good order to the carrier, and their arrival in the place
of destination in bad order, make out a prima facie case against the carrier,
so that if no explanation is given as to how the injury occurred, the carrier
must be held responsible. It is incumbent upon the carrier to prove that the
loss was due to accident or some other circumstances inconsistent with its
liability.18
The contention of OFII is likewise untenable. A customs broker has been
regarded as a common carrier because transportation of goods is an
integral part of its business.19 In Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,20 the Court already reiterated: It is
settled that under a given set of facts, a customs broker may be regarded
as a common carrier.1wphi1 Thus, this Court, in A.F. Sanchez Brokerage,
Inc. v. The Honorable Court of Appeals held:

The appellate court did not err in finding petitioner, a customs broker, to be
also a common carrier, as defined under Article 1732 of the Civil Code, to
wit, 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.
xxxx
Article 1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not a
common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required
by law is bereft of merit. It suffices that petitioner undertakes to deliver the
goods for pecuniary consideration.
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the
transportation of goods is an integral part of a customs broker, the customs
broker is also a common carrier. For to declare otherwise "would be to
deprive those with whom [it] contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for [its]
customers, is part and parcel of petitioners business."21
That OFII is a common carrier is buttressed by the testimony of its own
witness, Mr. Loveric Panganiban Cueto, that part of the services it offers to
clients is cargo forwarding, which includes the delivery of the shipment to
the consignee.22 Thus, for undertaking the transport of cargoes from ATI to
SMCs warehouse in Calamba, Laguna, OFII is considered a common carrier.
As long as a person or corporation holds itself to the public for the purpose
of transporting goods as a business, it is already considered a common
carrier regardless of whether it owns the vehicle to be used or has to
actually hire one.
As a common carrier, OFII is mandated to observe, under Article 1733 of
the Civil Code,23 extraordinary diligence in the vigilance over the goods24
it transports according to the peculiar circumstances of each case. In the
event that the goods are lost, destroyed or deteriorated, it is presumed to
have been at fault or to have acted negligently unless it proves that it
observed extraordinary diligence.25 In the case at bar it was established
that except for the six containers/skids already damaged OFII received the
cargoes from ATI in good order and condition; and that upon its delivery to
SMC additional nine containers/skids were found to be in bad order as
noted in the Delivery Receipts issued by OFII and as indicated in the Report
of Cares Marine Cargo Surveyors. Instead of merely excusing itself from
liability by putting the blame to ATI and SMC it is incumbent upon OFII to
prove that it actively took care of the goods by exercising extraordinary

TRANSPO | 06Dec | 10

diligence in the carriage thereof. It failed to do so. Hence its presumed


negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, premises considered the petitions of Westwind and OFII in
G.R. Nos. 200289 and 200314 respectively are DENIED. The September 13
2011 Decision and January 19 2012 Resolution of the Court of Appeals in
CA-G.R. CV No. 86752 which reversed and set aside the January 27 2006
Decision of the Manila City Regional Trial Court Branch 30 are AFFIRMED.
SO ORDERED.

G.R. No. 114222

April 6, 1995

TRANSPO | 06Dec | 11

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.
SYLLABUS
1.
REMEDIAL
LAW; CIVIL
PROCEDURE;
TAXPAYERS
SUITS;
PREVAILING DOCTRINE. The prevailing doctrines in taxpayers 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.
2.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC
UTILITY; FACILITIES TO OPERATE A PUBLIC UTILITY DO NOT NEED A
FRANCHISE. Private respondent EDSA LRT Corporation, Ltd. to whom the
contract to construct the EDSA LRT III was awarded by public respondent
Secretary of DOTC, is admittedly a foreign corporation "duly incorporated
and existing under the laws of Hongkong." However, 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. 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.
3.
ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY AND
OWNERSHIP OF FACILITIES, DISTINGUISHED. 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. 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.
4.
ID.; ID.; ID.; ID.; REQUISITE FILIPINO NATIONALITY DETERMINED
WHEN ENTITY APPLIES FOR FRANCHISE. 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. Indeed, a mere owner and lessor of the facilities used by a
public utility is not a public utility. Neither are owners of tank, refrigerator,
wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities. 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.
5.
ID.; ID.; ID.; BUILD-OPERATE-AND-TRANSFER (BOT) SCHEME;
BUILD-AND-TRANSFER (BT) SCHEME; DEFINED AND DISTINGUISHED.
The BOT scheme is expressly defined as one where the contractor
undertakes the construction and financing of an 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

TRANSPO | 06Dec | 12

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.
6.
ID.; ID.; ID.; BUILD-LEASE-AND-TRANSFER (BLT) SCHEME AND
RELATED AGREEMENTS; NOT BARRED IN THE BOT LAW (RA 6975).
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. 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. 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). A lease
is a contract where one of the parties binds himself to give to another the
enjoyment or use of a thing for 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. It is, therefore, outside the application of the Uniform
Currency Act (R.A. No. 529).
7.
ID.; ID.; ID.; AWARD OF CONSTRUCTION MAY BE MADE BY
NEGOTIATION. 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 does not suffice
to invalidate the award. Subsequent congressional approval of the list
including "rail-based projects packaged with commercial development

opportunities" under which the EDSA LRT III project falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the BOT
Law. Indeed, where there is a lack of qualified bidders or contractors, the
award of government infrastructure contracts may be made by negotiation.
Presidential Decree No. 1594 is the general law on government
infrastructure contracts while the BOT Law governs particular arrangements
or schemes aimed at encouraging private sector participation in
government infrastructure projects. The two laws are not inconsistent with
each other but are in pari materia and should be read together accordingly.
8.
ID.; ID.; RA 7718; QUALIFIED APPLICANT MAY ENTER INTO ANY
SCHEME INCLUDING A BLT ARRANGEMENT. Republic Act No. 7718
recognizes and defines a BLT scheme in Section 2 thereof. Section 5-A of
the law, expressly allows direct negotiation of contracts. From the law itself,
once an applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2, RA 7718, 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.
9.
ID.; ID.; ID.; AGREEMENTS BETWEEN PRIVATE RESPONDENT AND
DOTC, PRESUMED WELL-TAKEN AND TO THE ADVANTAGE OF BOTH
PARTIES; GOVERNMENT OFFICIALS CONCERNED, PRESUMED TO HAVE
PERFORMED THEIR FUNCTIONS REGULARLY. 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. 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. 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

TRANSPO | 06Dec | 13

and coordinated networks of transportation and communications systems as


well as in the fast, safe, efficient and reliable postal, transportation an
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 to determine whether or not a
specific transportation or communications 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.
MENDOZA, J., concurring:chanrob1es virtual 1aw library
1.
REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; MEMBERS OF
CONGRESS, NO LEGAL STANDING TO SUE IF THEY ALLEGE NO
INFRINGEMENT OF PREROGATIVES AS LEGISLATORS. J. Mendoza holds
that petitioners do not have standing to sue. He joins to dismiss the petition
in this case. Petitioners do not have the right to sue, whether as legislators,
taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogatives as legislators. As taxpayers because
petitioners allege neither an unconstitutional exercise of the taxing or
spending powers of Congress (Art. VI, 24-25 and 29) nor an illegal
disbursement of public money. As this Court pointed out in Bugnay Const.
and Dev. Corp. v. Laron, 176 SCRA 240, 251-2-(1989) a party suing as
taxpayer "must specifically prove that he has sufficient interest in
preventing the illegal expenditure of money raised by taxation and that he
will sustain a direct injury as a result of the enforcement of the questioned
statute or contract. It is not sufficient that he has merely a general interest
common to all members of the public." In that case, it was held that a
contract, whereby a local government leased property to a private party
with the understanding that the latter would build a market building and at
the end of the lease would transfer the building to the lessor, did not
involve a disbursement of public funds so as to give a taxpayer standing to
question the legality of the contract. He sees no substantial difference, as
far as the standing of taxpayers to question public contracts is concerned,
between the contract there and the build-lease-transfer (BLT) contract
being questioned by petitioners in this case. Nor do petitioners have
standing to bring this suit as citizens. In the cases in which citizens were
authorized to sue, this Court found standing because it thought the
constitutional claims pressed for decision to be of "transcendental
importance," as in fact it subsequently granted relief to petitioners by
invalidating the challenged statutes or governmental actions. But in the
case at bar, the Court precisely finds the opposite by finding petitioners
substantive contentions to be without merit. To the extent therefore that a
partys standing is affected by a determination of the substantive merit of
the case or a preliminary estimate thereof, petitioners in the case at bar
must be held to be without standing. This is in line with our ruling in
Lawyers League for a Better Philippines v. Aquino (G.R. Nos. 73748, 73972,
73990, May 22, 1986) and In re Bermudez (145 SCRA 160, 1986) where

we dismissed citizens actions on the ground that petitioners had no


personality to sue and their petitions did not state a cause of action. The
holding that petitioners did not have standing followed from the finding that
they did not have a cause of action. In order that citizens actions may be
allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the
government; the injury is fairly traceable to the challenged action; and the
injury is likely to be redressed by a favorable action. Todayss holding that a
citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and
controversy requirement so carefully embodied in Art. VIII, 5 in defining
the jurisdiction of this Court. The result is to convert the Court into an office
of ombudsman for the ventilation of generalized grievances.
FELICIANO, J., dissenting:chanrob1es virtual 1aw library
1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC
UTILITY (EDSA LRT III); PD 1594 ON BIDDING AND RELATED PROVISIONS;
NOT APPLICABLE TO RA 6957 AND RA 7718. Presidential Decree No.
1594 dated 11 June 1978 entitled: "Prescribing Policies, Guidelines, Rules
and Regulations for Government Infrastructure Contracts." More specifically,
the majority opinion invokes paragraph 1 of Section 4 of this Degree which
refers to Bidding. I understand the unspoken theory in the majority opinion
to be that above Section 4 and presumably the rest of Presidential Decree
No. 1594 continue to exist and to run parallel to the provisions of Republic
Act No. 6957, whether in its original form or as amended by Republic Act
No. 7718. A principal difficulty with this approach is that Presidential Decree
No. 1594 purports to apply to all "government contracts for infrastructure
and other construction projects." But Republic Act No. 6957 as amended by
Republic Act No. 7718, relates only to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector"
"through the build/operate-and-transfer or build-and-transfer scheme",
under Republic Act No. 6597 and under a series of other comparable
schemes under Republic Act No. 7718. In other words, Republic Act No.
6957 and Republic Act No. 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than
the wide-ranging scope of application of the general statute, i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made
by Mr. Justice Davide that Republic Act No. 6957 in specific connection with
BOT- and BLT-type of contracts imposed an unqualified requirement of
public bidding set out in Section 5 thereof. It should also be pointed out
that under Presidential Decree No. 1504, projects may be undertaken "by
administration or force account or by negotiated contract only" (1) "in
exceptional cases where time is of the essence" ; or (2) "where there is lack
of bidders or contractors" ; or (3) "where there is a conclusive evidence
that greater economy and efficiency would be achieved through these
arrangements, and in accordance with provision[s] of laws and acts of the

TRANSPO | 06Dec | 14

matter." It must, upon the one hand, be noted that the special law Republic
Act No. 6957 made absolutely no mention of negotiated contracts being
permitted to displace the requirement of public bidding. Upon the other
hand, Section 5-a, inserted in Republic Act No. 6957 by the amending
statute Republic Act No. 7718, does not purport to authorize direct
negotiation of contracts except in four (4) situations where there is a lack of
pre-qualified contractors or complying bidders. Thus, even under the
amended special statute, entering into contracts by negotiation is not
permissible in the other two (2) categories of cases referred to in Section 4
of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of
the essence" and "when there is conclusive evidence that greater economy
and efficiency would be achieved through these arrangements, etc." The
result I reach is that insofar as BOT, etc. types of contracts are
concerned, the applicable public bidding requirement is that set out in
Republic Act No. 6957 and, with respect to such type of contracts opened
for pre-qualification and bidding after the date of effectivity of republic Act
No. 7718, the provisions of Republic Act No. 7718. The assailed contract
was entered into before Republic Act No. 7718 was enacted. The difficulties
of applying the provisions of Presidential Decree No. 1594 to the Edsa LRTtype of contracts are aggravated when one considers the detailed
"Implementing Rules and Regulations as amended April 1988" issued under
that Presidential Decree. There is no reference at all in these Presidential
Decree No. 1594 Implementing Rules and Regulations to absence of prequalified applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding. Note
also the following provision of the same Implementing Rules and
Regulations: "IB 1 Prequalification. The following may become contractors
for government projects: 1. Filipino a. Citizens (single proprietorship) b.
Partnership or corporation duly organized under the laws of the Philippines,
and at least seventy five percent (75%) of the capital stock of which
belongs to Filipino citizens. 2. Contractors forming themselves into a joint
venture, i.e., a group of two or more contractors that intend to be jointly
and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and
properly accredited by the Philippine Contractors Accreditation Board, shall
comply with the provisions of R.A. 4566, provided that joint ventures in
which Filipino ownership is less than seventy five percent (75%) may be
prequalified where the structures to be built require the application of
techniques and/or technologies which are not adequately possessed by a
Filipino entity as defined above. The record of this case is entirely silent on
the extent of Philippine equity in the Edsa LRT Corporation; there is no
suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.
2.
ID.; ID.; ID.; PUBLIC BIDDING, AN IMPORTANT REQUIREMENT.
Public bidding is the normal method by which a government keeps
contractors honest and is able to assure itself that it would be getting the

best possible value for its money in any construction or similar project. It is
not for nothing that multilateral financial organizations like the World Bank
and the Asian Development Bank uniformly require projects financed by
them to be implemented and carried out by public bidding. Public bidding is
much too important a requirement casually to loosen by a latitudinarian
exercise in statutory construction.
DAVIDE, JR., J., dissenting opinion:chanrob1es virtual 1aw library
1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC
UTILITY (EDSA LRT III); RA 6957 (BOT LAW); BUILD-LEASE-ANDTRANSFER (BLT) SCHEME, NOT INCLUDED THEREIN. Respondents admit
that the assailed contract was entered into under R.A. 6957. This law,
fittingly entitled "An Act Authorizing the Financing, Construction, Operation
and Maintenance of Infrastructure Projects by the Private Sector, and For
Other Purposes," recognizes only two (2) kinds of contractual arrangements
between the private sector and government infrastructure agencies: (a) the
Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer
(BT) scheme. This conclusion finds support in Section 2 thereof which
defines only the BOT and BT schemes, in Section 3 which explicitly provides
for said schemes and in Section 5 which requires public bidding of projects
under both schemes. All prior acts and negotiations leading to the
perfection of the challenged contract were clearly intended and pursued for
such schemes. A Build-Lease-and-Transfer (BLT) scheme is not authorized
under the said law, and none of the aforesaid prior acts and negotiations
were designed for such unauthorized scheme. Hence, the DOTC is without
any power or authority to enter into the BLT contract in question. If it is
intended to include a BLT scheme in RA 6957, then it should have so stated,
for contracts of lease are not unknown in our jurisdiction, and Congress has
enacted several laws relating to leases. That the BLT scheme was never
intended as a permissible variation "within the context" of the BOT and BT
schemes is conclusively established by the passage of R.A. No. 7718 which
amends: a) Section 2 by adding to the original BOT and BT schemes the
following schemes: (1) Build-own-and operate (BOO) (2) Build-Lease-andtransfer (BLT) (3) Build-transfer-and-operate (BTO) (4) Contract-add-andoperate (CAO) (5) Develop-operate-and-transfer (DOT) (6) Rehabilitateoperate-and-transfer (ROT) (7) Rehabilitate-own-and-operate (ROO) b)
Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the
build-operate-and-transfer or build-and-transfer scheme."cralaw virtua1aw
library
2.
ID.; ID.; ID.; PUBLIC BIDDING THEREIN, MANDATORY; RA 7718
FOREGOING THE SAME DOES NOT PROVIDE FOR RETROACTIVE
APPLICATION. Public bidding is mandatory in R.A. No. 6957 under
Section 5 thereof. The requirement of public bidding is not an idle
ceremony. It has been aptly said that in our jurisdiction "public bidding is
the policy and medium adhered to in Government procurement and

TRANSPO | 06Dec | 15

construction contracts under existing laws and regulations. It is the


accepted method for arriving at a fair and reasonable price and ensures
that overpricing, favoritism and other anomalous practices are eliminated or
minimized. And any Government contract entered into without the required
bidding is null and void and cannot adversely affect the rights of third
parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT
CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex v.
Delgado Bros., 96 Phil. 368 [1954]). The Office of the President, through
then Executive Secretary Franklin Drilon correctly disapproved the contract
because no public bidding in strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon further bluntly stated that the
provision of the Implementing Rules of said law authorizing negotiated
contracts was of doubtful legality. Indeed, it is null and void because the
law itself does not recognize or allow negotiated contracts. The mandatory
requirement of public bidding cannot be legally dispensed with simply
because only one was qualified to bid during the prequalification
proceedings. Section 5 mandates that the BOT or BT contract should be
awarded "to the lowest complying bidder," which logically means that there
must at least be two (2) bidders. If this minimum requirement is not met,
then the proposed bidding should be deferred and a new prequalification
proceeding be scheduled. Even those who were earlier disqualified may by
then have qualified because they may have, in the meantime, exerted
efforts to meet all the qualifications. This view of the majority would open
the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include
dishonest government officials. They could just agree, for a certain
consideration, that only one of them would qualify in order that the latter
would automatically corner the contract and obtain the award. That Section
5 admits of no exception and that no bidding could be validly had with only
one bidder is likewise conclusively shown by the amendments introduced by
R.A. No. 7718. Per Section 7 thereof, a new section denominated as Section
5-A was introduced in R.A. No. 6957 to allow direct negotiation of contracts.
Can this amendment be given retroactive effect to the challenged contract
so that it may now be considered a permissible negotiated contract? I
submit that it cannot be. R.A. No. 7718 does not provide that it should be
given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) days after its publication in at least two
(2) newspapers of general circulation." If it were the intention of Congress
to give said act retroactive effect then it would have so expressly provided.
Article 4 of the Civil Code provides that" [l]aws shall have no retroactive
effect, unless the contrary is provided." The presumption is that all laws
operate prospectively, unless the contrary clearly appears or is clearly,
plainly, and unequivocally expressed or necessarily implied. In every case of
doubt, the doubt will be resolved against the retroactive application of laws.
(Ruben E. Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland
states: In accordance with the rule applicable to original acts, it is

presumed that provisions added by the amendment affecting substantive


rights are intended to operate prospectively. Provisions added by the
amendment that affect substantive rights will not be construed to apply to
transactions and events completed prior to its enactment unless the
legislature has expressed its intent to that effect or such intent is clearly
implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLANDS
STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]).

QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit
respondents from further implementing and enforcing the "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit System
for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer
a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are
members of the Philippine Senate and are suing in their capacities as
Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the
incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT Corporation,
Ltd. is a private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA,
a major thoroughfare in Metropolitan Manila, which shall traverse the cities
of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA
Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit
system along EDSA and alleviate the congestion and growing transportation
problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises,
Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos,
proposing to construct the EDSA LRT III on a Build-Operate-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

TRANSPO | 06Dec | 16

President Corazon C. Aquino. Referred to as the Build-Operate-Transfer


(BOT) Law, it took effect on October 9, 1990.

provided that the BOT/BT contractor-applicant meet the requirements


specified in the Constitution and other pertinent laws (Rollo, p. 114).

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).

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 accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT
III project underway, DOTC, on January 22, 1991 and March 14, 1991,
issued Department Orders Nos. 91-494 and 91-496, respectively creating
the Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.
After its constitution, the PBAC issued guidelines for the prequalification of
contractors for the financing and implementation of the project The notice,
advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive weeks
starting February 21, 1991.
The deadline set for submission of prequalification documents was March
21, 1991, later extended to April 1, 1991. Five groups responded to the
invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of
Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of
Japan, and EDSA LRT Consortium, composed of ten foreign and domestic
corporations: namely, Kaiser Engineers International, Inc., ACER
Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the
Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and
Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc.,
A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz &
co., Inc.
On the last day for submission of prequalification documents, the
prequalification criteria proposed by the Technical Committee were adopted
by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal
aspects 10 percent; (b) Management/Organizational capability 30
percent; and (c) Financial capability 30 percent; and (d) Technical
capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the
formulation of the Implementation Rules and Regulations thereof, approved
the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on
May 9, 1991 declaring that of the five applicants, only the EDSA LRT
Consortium "met the requirements of garnering at least 21 points per
criteria [sic], except for Legal Aspects, and obtaining an over-all passing
mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to

In July 1991, Executive Secretary Orbos, acting on instructions of the


President, issued a directive to the DOTC to proceed with the negotiations.
On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to
DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC
and respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT
Consortium, entered into an "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo,
pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who
replaced Executive Secretary Orbos, informed Secretary Prado that the
President could not grant the requested approval for the following reasons:
(1) that DOTC failed to conduct actual public bidding in compliance with
Section 5 of the BOT Law; (2) that the law authorized public bidding as the
only mode to award BOT projects, and the prequalification proceedings was
not the public bidding contemplated under the law; (3) that Item 14 of the
Implementing Rules and Regulations of the BOT Law which authorized
negotiated award of contract in addition to public bidding was of doubtful
legality; and (4) that congressional approval of the list of priority projects
under the BOT or BT Scheme provided in the law had not yet been granted
at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and
private respondents re-negotiated the agreement. On April 22, 1992, the
parties entered into a "Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch
as "the parties [are] cognizant of the fact the DOTC has full authority to
sign the Agreement without need of approval by the President pursuant to
the provisions of Executive Order No. 380 and that certain events [had]
supervened since November 7, 1991 which necessitate[d] the revision of
the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by

TRANSPO | 06Dec | 17

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).

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.

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).

In their petition, petitioners argued that:

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).

II

(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;

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).

(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;

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

(3)
The scheme adopted in the Agreements is actually a build-transfer
scheme allowed by the BOT Law;

(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;

TRANSPO | 06Dec | 18

(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 governmentowned 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]).

(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]).

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.

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.

IV

Section 11 of Article XII of the Constitution provides:

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:

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).

(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;

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

TRANSPO | 06Dec | 19

(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.

TRANSPO | 06Dec | 20

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.

TRANSPO | 06Dec | 21

Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil.
119 [1914]).

the National Economic Council which are financed by or through foreign


funds; . . . .

The BLT scheme in the challenged agreements is but a variation of the BT


scheme under the law.

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.

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

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).

TRANSPO | 06Dec | 22

xxx

xxx

xxx

Indeed, where there is a lack of qualified bidders or contractors, the award


of government infrastructure contracts may he made by negotiation.
Presidential Decree No. 1594 is the general law on government
infrastructure contracts while the BOT Law governs particular arrangements
or schemes aimed at encouraging private sector participation in
government infrastructure projects. The two laws are not inconsistent with
each other but are in pari materia and should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by
foul play, one wonders why none of the competing firms ever brought the
matter before the PBAC, or intervened in this case before us (cf. Malayan
Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992];
Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos
himself. Although then Executive Secretary Drilon may have disapproved
the "Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA," there is nothing in our laws that prohibits parties to a contract from
renegotiating and modifying in good faith the terms and conditions thereof
so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the
prequalification process would just be an idle ceremony. Useless
bureaucratic "red tape" should be eschewed because it discourages private
sector participation, the "main engine" for national growth and development
(R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2
thereof as:
(e)
Build-lease-and-transfer A contractual arrangement whereby a
project proponent is authorized to finance and construct an infrastructure or
development facility and upon its completion turns it over to the
government agency or local government unit concerned on a lease
arrangement for a fixed period after which ownership of the facility is
automatically transferred to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of
contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to
when there is only one complying bidder left as defined hereunder.
(a)
If, after advertisement, only one contractor applies for
prequalification and it meets the prequalification requirements, after which

it is required to submit a bid proposal which is subsequently found by the


agency/local government unit (LGU) to be complying.
(b)
If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements, after
which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying.
(c)
If, after prequalification of more than one contractor only one
submits a bid which is found by the agency/LGU to be complying.
(d)
If, after prequalification, more than one contractor submit bids but
only one is found by the agency/LGU to be complying. Provided, That, any
of the disqualified prospective bidder [sic] may appeal the decision of the
implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in
case of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was
made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts
are not contemplated by the BOT Law has now been rendered moot and
academic by R.A. No. 7718. Section 3 of this law authorizes all government
infrastructure agencies, government-owned and controlled corporations and
local government units to enter into contract with any duly prequalified
proponent for the financing, construction, operation and maintenance of
any financially viable infrastructure or development facility through a BOT,
BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT
(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].

TRANSPO | 06Dec | 23

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).

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.

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

G.R. No. 149038

April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,

TRANSPO | 06Dec | 24

vs.
PKS SHIPPING COMPANY, respondent.

fortuitous event, negating any liability on the part of PKS Shipping to the
shipper.

VITUG, J.:

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.

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

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."

TRANSPO | 06Dec | 25

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,3 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.6
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.7 The 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.

TRANSPO | 06Dec | 26

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.

G.R. No. 157917

August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

TRANSPO | 06Dec | 27

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE,
NATIONAL RAILWAYS, and the COURT OF APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the
law. He is bound to observe extraordinary diligence in the conduct of his
business. He is presumed to be negligent when death occurs to a
passenger. His liability may include indemnity for loss of earning capacity
even if the deceased passenger may only be an unemployed high school
student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia
(Perefias) appeal the adverse decision promulgated on November 13, 2002,
by which the Court of Appeals (CA) affirmed with modification the decision
rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch
260, in Paraaque City that had decreed them jointly and severally liable
with Philippine National Railways (PNR), their co-defendant, to Spouses
Nicolas and Teresita Zarate (Zarates) for the death of their 15-year old son,
Aaron John L. Zarate (Aaron), then a high school student of Don Bosco
Technical Institute (Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from
their respective residences in Paraaque City to Don Bosco in Pasong Tamo,
Makati City, and back. In their business, the Pereas used a KIA Ceres Van
(van) with Plate No. PYA 896, which had the capacity to transport 14
students at a time, two of whom would be seated in the front beside the
driver, and the others in the rear, with six students on either side. They
employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and
from Don Bosco. On August 22, 1996, as on previous school days, the van
picked Aaron up around 6:00 a.m. from the Zarates residence. Aaron took
his place on the left side of the van near the rear door. The van, with its airconditioning unit turned on and the stereo playing loudly, ultimately carried
all the 14 student riders on their way to Don Bosco. Considering that the
students were due at Don Bosco by 7:15 a.m., and that they were already
running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m.
by traversing the narrow path underneath the Magallanes Interchange that

was then commonly used by Makati-bound vehicles as a short cut into


Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the
narrow path had no railroad warning signs, or watchmen, or other
responsible persons manning the crossing. In fact, the bamboo barandilla
was up, leaving the railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR
Commuter No. 302 (train), operated by Jhonny Alano (Alano), was in the
vicinity of the Magallanes Interchange travelling northbound. As the train
neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the
oncoming train was blocked because he overtook the passenger bus on its
left side. The train blew its horn to warn motorists of its approach. When
the train was about 50 meters away from the passenger bus and the van,
Alano applied the ordinary brakes of the train. He applied the emergency
brakes only when he saw that a collision was imminent. The passenger bus
successfully crossed the railroad tracks, but the van driven by Alfaro did
not. The train hit the rear end of the van, and the impact threw nine of the
12 students in the rear, including Aaron, out of the van. Aaron landed in the
path of the train, which dragged his body and severed his head,
instantaneously killing him. Alano fled the scene on board the train, and did
not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates
commenced this action for damages against Alfaro, the Pereas, PNR and
Alano. The Pereas and PNR filed their respective answers, with crossclaims against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John L.
Zarate;
(2) Spouses Zarate engaged the services of spouses Perea for the
adequate and safe transportation carriage of the former spouses' son from
their residence in Paraaque to his school at the Don Bosco Technical
Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the
implementation thereof, Aaron, the minor son of spouses Zarate died in
connection with a vehicular/train collision which occurred while Aaron was
riding the contracted carrier Kia Ceres van of spouses Perea, then driven
and operated by the latter's employee/authorized driver Clemente Alfaro,
which van collided with the train of PNR, at around 6:45 A.M. of August 22,

TRANSPO | 06Dec | 28

1996, within the vicinity of the Magallanes Interchange in Makati City, Metro
Manila, Philippines;

motorists for railroad crossings, constituting the proximate cause of the


vehicular collision which resulted in the death of the plaintiff spouses' son;

(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for
crossing the railroad tracks;

(4) Whether or not defendant spouses Perea are liable for breach of the
contract of carriage with plaintiff-spouses in failing to provide adequate and
safe transportation for the latter's son;

(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly
used for railroad crossing;

(5) Whether or not defendants spouses are liable for actual, moral
damages, exemplary damages, and attorney's fees;

(6) At the material time, countless number of Makati bound public utility
and private vehicles used on a daily basis the site of the collision as an
alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on board the
commuter train involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in
fact intended by the railroad operator for railroad crossing at the time of the
vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train
collision;

(6) Whether or not defendants spouses Teodorico and Nanette Perea


observed the diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental
death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the
commuter train involved in the accident, in allowing or tolerating the
motoring public to cross, and its failure to install safety devices or
equipment at the site of the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant
spouses for any and whatever amount the latter may be held answerable or
which they may be ordered to pay in favor of plaintiffs by reason of the
action;

(11) The eventual closure of the railroad crossing alleged by PNR was an
internal arrangement between the former and its project contractor; and

(10) Whether or not defendant PNR should pay plaintiffs directly and fully
on the amounts claimed by the latter in their Complaint by reason of its
gross negligence;

(12) The site of the vehicular/train collision was within the vicinity or less
than 100 meters from the Magallanes station of PNR.

(11) Whether or not defendant PNR is liable to defendants spouses for


actual, moral and exemplary damages and attorney's fees.2

B. ISSUES

The Zarates claim against the Pereas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on
quasi-delict under Article 2176, Civil Code.

(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the
vehicular collision, which resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of
defendant Alfaro are liable for any negligence which may be attributed to
defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the
operator of the railroad system is liable for negligence in failing to provide
adequate safety warning signs and railings in the area commonly used by

In their defense, the Pereas adduced evidence to show that they had
exercised the diligence of a good father of the family in the selection and
supervision of Alfaro, by making sure that Alfaro had been issued a drivers
license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro
Perea had sometimes accompanied Alfaro in the vans trips transporting
the students to school.
For its part, PNR tended to show that the proximate cause of the collision
had been the reckless crossing of the van whose driver had not first

TRANSPO | 06Dec | 29

stopped, looked and listened; and that the narrow path traversed by the
van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendants ordering them to jointly and
severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorneys fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for reconsideration,4
reiterating that the cooperative gross negligence of the Pereas and PNR
had caused the collision that led to the death of Aaron; and that the
damages awarded to the Zarates were not excessive, but based on the
established circumstances.
The CAs Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly
and severally liable together with defendant-appellants spouses Teodorico
and Nanette Perea and defendant-appellant Clemente Alfaro to pay
plaintiffs-appellees for the death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees


witnesses despite overwhelming documentary evidence on record,
supporting the case of defendants-appellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally
liable for actual, moral and exemplary damages and attorneys fees with the
other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas
against the Philippine National Railways and in not holding the latter and its
train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of
earning capacity in the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the
findings of the RTC, but limited the moral damages to P 2,500,000.00; and
deleted the attorneys fees because the RTC did not state the factual and
legal bases, to wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional
Trial Court, Branch 260 of Paraaque City is AFFIRMED with the
modification that the award of Actual Damages is reduced to P 59,502.76;
Moral Damages is reduced to P 2,500,000.00; and the award for Attorneys
Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and
Manila Railroad Company,7 wherein the Court gave the heirs of Cariaga a
sum representing the loss of the deceaseds earning capacity despite
Cariaga being only a medical student at the time of the fatal incident.
Applying the formula adopted in the American Expectancy Table of
Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon
reckoning his life expectancy from age of 21 (the age when he would have
graduated from college and started working for his own livelihood) instead
of 15 years (his age when he died). Considering that the nature of his work
and his salary at the time of Aarons death were unknown, it used the

TRANSPO | 06Dec | 30

prevailing minimum wage of P 280.00/day to compute Aarons gross annual


salary to be P 110,716.65, inclusive of the thirteenth month pay. Multiplying
this annual salary by Aarons life expectancy of 39.3 years, his gross
income would aggregate to P 4,351,164.30, from which his estimated
expenses in the sum of P 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aarons computed net income turning
out to be higher than the amount claimed by the Zarates, only P
2,109,071.00, the amount expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereas motion for reconsideration.8
Issues
In this appeal, the Pereas list the following as the errors committed by the
CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the
petitioners jointly and severally liable to pay damages with Philippine
National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial courts decision awarding
damages for loss of earning capacity of a minor who was only a high school
student at the time of his death in the absence of sufficient basis for such
an award.
III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the
Pereas and the PNR, basing their claim against the Pereas on breach of
contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the
findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the diligence of
a good father of the family in the selection and supervision of Alfaro, the

van driver, by seeing to it that Alfaro had a drivers license and that he had
not been involved in any vehicular accident prior to the fatal collision with
the train; that they even had their own son travel to and from school on a
daily basis; and that Teodoro Perea himself sometimes accompanied Alfaro
in transporting the passengers to and from school. The RTC gave scant
consideration to such defense by regarding such defense as inappropriate in
an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower
courts that the Pereas operated as a common carrier; and that their
standard of care was extraordinary diligence, not the ordinary diligence of a
good father of a family.
Although in this jurisdiction the operator of a school bus service has been
usually regarded as a private carrier,9 primarily because he only caters to
some specific or privileged individuals, and his operation is neither open to
the indefinite public nor for public use, the exact nature of the operation of
a school bus service has not been finally settled. This is the occasion to lay
the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey
goods or persons from one place to another, gratuitously or for hire. The
carrier is classified either as a private/special carrier or as a common/public
carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to
act for all who may desire his or its services, undertakes, by special
agreement in a particular instance only, to transport goods or persons from
one place to another either gratuitously or for hire.11 The provisions on
ordinary contracts of the Civil Code govern the contract of private
carriage.The diligence required of a private carrier is only ordinary, that is,
the diligence of a good father of the family. In contrast, a common carrier is
a 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 such services to the public.12 Contracts of
common carriage are governed by the provisions on common carriers of the
Civil Code, the Public Service Act,13 and other special laws relating to
transportation. A common carrier is required to observe extraordinary
diligence, and is presumed to be at fault or to have acted negligently in
case of the loss of the effects of passengers, or the death or injuries to
passengers.14
In relation to common carriers, the Court defined public use in the following
terms in United States v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential feature of the
public use is not confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted quality that gives it its

TRANSPO | 06Dec | 31

public character. In determining whether a use is public, we must look not


only to the character of the business to be done, but also to the proposed
mode of doing it. If the use is merely optional with the owners, or the
public benefit is merely incidental, it is not a public use, authorizing the
exercise of the jurisdiction of the public utility commission. There must be,
in general, a right which the law compels the owner to give to the general
public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest. The true
criterion by which to judge the character of the use is whether the public
may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of
the Civil Code avoided any distinction between a person or an enterprise
offering transportation on a regular or an isolated basis; and has not
distinguished a carrier offering his services to the general public, that is,
the general community or population, from one offering his services only to
a narrow segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of
the Civil Code coincides neatly with the notion of public service under the
Public Service Act, which supplements the law on common carriers found in
the Civil Code. Public service, according to Section 13, paragraph (b) of the
Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited
clientle, whether permanent or occasional, and done for the 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, icerefrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations
and other similar public services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier,
the Court has considered as common carriers pipeline operators,18 custom
brokers and warehousemen,19 and barge operators20 even if they had
limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and
character of the conveyances used in the activity, but whether the
undertaking is a part of the activity engaged in by the carrier that he has

held out to the general public as his business or occupation. If the


undertaking is a single transaction, not a part of the general business or
occupation engaged in, as advertised and held out to the general public, the
individual or the entity rendering such service is a private, not a common,
carrier. The question must be determined by the character of the business
actually carried on by the carrier, not by any secret intention or mental
reservation it may entertain or assert when charged with the duties and
obligations that the law imposes.21
Applying these considerations to the case before us, there is no question
that the Pereas as the operators of a school bus service were: (a) engaged
in transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by
the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientle, the Pereas
operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for
reasons of public policy, the common carrier is bound "to observe
extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of
each case."22 Article 1755 of the Civil Code specifies that the common
carrier should "carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances." To successfully fend off liability
in an action upon the death or injury to a passenger, the common carrier
must prove his or its observance of that extraordinary diligence; otherwise,
the legal presumption that he or it was at fault or acted negligently would
stand.23 No device, whether by stipulation, posting of notices, statements
on tickets, or otherwise, may dispense with or lessen the responsibility of
the common carrier as defined under Article 1755 of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or
reason by which the Court might now reverse the CAs findings on their
liability. On the contrary, an examination of the records shows that the
evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had
occurred to their passenger.25 The presumption of negligence, being a
presumption of law, laid the burden of evidence on their shoulders to
establish that they had not been negligent.26 It was the law no less that
required them to prove their observance of extraordinary diligence in seeing
to the safe and secure carriage of the passengers to their destination. Until

TRANSPO | 06Dec | 32

they did so in a credible manner, they stood to be held legally responsible


for the death of Aaron and thus to be held liable for all the natural
consequences of such death.

to observe for the protection of the interests of another person, that degree
of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury."33

There is no question that the Pereas did not overturn the presumption of
their negligence by credible evidence. Their defense of having observed the
diligence of a good father of a family in the selection and supervision of
their driver was not legally sufficient. According to Article 1759 of the Civil
Code, their liability as a common carrier did not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employee. This was the reason why the RTC treated this
defense of the Pereas as inappropriate in this action for breach of contract
of carriage.

The test by which to determine the existence of negligence in a particular


case has been aptly stated in the leading case of Picart v. Smith,34
thuswise:

The Pereas were liable for the death of Aaron despite the fact that their
driver might have acted beyond the scope of his authority or even in
violation of the orders of the common carrier.27 In this connection, the
records showed their drivers actual negligence. There was a showing, to
begin with, that their driver traversed the railroad tracks at a point at which
the PNR did not permit motorists going into the Makati area to cross the
railroad tracks. Although that point had been used by motorists as a
shortcut into the Makati area, that fact alone did not excuse their driver into
taking that route. On the other hand, with his familiarity with that shortcut,
their driver was fully aware of the risks to his passengers but he still
disregarded the risks. Compounding his lack of care was that loud music
was playing inside the air-conditioned van at the time of the accident. The
loudness most probably reduced his ability to hear the warning horns of the
oncoming train to allow him to correctly appreciate the lurking dangers on
the railroad tracks. Also, he sought to overtake a passenger bus on the left
side as both vehicles traversed the railroad tracks. In so doing, he lost his
view of the train that was then coming from the opposite side of the
passenger bus, leading him to miscalculate his chances of beating the bus
in their race, and of getting clear of the train. As a result, the bus avoided a
collision with the train but the van got slammed at its rear, causing the
fatality. Lastly, he did not slow down or go to a full stop before traversing
the railroad tracks despite knowing that his slackening of speed and going
to a full stop were in observance of the right of way at railroad tracks as
defined by the traffic laws and regulations.28 He thereby violated a specific
traffic regulation on right of way, by virtue of which he was immediately
presumed to be negligent.29
The omissions of care on the part of the van driver constituted
negligence,30 which, according to Layugan v. Intermediate Appellate
Court,31 is "the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent and
reasonable man would not do,32 or as Judge Cooley defines it, (t)he failure

The test by which to determine the existence of negligence in a particular


case may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to
be supplied by the imaginary conduct of the discreet paterfamilias of the
Roman law. The existence of negligence in a given case is not determined
by reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or negligent
in the man of ordinary intelligence and prudence and determines liability by
that.
The question as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably
said: Reasonable men govern their conduct by the circumstances which are
before them or known to them. They are not, and are not supposed to be,
omniscient of the future. Hence they can be expected to take care only
when there is something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a result of
the course actually pursued? If so, it was the duty of the actor to take
precautions to guard against that harm. Reasonable foresight of harm,
followed by the ignoring of the suggestion born of this prevision, is always
necessary before negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a given case
is this: Conduct is said to be negligent when a prudent man in the position
of the tortfeasor would have foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing the conduct or guarding
against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was
entirely negligent when he traversed the railroad tracks at a point not
allowed for a motorists crossing despite being fully aware of the grave
harm to be thereby caused to his passengers; and when he disregarded the
foresight of harm to his passengers by overtaking the bus on the left side
as to leave himself blind to the approach of the oncoming train that he
knew was on the opposite side of the bus.

TRANSPO | 06Dec | 33

Unrelenting, the Pereas cite Phil. National Railways v. Intermediate


Appellate Court,35 where the Court held the PNR solely liable for the
damages caused to a passenger bus and its passengers when its train hit
the rear end of the bus that was then traversing the railroad crossing. But
the circumstances of that case and this one share no similarities. In
Philippine National Railways v. Intermediate Appellate Court, no evidence of
contributory negligence was adduced against the owner of the bus. Instead,
it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the
showing of negligence on the part of both the Pereas and the PNR.
Another distinction is that the passenger bus in Philippine National Railways
v. Intermediate Appellate Court was traversing the dedicated railroad
crossing when it was hit by the train, but the Pereas school van traversed
the railroad tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR
"jointly and severally" liable for damages arising from the death of Aaron.
They had been impleaded in the same complaint as defendants against
whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates.36 Although the basis of the
right to relief of the Zarates (i.e., breach of contract of carriage) against the
Pereas was distinct from the basis of the Zarates right to relief against the
PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
could be held jointly and severally liable by virtue of their respective
negligence combining to cause the death of Aaron. As to the PNR, the RTC
rightly found the PNR also guilty of negligence despite the school van of the
Pereas traversing the railroad tracks at a point not dedicated by the PNR
as a railroad crossing for pedestrians and motorists, because the PNR did
not ensure the safety of others through the placing of crossbars, signal
lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact
that a crossing guard had been assigned to man that point from 7 a.m. to 5
p.m. was a good indicium that the PNR was aware of the risks to others as
well as the need to control the vehicular and other traffic there. Verily, the
Pereas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both
lower courts took into consideration that Aaron, while only a high school
student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The
basis for the computation of Aarons earning capacity was not what he

would have become or what he would have wanted to be if not for his
untimely death, but the minimum wage in effect at the time of his death.
Moreover, the RTCs computation of Aarons life expectancy rate was not
reckoned from his age of 15 years at the time of his death, but on 21 years,
his age when he would have graduated from college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was
speculative and unfounded.1wphi1 They cited People v. Teehankee, Jr.,37
where the Court deleted the indemnity for victim Jussi Leinos loss of
earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before
the shooting, and was at the time of the shooting only enrolled in the first
semester at the Manila Aero Club to pursue his ambition to become a
professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.
We reject the Pereas submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the
situation there of Jussi Leino was not akin to that of Aaron here. The CA
and the RTC were not speculating that Aaron would be some highly-paid
professional, like a pilot (or, for that matter, an engineer, a physician, or a
lawyer). Instead, the computation of Aarons earning capacity was premised
on him being a lowly minimum wage earner despite his being then enrolled
at a prestigious high school like Don Bosco in Makati, a fact that would have
likely ensured his success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings
should not be taken against his parents and in favor of the defendants
whose negligence not only cost Aaron his life and his right to work and earn
money, but also deprived his parents of their right to his presence and his
services as well. Our law itself states that the loss of the earning capacity of
the deceased shall be the liability of the guilty party in favor of the heirs of
the deceased, and 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."38 Accordingly, we emphatically hold in favor of the indemnification
for Aarons loss of earning capacity despite him having been unemployed,
because compensation of this nature is awarded not for loss of time or
earnings but for loss of the deceaseds power or ability to earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,40
fourth-year medical student Edgardo Carriagas earning capacity, although

TRANSPO | 06Dec | 34

he survived the accident but his injuries rendered him permanently


incapacitated, was computed to be that of the physician that he dreamed to
become. The Court considered his scholastic record sufficient to justify the
assumption that he could have finished the medical course and would have
passed the medical board examinations in due time, and that he could have
possibly earned a modest income as a medical practitioner. Also, in People
v. Sanchez,41 the Court opined that murder and rape victim Eileen
Sarmienta and murder victim Allan Gomez could have easily landed goodpaying jobs had they graduated in due time, and that their jobs would
probably pay them high monthly salaries from P 10,000.00 to P 15,000.00
upon their graduation. Their earning capacities were computed at rates
higher than the minimum wage at the time of their deaths due to their
being already senior agriculture students of the University of the Philippines
in Los Baos, the countrys leading educational institution in agriculture.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the


decision promulgated on November 13, 2002; and ORDER the petitioners to
pay the costs of suit.
SO ORDERED.

3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of P 2,500,000.00 and P
1,000,000.00 on the ground that such amounts were excessive.
The plea is unwarranted.
The moral damages of P 2,500,000.00 were really just and reasonable
under the established circumstances of this case because they were
intended by the law to assuage the Zarates deep mental anguish over their
sons unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it
would help the Zarates obtain the means, diversions or amusements that
would alleviate their suffering for the loss of their child. At any rate,
reducing the amount as excessive might prove to be an injustice, given the
passage of a long time from when their mental anguish was inflicted on
them on August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not
reduce the amount if only to render effective the desired example for the
public good. As a common carrier, the Pereas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an
award of exemplary damages in that amount would suffice to instill in them
and others similarly situated like them the ever-present need for greater
and constant vigilance in the conduct of a business imbued with public
interest.

G.R. No. 210621, April 04, 2016


ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS,
ANNALEE SAN LUIS, MARK ANDREW JOSE, MELISSA JOSE,

TRANSPO | 06Dec | 35

CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK BALUYOT,


AND CARLOS S. JOSE, PETITIONERS, VS. CEBU AIR,INC,
RESPONDENT.
DECISION
LEONEN, J.:
The Air Passenger Bill of Rights[1] mandates that the airline must inform
the passenger in writing of all the conditions and restrictions in the contract
of carriage.[2] Purchase of the contract of carriage binds the passenger and
imposes reciprocal obligations on both the airline and the passenger. The
airline must exercise extraordinary diligence in the fulfillment of the terms
and conditions of the contract of carriage. The passenger, however, has the
correlative obligation to exercise ordinary diligence in the conduct of his or
her affairs.
This resolves a Petition for Review on Certiorari[3] assailing the Court of
Appeals Decision[4] dated December 13, 2013 in CA-G.R. SP. No. 129817.
In the assailed Decision, the Court of Appeals reversed the Metropolitan
Trial Court Decision[5] dated December 15, 2011 and the Regional Trial
Court Decision[6] dated November 6, 2012 and dismissed the Complaint for
Damages filed by petitioners Alfredo Manay, Jr., Fidelino San Luis, Adrian
San Luis, Annalee San Luis, Mark Andrew Jose, Melissa Jose, Charlotte
Jose, Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose against
respondent Cebu Air, Incorporated (Cebu Pacific).[7]
On June 13, 2008, Carlos S. Jose (Jose) purchased 20 Cebu Pacific roundtrip tickets from Manila to Palawan for himself and on behalf of his relatives
and friends.[8] He made the purchase at Cebu Pacific's branch office in
Robinsons Galleria.[9]
Jose alleged that he specified to "Alou," the Cebu Pacific ticketing agent,
that his preferred date and time of departure from Manila to Palawan should
be on July 20, 2008 at 0820 (or 8:20 a.m.) and that his preferred date and
time for their flight back to Manila should be on July 22, 2008 at 1615 (or
4:15 p.m.).[10] He paid a total amount of P42,957.00 using his credit card.
[11] He alleged that after paying for the tickets, Alou printed the tickets,
[12] which consisted of three (3) pages, and recapped only the first page to
him.[13] Since the first page contained the details he specified to Alou, he
no longer read the other pages of the flight information.[14]
On July 20, 2008, Jose and his 19 companions boarded the 0820 Cebu
Pacific flight to Palawan and had an enjoyable stay.[15]
On the afternoon of July 22, 2008, the group proceeded to the airport for
their flight back to Manila.[16] During the processing of their boarding

passes, they were informed by Cebu Pacific personnel that nine (9)[17] of
them could not be admitted because their tickets were for the 1005 (or
10:05 a.m.)[18] flight earlier that day.[19] Jose informed the ground
personnel that he personally purchased the tickets and specifically
instructed the ticketing agent that all 20 of them should be on the 4:15
p.m. flight to Manila.[20]
Upon checking the tickets, they learned that only the first two (2) pages
had the schedule Jose specified.[21] They were left with no other option but
to rebook their tickets.[22] They then learned that their return tickets had
been purchased as part of the promo sales of the airline, and the cost to
rebook the flight would be P7,000.00 more expensive than the promo
tickets.[23] The sum of the new tickets amounted to P65,000.00.[24]
They offered to pay the amount by credit card but were informed by the
ground personnel that they only accepted cash.[25] They then offered to
pay in dollars, since most of them were balikbayans and had the amount on
hand, but the airline personnel still refused.[26]
Eventually, they pooled enough cash to be able to buy tickets for five (5) of
their companions.[27] The other four (4) were left behind in Palawan and
had to spend the night at an inn, incurring additional expenses.[28] Upon
his arrival in Manila, Jose immediately purchased four (4) tickets for the
companions they left behind, which amounted to P5,205.[29]
Later in July 2008, Jose went to Cebu Pacific's ticketing office in Robinsons
Galleria to complain about the allegedly erroneous booking and the rude
treatment that his group encountered from the ground personnel in
Palawan.[30] He alleged that instead of being assured by the airline that
someone would address the issues he raised, he was merely "given a run
around."[31]
Jose and his companions were frustrated and annoyed by Cebu Pacific's
handling of the incident so they sent the airline demand letters dated
September 3, 2008[32] and January 20, 2009[33] asking for a
reimbursement of P42,955.00, representing the additional amounts spent
to purchase the nine (9) tickets, the accommodation, and meals of the four
(4) that were left behind.[34] They also filed a complaint[35] before the
Department of Trade and Industry.[36]
On February 24, 2009, Cebu Pacific, through its Guest Services
Department, sent petitioners' counsel an email[37] explaining that
"ticketing agents, like Alou, recap [the] flight details to the purchaser to
avoid erroneous booking[s]."[38] The recap is given one other time by the
cashier.[39] Cebu Pacific stated that according to its records, Jose was
given a full recap and was made aware of the flight restriction of promo
tickets,[40] "which included [the] promo fare being non-refundable."[41]

TRANSPO | 06Dec | 36

Jose and his companions were unsatisfied with Cebu Pacific's response so
they filed a Complaint[42] for Damages against Cebu Pacific before Branch
59 of the Metropolitan Trial Court of Mandaluyong.[43] The Complaint
prayed for actual damages in the amount of P42,955.00, moral damages in
the amount of P45,000.00, exemplary damages in the amount of
P50,000.00, and attorney's fees.[44]
In its Answer,[45] Cebu Pacific essentially denied all the allegations in the
Complaint and insisted that Jose was given a full recap of the tickets.[46] It
also argued that Jose had possession of the tickets 37 days before the
scheduled flight; hence, he had sufficient time and opportunity to check the
flight information and itinerary.[47] It also placed a counterclaim of
PI00,000.00 by reason that it was constrained to litigate and it incurred
expenses for litigation.[48]
On December 15, 2011, the Metropolitan Trial Court rendered its Decision
ordering Cebu Pacific to pay Jose and his companions P41,044.50 in actual
damages and P20,000.00 in attorney's fees with costs of suit.[49] The
Metropolitan Trial Court found that as a common carrier, Cebu Pacific should
have exercised extraordinary diligence in performing its contractual
obligations.[50] According to the Metropolitan Trial Court, Cebu Pacific's
ticketing agent "should have placed markings or underlined the time of the
departure of the nine passengers"[51] who were not in the afternoon flight
since it was only logical for Jose to expect that all of them would be on the
same flight.[52] It did not find merit, however, in the allegation that the
airline's ground personnel treated Jose and his companions rudely since this
allegation was unsubstantiated by evidence.[53]
Cebu Pacific appealed to the Regional Trial Court, reiterating that its
ticketing agent gave Jose a full recap of the tickets he purchased.[54]
On November 6, 2012, Branch 212 of the Regional Trial Court of
Mandaluyong rendered the Decision dismissing the appeal.[55] The
Regional Trial Court affirmed the findings of the Metropolitan Trial Court but
deleted the award of attorney's fees on the ground that this was granted
without stating any ground under Article 2208 of the Civil Code to justify its
grant.[56]
Cebu Pacific appealed to the Court of Appeals, arguing that it was not at
fault for the damages caused to the passengers.[57]
On December 13, 2013, the Court of Appeals rendered the Decision
granting the appeal and reversing the Decisions of the Metropolitan Trial
Court and the Regional Trial Court.[58] According to the Court of Appeals,
the extraordinary diligence expected of common carriers only applies to the
carriage of passengers and not to the act of encoding the requested flight

schedule.[59] It was incumbent upon the passenger to exercise ordinary


care in reviewing flight details and checking schedules.[60] Cebu Pacific's
counterclaim, however, was denied since there was no evidence that Jose
and his companions filed their Complaint in bad faith and with malice.[61]
Aggrieved, Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee
San Luis, Mark Andrew Jose, Melissa Jose, Charlotte Jose, Dan John De
Guzman, Paul Mark Baluyot, and Carlos S. Jose (Jose, et al.) filed before
this Court a Petition for Review on Certiorari[62] assailing the Court of
Appeals' December 13, 2013 Decision.[63]
Cebu Pacific was ordered to comment on the Petition. Upon compliance,[65]
Jose, et al. submitted their Reply.[66] The parties were then directed[67] to
submit their respective memoranda.[68]
Jose, et al. argue that Cebu Pacific is a common carrier obligated to
exercise extraordinary diligence to carry Jose, et al. to their destination at
the time clearly instructed to its ticketing agent.[69] They argue that they
have the decision to choose flight schedules and that Cebu Pacific should
not choose it for them.[70] They insist that they have made their intended
flight schedule clear to the ticketing agent and it would have been within
normal human behavior for them to expect that their entire group would all
be on the same flight.[71] They argue that they should not have to ask for
a full recap of the tickets since they are under no obligation, as passengers,
to remind Cebu Pacific's ticketing agent of her duties.[72]
Jose, et al. further pray that they be awarded actual damages in the
amount of P43,136.52 since the Metropolitan Trial Court erroneously failed
to add the costs of accommodations and dinner spent on by four (4) of the
petitioners who were left behind in Palawan.[73] They also pray for
PI00,000.00 in moral damages and P100,000.00 in exemplary damages for
the "profound distress and anxiety"[74] they have undergone from the
experience, with PI00,000.00 in attorney's fees to represent the reasonable
expenses incurred from "engaging the services of their counsel."[75]
Cebu Pacific, on the other hand, argues that the damage in this case was
caused by Jose, et al.'s "gross and inexplicable [negligence.]"[76] It
maintains that Jose, et al. should have read the details of their flight, and if
there were errors in the encoded flight details, Jose, et al. would still have
ample time to have the error corrected.[77] It argues further that its
ticketing agent did not neglect giving Jose a full recap of his purchase since
the tickets clearly indicated in the "Comments" section: "FULL RECAP GVN
TO CARLOS JOSE."[78]
Cebu Pacific further posits that according to the Parol Evidence Rule, the
plane tickets issued to Jose, et al. contain all the terms the parties agreed
on, and it was agreed that nine (9) of the passengers would be on the July

TRANSPO | 06Dec | 37

22, 2008, 1005 flight to Manila.[79] It argues that Jose, et al. have not
been able to present any evidence to substantiate their allegation that their
intent was to be on the July 22, 2008 1615 flight to Manila.[80]
From the arguments in the parties' pleadings, the sole issue before this
Court is whether respondent Cebu Air, Inc. is liable to petitioners Alfredo
Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark
Andrew Jose, Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark
Baluyot, and Carlos S. Jose for damages for the issuance of a plane ticket
with an allegedly erroneous flight schedule.
I
Although it was not mentioned by the parties, a procedural issue must first
be addressed before delving into the merits of the case.
Petitioners received the assailed Court of Appeals Decision on December 27,
2013.[81] They chose to forego the filing of a motion for reconsideration.
Instead, petitioners filed before this Court a Motion for Extension of
Time[82] on January 13, 2014.
Under Rule 45, Section 2 of the Rules of Court,[83] petitioners only had 15
days or until January 11, 2014 to file their petition. Since January 11, 2014
fell on a Saturday, petitioners could have filed their pleading on the
following Monday, or on January 13, 2014.
In their Motion for Extension of Time, however, petitioners requested an
additional 30 days from January 13, 2014 within which to file their petition
for review on certiorari.[84]
This Court already clarified the periods of extension in A.M. No. 00-2-14SC:[85]
Whereas, Section 1, Rule 22 of the 1997 Rules of Civil Procedure provides:
Section 1. How to compute time. - In computing any period of time
prescribed or allowed by these Rules, or by order of the court, or by any
applicable statute, the day of the act or event from which the designated
period of time begins to run is to be excluded and the date of performance
included. If the last day of the period, as thus computed, falls on a
Saturday, a Sunday, or a legal holiday in the place where the court sits, the
time shall not run until the next working day.
Whereas, the aforecited provision applies in the matter of filing of pleadings
in courts when the due date falls on a Saturday, Sunday or legal holiday, in
which case, the filing of the said pleading on the next working day is
deemed on time;

Whereas, the question has been raised if the period is extended ipso jure to
the next working day immediately following where the last day of the period
is a Saturday, Sunday or a legal holiday, so that when a motion for
extension of time is filed, the period of extension is to be reckoned from the
next working day and not from the original expiration of the period.
NOW THEREFORE, the Court Resolves, for the guidance of the Bench and
the Bar, to declare that Section 1, Rule 22 speaks only of "the last day of
the period" so that when a party seeks an extension and the same is
granted, the due date ceases to be the last day and hence, the provision no
longer applies. Any extension of time to file the required pleading should
therefore be counted from the expiration of the period regardless of the fact
that said due date is a Saturday, Sunday or legal holiday. (Emphasis
supplied)
Thus, petitioners' request for extension of time should have been reckoned
from the original due date on January 11, 2014, even if this day fell on a
Saturday. A request for extension of 30 days would have ended on February
10, 2014.[86]
Petitioners subsequently filed their Petition for Review on Certiorari on
February 12, 2014.[87] Pursuant to A.M. No. 00-2-14-SC,[88] this Petition
would have been filed out of time.
We are not, however, precluded from granting the period of extension
requested and addressing the Petition filed on its merits, instead of outright
dismissing it. After all, "[l]itigations should, as much as possible, be decided
on the merits and not on technicalities."[89]
However, it does not follow that in the relaxation of the procedural rules,
this Court automatically rules in favor of petitioners. Their case must still
stand on its own merits for this Court to grant the relief petitioners pray for.
II
Common carriers are required to exercise extraordinary diligence in the
performance of its obligations under the contract of carriage. This
extraordinary diligence must be observed not only in the transportation of
goods and services but also in the issuance of the contract of carriage,
including its ticketing operations.
Article 1732 of the Civil Code defines a common carrier as "persons,
corporations or 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." Articles 1733, 1755,
and 1756 of the Civil Code outline the degree of diligence required of
common carriers:

TRANSPO | 06Dec | 38

....
ARTICLE 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case.
ARTICLE 1755. A common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances.
ARTICLE 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as prescribed
in articles 1733 and 1755.
Respondent, as one of the four domestic airlines in the country,[90] is a
common carrier required by law to exercise extraordinary diligence.
Extraordinary diligence requires that the common carrier must transport
goods and passengers "safely as far as human care and foresight can
provide," and it must exercise the "utmost diligence of very cautious
persons . . . with due regard for all the circumstances."[91]
When a common carrier, through its ticketing agent, has not yet issued a
ticket to the prospective passenger, the transaction between them is still
that of a seller and a buyer. The obligation of the airline to exercise
extraordinary diligence commences upon the issuance of the contract of
carriage.[92] Ticketing, as the act of issuing the contract of carriage, is
necessarily included in the exercise of extraordinary diligence.
A contract of carriage is defined as "one whereby a certain person or
association of persons obligate themselves to transport persons, things, or
news from one place to another for a fixed price."[93] In Cathay Pacific
Airways v. Reyes:[94]
[W]hen an airline issues a ticket to a passenger confirmed on a particular
flight, on a certain date, a contract of carriage arises, and the passenger
has every right to expect that he would fly on that flight and on that date.
If he does not, then the carrier opens itself to a suit for breach of contract
of carriage.[95] (Emphasis supplied)
Once a plane ticket is issued, the common carrier binds itself to deliver the
passenger safely on the date and time stated in the ticket. The contractual
obligation of the common carrier to the passenger is governed principally by
what is written on the contract of carriage.

In this case, both parties stipulated[96] that the flight schedule stated on
the nine (9) disputed tickets was the 10:05 a.m. flight of July 22, 2008.
According to the contract of carriage, respondent's obligation as a common
carrier was to transport nine (9) of the petitioners safely on the 10:05 a.m.
flight of July 22, 2008.
Petitioners, however, argue that respondent was negligent in the issuance
of the contract of carriage since the contract did not embody their intention.
They insist that the nine (9) disputed tickets should have been scheduled
for the 4:15 p.m. flight of July 22, 2008. Respondent, on the other hand,
denies this and states that petitioner Jose was fully informed of the
schedules of the purchased tickets and petitioners were negligent when
they failed to correct their ticket schedule.
Respondent relies on the Parol Evidence Rule in arguing that a written
document is considered the best evidence of the terms agreed on by the
parties. Petitioners, however, invoke the exception in Rule 130, Section 9(b)
of the Rules of Court that evidence may be introduced if the written
document fails to express the true intent of the parties:[97]
Section 9. Evidence of written agreements. When the terms of an
agreement have been reduced to writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of
the written agreement.
However, a party may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.
In ACI Philippines, Inc. v. Coquia:[98]
It is a cardinal rule of evidence, not just one of technicality but of
substance, that the written document is the best evidence of its own
contents. It is also a matter of both principle and policy that when the
written contract is established as the repository of the parties stipulations,
any other evidence is excluded and the same cannot be used as a

TRANSPO | 06Dec | 39

substitute for such contract, nor even to alter or contradict them. This rule,
however, is not without exception. Section 9, Rule 130 of the Rules of Court
states that a party may present evidence to modify, explain or add to the
terms of the agreement if he puts in issue in his pleading the failure of the
written agreement to express the true intent and agreement of the parties.
[99]
It is not disputed that on June 13, 2008, petitioner Jose purchased 20
Manila-Palawan-Manila tickets from respondent's ticketing agent. Since all
20 tickets were part of a single transaction made by a single purchaser, it is
logical to presume that all 20 passengers would prefer the same flight
schedule, unless the purchaser stated otherwise.

The third page contained the names of nine (9) passengers.[107] In the
Information box, it reads:
Sunday, July 20, 2008
HK PHP999.00 PHP
5J637MNL-PPS 08:20-09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J638PPS-MNL 10:05-11:20[108]
In the Comments box, it reads:
R - FULL RECAP GVNT O JOSE//CARLOS AWRE
R - NON-REFUNDBLE//VALID TIL 15 OCT08 O[109]

In petitioners' Position Paper before the Metropolitan Trial Court, they


maintain that respondent's ticketing agent was negligent when she failed to
inform or explain to petitioner Jose that nine (9) members of their group
had been booked for the 10:05 a.m. flight, and not the 4:15 p.m. flight.
[100]

Respondent explained that as a matter of protocol, flight information is


recapped to the purchaser twice: first by the ticketing agent before
payment, and second by the cashier during payment. The tickets were
comprised of three (3) pages. Petitioners argue that only the first page was
recapped to petitioner Jose when he made the purchase.

The first page of the tickets contained the names of eight (8) passengers.
[101] In the Information box on the left side of the ticket, it reads:

The common carrier's obligation to exercise extraordinary diligence in the


issuance of the contract of carriage is fulfilled by requiring a full review of
the flight schedules to be given to a prospective passenger before payment.
Based on the information stated on the contract of carriage, all three (3)
pages were recapped to petitioner Jose.

Sunday, July 20, 2008


HK PHP999.00 PHP
5J 637 MNL-PPS 08:20- 09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 640 PPS-MNL 16:15- 17:30[102]
In the Comments box, it reads:
R - FULL RECAP GVN TO CARLOS JOSE//AWRE
I - FULL RECAP GVN TO CARLOS JOSE//AWRE
M - FULL RECAP GVN TO CARLOS JOSE//AWRI[103]
The second page contained the names of three (3) passengers.[104] In the
Information box, it reads:
Sunday, July 20, 2008
HK PHP1,998.00 PH
5J 637 MNL-PPS 08:20- 09:35
Tuesday, July 22, 2008
HK PHP999.00 PH
5J 640 PPS-MNL 16:15- 17:30[105]
Under the caption "Comments," it reads:
R - FULL RECAP GVN TO CARLOS JOSE//AWRE
I - FULL RECAP GVN TO CARLOS JOSE//AWRE
M - FULL RECAP GVN TO CARLOS JOSE//AWRI[106]

The only evidence petitioners have in order to prove their true intent of
having the entire group on the 4:15 p.m. flight is petitioner Jose's selfserving testimony that the airline failed to recap the last page of the tickets
to him. They have neither shown nor introduced any other evidence before
the Metropolitan Trial Court, Regional Trial Court, Court of Appeals, or this
Court.
Even assuming that the ticketing agent encoded the incorrect flight
information, it is incumbent upon the purchaser of the tickets to at least
check if all the information is correct before making the purchase. Once the
ticket is paid for and printed, the purchaser is presumed to have agreed to
all its terms and conditions. In Ong Yiu v. Court of Appeals:[110]
While it may be true that petitioner had not signed the plane ticket, he is
nevertheless bound by the provisions thereof. "Such provisions have been
held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or assent to the
regulation." It is what is known as a contract of "adhesion," in regards
which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in
the case at bar, are contracts not entirely prohibited. The one who adheres

TRANSPO | 06Dec | 40

to the contract is in reality free to reject it entirely; if he adheres, he gives


his consent.[111]
One of the terms stated in petitioners' tickets stipulates that the photo
identification of the passenger must match the name entered upon
booking:
Guests should present a valid photo ID to airport security and upon checkin. Valid IDs for this purpose are Company ID, Driver's License, Passport,
School ID, SSS Card, TIN Card. The name in the photo-ID should match the
guest name that was entered upon booking. Failure to present a valid photo
ID will result in your being refused check-in.[112]
Considering that respondent was entitled to deny check-in to passengers
whose names do not match their photo identification, it would have been
prudent for petitioner Jose to check if all the names of his companions were
encoded correctly. Since the tickets were for 20 passengers, he was
expected to have checked each name on each page of the tickets in order
to see if all the passengers' names were encoded and correctly spelled. Had
he done this, he would have noticed that there was a different flight
schedule encoded on the third page of the tickets since the flight schedule
was stated directly above the passengers' names.

Contrary to petitioner's claim, the evidence on record shows that


respondent exercised due diligence in performing its obligations under the
contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket issued
to petitioner clearly reflected the departure date and time, contrary to
petitioner's contention. The travel documents, consisting of the tour
itinerary, vouchers and instructions, were likewise delivered to petitioner
two days prior to the trip. Respondent also properly booked petitioner for
the tour, prepared the necessary documents and procured the plane tickets.
It arranged petitioner's hotel accommodation as well as food, land transfers
and sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for
the tour. Had petitioner exercised due diligence in the conduct of her affairs,
there would have been no reason for her to miss the flight. Needless to say,
after the travel papers were delivered to petitioner, it became incumbent
upon her to take ordinary care of her concerns. This undoubtedly would
require that she at least read the documents in order to assure herself of
the important details regarding the trip.[115] (Emphasis supplied)

Petitioners' flight information was not written in fine print. It was clearly
stated on the left portion of the ticket above the passengers' names. If
petitioners had exercised even the slightest bit of prudence, they would
have been able to remedy any erroneous booking.

Most of the petitioners were balikbayans.[116] It is reasonable to presume


that they were adequately versed with the procedures of air travel,
including familiarizing themselves with the itinerary before departure.
Moreover, the tickets were issued 37 days before their departure from
Manila and 39 days from their departure from Palawan. There was more
than enough time to correct any alleged mistake in the flight schedule.

This is not the first time that this Court has explained that an air passenger
has the correlative duty to exercise ordinary care in the conduct of his or
her affairs.

Petitioners, in failing to exercise the necessary care in the conduct of their


affairs, were without a doubt negligent. Thus, they are not entitled to
damages.

In Crisostomo v. Court of Appeals,[113] Estela Crisostomo booked a


European tour with Caravan Travel and Tours, a travel agency. She was
informed by Caravan's travel agent to be at the airport on Saturday, two (2)
hours before her flight. Without checking her travel documents, she
proceeded to the airport as planned, only to find out that her flight was
actually scheduled the day before. She subsequently filed a suit for
damages against Caravan Travel and Tours based on the alleged negligence
of their travel agent in informing her of the wrong flight details.[114]

Before damages may be awarded, "the claimant should satisfactorily show


the existence of the factual basis of damages and its causal connection to
defendant's acts."[117] The cause of petitioners' injury was their own
negligence; hence, there is no reason to award moral damages. Since the
basis for moral damages has not been established, there is no basis to
recover exemplary damages[118] and attorney's fees[119] as well.

This Court, while ruling that a travel agency was not a common carrier and
was not bound to exercise extraordinary diligence in the performance of its
obligations, also laid down the degree of diligence concurrently required of
passengers:

Traveling by air for leisure is a fairly new concept to the average Filipino.
From 1974, there was only one local airline commanding a monopoly on
domestic air travel.[120] In 1996, respondent introduced the concept of a
budget airline in the Philippines, touting "low-cost services to more
destinations and routes with higher flight frequency within the Philippines

III

TRANSPO | 06Dec | 41

than any other airline."[121] In its inception, respondent offered plane


fares that were "40% to 50% lower than [Philippine Airlines]."[122]
On March 1, 2007, to celebrate its new fleet of aircraft, respondent offered
a promo of P1.00 base fare for all their domestic and international
destinations.[123] The fare was non-refundable and exclusive of taxes and
surcharges.[124]
Despite the conditions imposed on these "piso fares," more people were
enticed to travel by air. From January to June 2007, respondent had a total
number of 2,256,289 passengers while Philippines Airlines had a total of
1,981,267 passengers.[125] The domestic air travel market also had a 24%
increase in the first half of 2007.[126]
Promotional fares encouraged more Filipinos to travel by air as the number
of fliers in the country increased from 7.2 million in 2005 to 16.5 million in
2010.127 The emergence of low-cost carriers "liberalized [the] aviation
regime"[128] and contributed to an "unprecedented and consistent double
digit growth rates of domestic and international travel"[129] from 2007 to
2012.
This development, however, came with its own set of problems. Numerous
complaints were filed before the Department of Trade and Industry and the
Department of Transportation and Communications, alleging "unsatisfactory
airline service"[130] as a result of flight overbooking, delays, and
cancellations.[131]
This prompted concerned government agencies to issue Department of
Transportation and Communications-Department of Trade and Industry
Joint Administrative Order No. 1, Series of 2012, otherwise known as the
Air Passenger Bill of Rights.
Section 4 of the Joint Administrative Order requires airlines to provide the
passenger with accurate information before the purchase of the ticket:
Section 4. Right to Full, Fair, and Clear Disclosure of the Service Offered
and All the Terms and Conditions of the Contract of Carriage. Every
passenger shall, before purchasing any ticket for a contract of carriage by
the air carrier or its agents, be entitled to the full, fair, and clear disclosure
of all the terms and conditions of the contract of carriage about to be
purchased. The disclosure shall include, among others, documents required
to be presented at check-in, provisions on check-in deadlines, refund and
rebooking policies, and procedures and responsibility for delayed and/or
cancelled flights. These terms and conditions may include liability
limitations, claim-filing deadlines, and other crucial conditions.

4.1 An air carrier shall cause the disclosure under this Section to be printed
on or attached to the passenger ticket and/or boarding pass, or the
incorporation of such terms and conditions of carriage by reference.
Incorporation by reference means that the ticket and/or boarding pass shall
clearly state that the complete terms and conditions of carriage are
available for perusal and/or review on the air carrier's website, or in some
other document that may be sent to or delivered by post or electronic mail
to the passenger upon his/her request.
....
4.3 Aside from the printing and/or publication of the above disclosures, the
same shall likewise be verbally explained to the passenger by the air carrier
and/or its agent/s in English and Filipino, or in a language that is easily
understood by the purchaser, placing emphasis on the limitations and/or
restrictions attached to the ticket.
.....
4.5 Any violation of the afore-stated provisions shall be a ground for the
denial of subsequent applications for approval of promotional fare, or for
the suspension or recall of the approval made on the advertised fare/rate.
(Emphasis in the original)
The Air Passenger Bill of Rights recognizes that a contract of carriage is a
contract of adhesion, and thus, all conditions and restrictions must be fully
explained to the passenger before the purchase of the ticket:
WHEREAS, such a contract of carriage creates an asymmetrical relationship
between an air carrier and a passenger, considering that, while a passenger
has the option to buy or not to buy the service, the decision of the
passenger to buy the ticket binds such passenger, by adhesion, to all the
conditions and/or restrictions attached to the air carrier ticket on an all-ornothing basis, without any say, whatsoever, with regard to the
reasonableness of the individual conditions and restrictions attached to the
air carrier ticket;[132]
Section 4.4 of the Air Passenger Bill of Rights requires that "all rebooking,
refunding, baggage allowance and check-in policies" must be stated in the
tickets:
4.4 The key terms of a contract of carriage, which should include, among
others, the rebooking, refunding, baggage allowance and check-in policies,
must be provided to a passenger and shall substantially be stated in the
following manner and, if done in print, must be in bold letters:
(English)
"NOTICE:

TRANSPO | 06Dec | 42

The ticket that you


conditions/restrictions:

are

purchasing

is

subject

to

the

following

1. _______________
2. _______________
3. _______________

contract of carriage before making his or her purchase. If he or she fails to


exercise the ordinary diligence expected of passengers, any resulting
damage should be borne by the passenger.
WHEREFORE, the Petition is DENIED.
SO ORDERED.

Your purchase of this ticket becomes a binding contract on your part to


follow the terms and conditions of the ticket and of the flight. Depending on
the fare rules applicable to your ticket, non-use of the same may result in
forfeiture of the fare or may subject you to the payment of penalties and
additional charges if you wish to change or cancel your booking.
For more choices and/or control in your flight plans, please consider other
fare types."
(Filipino)
"PAALALA:
Ang tiket na ito ay binibili ninyo nang may mga kondisyon/ restriksyon:
1. _______________
2. _______________
3. _______________
Sa pagpili at pagbili ng tiket na ito, kayo ay sumasang-ayon sa mga
kondisyon at restriksyon na nakalakip dito, bilang kontrata ninyo sa air
carrier. Depende sa patakarang angkop sa iyong tiket, ang hindi paggamit
nito ay maaaring magresulta sa pagwawalang bisa sa inyong tiket o sa
paniningil ng karagdagang bayad kung nais ninyong baguhin o kanselahin
ang inyong tiket.
Para sa mas maraming pagpipilian at malawak na control sa inyong flight,
inaanyayahan kayong bumili ng iba pang klase ng tiket galing sa air
carrier." (Emphasis in the original)
The Air Passenger Bill of Rights acknowledges that "while a passenger has
the option to buy or not to buy the service, the decision of the passenger to
buy the ticket binds such passenger[.]"[133] Thus, the airline is mandated
to place in writing all the conditions it will impose on the passenger.
However, the duty of an airline to disclose all the necessary information in
the contract of carriage does not remove the correlative obligation of the
passenger to exercise ordinary diligence in the conduct of his or her affairs.
The passenger is still expected to read through the flight information in the

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.

TRANSPO | 06Dec | 43

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.

TRANSPO | 06Dec | 44

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.

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."

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:

The test for determining whether a party is a common carrier of goods is:

1.
That the exemption granted under Sec. 133 (j) encompasses only
common 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. 10 On 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

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
Hence, this petition. At first, the petition was denied due course in a both, and one who does such carrying only as an ancillary activity (in local
Resolution dated November 11, 1996. 13 Petitioner moved for a idiom, as a "sideline"). Article 1732 . . . avoids making any distinction
reconsideration which was granted by this Court in a Resolution 14 of between a person or enterprise offering transportation service on a regular
January 22, 1997. Thus, the petition was reinstated.
or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a
Petitioner claims that the respondent Court of Appeals erred in holding that carrier offering its services to the "general public," i.e., the general
(1) the petitioner is not a common carrier or a transportation contractor, community or population, and one who offers services or solicits business
and (2) the exemption sought for by petitioner is not clear under the law.
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
There is merit in the petition.
So understood, the concept of "common carrier" under Article 1732 may be
A "common carrier" may be defined, broadly, as one who holds himself out seen to coincide neatly with the notion of "public service," under the Public
to the public as engaged in the business of transporting persons or property Service Act (Commonwealth Act No. 1416, as amended) which at least
from place to place, for compensation, offering his services to the public partially supplements the law on common carriers set forth in the Civil
generally.
Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:

TRANSPO | 06Dec | 45

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.

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.

Republic Act 387 also regards petroleum operation as a public utility.


Pertinent portion of Article 7 thereof provides:

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?

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)

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.

TRANSPO | 06Dec | 46

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. . . . 18
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.

G.R. No. 112287

December 12, 1997

NATIONAL STEEL CORPORATION, petitioner,


vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

TRANSPO | 06Dec | 47

G.R. No. 112350

December 12, 1997

VLASONS SHIPPING, INC., petitioner,


vs.
COURT OF APPEALS AND NATIONAL
respondents.

SO ORDERED. 3
The Facts
STEEL

CORPORATION,

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
P100,000.00; and

fees

and

expenses

of

litigation

in

the

sum

of

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:

SO ORDERED. 2

8.

...

On the other hand, the Court of Appeals ruled:

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.

3.

Costs of suit.

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.

P8,000.00/P4,000.00 per day.

TRANSPO | 06Dec | 48

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"

TRANSPO | 06Dec | 49

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.

TRANSPO | 06Dec | 50

(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.

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

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:

In its petition 7 and memorandum, 8 NSC raises the following questions of


law and fact:

Questions of Law

TRANSPO | 06Dec | 51

1.
Whether or not a charterer of a vessel is liable for demurrage due
to cargo unloading delays caused by weather interruption;

The foregoing issues raised by the parties will be discussed under the
following headings:

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

1.

Questions of Fact

2.

Effect of NSC's Failure to Insure the Cargo

3.

Admissibility of Certificates Proving Seaworthiness

3.
Whether or not a charterer's failure to insure its cargo exempts the
shipowner from liability for cargo damage.

4.

Demurrage and Attorney's Fees.

Questions of Fact

The Court's Ruling

1.

The Court affirms the assailed Decision of the Court of Appeals, except in
respect of the demurrage.

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,
memorandum: 10

VSI

raises

the

following

issues

in

its

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.

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. 15 Recently, in Valenzuela Hardwood and Industrial

TRANSPO | 06Dec | 52

Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation,
16 the Court ruled:

inherent defect of the things, shall be for the account and risk of the
shipper.

. . . 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

The burden of proof of these accidents is on the carrier.

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

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 facie
presumption 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

TRANSPO | 06Dec | 53

due diligence, the carrier has the preliminary burden of proving the exercise
of due diligence to make the vessel seaworthy. 20

was seaworthy. We find no reason to modify or reverse this finding of both


the trial and the appellate courts.

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

Who Were Negligent:


Seamen or Stevedores?

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 I

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

TRANSPO | 06Dec | 54

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

No, sir.

What

is the purpose of the canvas cover?

How many hatch beams were there placed across the opening?

So that the cargo would not be soaked with water.

There are five beams in one hatch opening.

q
And will you describe how the canvas cover was secured on the
hatch opening?
WITNESS

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
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.

a
Plenty, sir, because there are several pieces on top of the hatch
beam.
q

And is there a space between the hatch boards?

ATTY DEL ROSARIO

There is none, sir.

q
And will you tell us the size of the hatch opening? The length and
the width of the hatch opening.

They are tight together?

Yes, sir.

How tight?

Very tight, sir.

Forty-five feet by thirty-five feet, sir.

xxx

xxx

How was the canvas supported in the middle of the hatch opening?

There is a hatch board.

xxx

q
Now, on top of the hatch boards, according to you, is the canvass
cover. How many canvas covers?

ATTY DEL ROSARIO

What is the hatch board made of?

It is made of wood, with a handle.

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

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.

What is this beam made of?

It is made of steel, sir.

q
Is the beam that was placed in the hatch opening covering the
whole hatch opening?

Two, sir. 29

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

TRANSPO | 06Dec | 55

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?

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.

WITNESS:

Q
Now, is this procedure adopted by the stevedores of covering tents
proper?

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.

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
place.

In connection with these cargoes which were unloaded, where is the

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.

At the Pier.

What was used to protect the same from weather?

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?

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:

Yes, sir, the second time I went there, I saw it.

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

TRANSPO | 06Dec | 56

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:

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.

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

Second Issue: Effect of NSC's Failure to


Insure the Cargo

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.

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

Do Tinplates "Sweat"?

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:

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

TRANSPO | 06Dec | 57

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, are prima 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:

7.

Demurrage/Dispatch:

750 tons per WWDSHINC.

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

TRANSPO | 06Dec | 58

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 one-sided 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.

G.R. No. 102316

June 30, 1997

TRANSPO | 06Dec | 59

VALENZUELA
HARDWOOD
AND INDUSTRIAL SUPPLY
INC.,
petitioner,
vs.
COURT
OF
APPEALS
AND
SEVEN
BROTHERS
SHIPPING
CORPORATION, respondents.
PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be
responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo" 1 valid? This is the main question raised in this
petition for review assailing the Decision of Respondent Court of Appeals 2
in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of
Appeals modified the judgment of the Regional Trial Court of Valenzuela,
Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and
Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) representing the value of the policy of the lost logs with
legal interest thereon from the date of demand on February 2, 1984 until
the amount is fully paid or in the alternative, defendant Seven Brothers
Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS
(2,000,000.00) representing the value of lost logs plus legal interest from
the date of demand on April 24, 1984 until full payment thereof; the
reasonable attorney's fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping
Corporation the sum of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is
hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far
(sic) as the liability of the Seven Brothers Shipping Corporation to the
plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals
Decision are as follows:

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and


Industrial Supply, Inc.) entered into an agreement with the defendant
Seven Brothers (Shipping Corporation) whereby the latter undertook to load
on board its vessel M/V Seven Ambassador the former's lauan round logs
numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the
premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25
January 1984 resulting in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of
the premium and documentary stamps due on the policy was tendered due
to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of
the inception for non-payment of the premium due in accordance with
Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety
and Insurance Co., Inc. the payment of the proceeds of the policy but the
latter denied liability under the policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping Corporation for the value of the
lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of
plaintiff and against defendants. Both defendants shipping corporation and
the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to
the court a quo the following assignment of errors, to wit:
A.
The lower court erred in holding that the proximate cause of the
sinking of the vessel Seven Ambassadors, was not due to fortuitous event
but to the negligence of the captain in stowing and securing the logs on
board, causing the iron chains to snap and the logs to roll to the portside.
B.
The lower court erred in declaring that the non-liability clause of the
Seven Brothers Shipping Corporation from logs (sic) of the cargo stipulated
in the charter party is void for being contrary to public policy invoking
article 1745 of the New Civil Code.

TRANSPO | 06Dec | 60

C.
The lower court erred in holding defendant-appellant Seven
Brothers
Shipping
Corporation
liable
in
the
alternative
and
ordering/directing it to pay plaintiff-appellee the amount of two million
(2,000,000.00) pesos representing the value of the logs plus legal interest
from date of demand until fully paid.
D.
The lower court erred in ordering defendant-appellant Seven
Brothers Shipping Corporation to pay appellee reasonable attorney's fees in
the amount equivalent to 5% of the amount of the claim and the costs of
the suit.

H.
The trial court erred in not awarding to the defendant-appellant the
attorney's fees alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping
corporation and the surety company are liable to the plaintiff for the latter's
lost logs. 4

E.
The lower court erred in not awarding defendant-appellant Seven
Brothers Corporation its counter-claim for attorney's fees.

The Court of Appeals affirmed in part the RTC judgment by sustaining the
liability of South Sea Surety and Insurance Company ("South Sea"), but
modified it by holding that Seven Brothers Shipping Corporation ("Seven
Brothers") was not liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court ratiocinated thus:

F.
The lower court erred in not dismissing the complaint against Seven
Brothers Shipping Corporation.

It appears that there is a stipulation in the charter party that the ship
owner would be exempted from liability in case of loss.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the
following errors:

The court a quo erred in applying the provisions of the Civil Code on
common carriers to establish the liability of the shipping corporation. The
provisions on common carriers should not be applied where the carrier is
not acting as such but as a private carrier.

A.
The trial court erred in holding that Victorio Chua was an agent of
defendant-appellant South Sea Surety and Insurance Company, Inc. and
likewise erred in not holding that he was the representative of the insurance
broker Columbia Insurance Brokers, Ltd.
B.
The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies issued by
the defendant-appellant South Sea Surety and Insurance Company, Inc.
C.
Code.

The trial court erred in not applying Section 77 of the Insurance

D.
The trial court erred in disregarding the "receipt of payment clause"
attached to and forming part of the Marine Cargo Insurance Policy No.
84/24229.
E.
The trial court in disregarding the statement of account or bill
stating the amount of premium and documentary stamps to be paid on the
policy by the plaintiff-appellee.
F.
The trial court erred in disregarding the endorsement of cancellation
of the policy due to non-payment of premium and documentary stamps.
G.
The trial court erred in ordering defendant-appellant South Sea
Surety and Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00
representing value of the policy with legal interest from 2 February 1984
until the amount is fully paid,

Under American jurisprudence, a common carrier undertaking to carry a


special cargo or chartered to a special person only, becomes a private
carrier.
As a private carrier, a stipulation exempting the owner from liability even
for the negligence of its agent is valid (Home Insurance Company, Inc. vs.
American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of
the logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial
Supply, Inc. ("Valenzuela") filed separate petitions for review before this
Court. In a Resolution dated June 2, 1995, this Court denied the petition of
South
Sea. 7 There the Court found no reason to reverse the factual findings of
the trial court and the Court of Appeals that Chua was indeed an authorized
agent of South Sea when he received Valenzuela's premium payment for
the marine cargo insurance policy which was thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review filed by
Valenzuela assailing the CA Decision which exempted Seven Brothers from
any liability for the lost cargo.
The Issue

TRANSPO | 06Dec | 61

Petitioner Valenzuela's arguments resolve around a single issue: "whether


or not respondent Court (of Appeals) committed a reversible error in
upholding the validity of the stipulation in the charter party executed
between the petitioner and the private respondent exempting the latter
from liability for the loss of petitioner's logs arising from the negligence of
its (Seven Brothers') captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated
that the "(o)wners shall not be responsible for loss, split, short-landing,
breakages and any kind of damages to the cargo." 10 The validity of this
stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the
parties that the proximate cause of the sinking of M/V Seven Ambassadors
resulting in the loss of its cargo was the "snapping of the iron chains and
the subsequent rolling of the logs to the portside due to the negligence of
the captain in stowing and securing the logs on board the vessel and not
due to fortuitous event." 11 Likewise undisputed is the status of Private
Respondent Seven Brothers as a private carrier when it contracted to
transport the cargo of Petitioner Valenzuela. Even the latter admits this in
its petition. 12
The trial court deemed the charter party stipulation void for being contrary
to public policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745.
Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy:
(1)

That the goods are transported at the risk of the owner or shipper;

(2)
That the common carrier will not be liable for any loss, destruction,
or deterioration of the goods;
(3)
That the common carrier need not observe any diligence in the
custody of the goods;
(4)
That the common carrier shall exercise a degree of diligence less
than that of a good father of a family, or of a man of ordinary prudence in
the vigilance over the movables transported;

(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 do not act with grave or irresistible threat, violence or force,
is dispensed with or diminished;
(7)
That the common carrier is 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.
Petitioner Valenzuela adds that the stipulation is void for being contrary to
Articles 586 and 587 of the Code of Commerce 14 and Articles 1170 and
1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of
the Civil Code, 15 petitioner further contends that said stipulation "gives no
duty or obligation to the private respondent to observe the diligence of a
good father of a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that
private respondent had acted as a private carrier in transporting petitioner's
lauan logs. Thus, Article 1745 and other Civil Code provisions on common
carriers which were cited by petitioner may not be applied unless expressly
stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by
the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil
Code, such stipulation is valid because it is freely entered into by the
parties and the same is not contrary to law, morals, good customs, public
order, or public policy. Indeed, their contract of private carriage is not even
a contract of adhesion. We stress that 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.
The issue posed in this case and the arguments raised by petitioner are not
novel; they were resolved long ago by this Court in Home Insurance Co. vs.
American Steamship Agencies, Inc. 18 In that case, the trial court similarly
nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article
587 of the Code of Commerce. Consequently, the trial court held the

TRANSPO | 06Dec | 62

shipowner liable for damages resulting for the partial loss of the cargo. This even from the neglect or fault of the captain or crew or some other person
Court reversed the trial court and laid down, through Mr. Justice Jose P. employed by the owner on
Bengzon, the following well-settled observation and doctrine:
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at
The provisions of our Civil Code on common carriers were taken from bar.
Anglo-American law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special person only, The naked assertion of petitioner that the American rule enunciated in
becomes a private carrier. As a private carrier, a stipulation exempting the Home Insurance is not the rule in the Philippines 23 deserves scant
owner from liability for the negligence of its agent is not against public consideration. The Court there categorically held that said rule was
policy, and is deemed valid.
"reasonable" and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments which
Such doctrine We find reasonable. The Civil Code provisions on common would necessitate a departure from a well-settled rule. Consequently, our
carriers should not be applied where the carrier is not acting as such but as ruling in said case remains a binding judicial precedent based on the
a private carrier. The stipulation in the charter party absolving the owner doctrine of stare decisis and Article 8 of the Civil Code which provides that
from liability for loss due to the negligence of its agent would be void if the "(j)udicial decisions applying or interpreting the laws or the Constitution
strict public policy governing common carriers is applied. Such policy has no shall form part of the legal system of the Philippines."
force where the public at large is not involved, as in this case of a ship
totally chartered for the used of a single party. 19 (Emphasis supplied.)
In fine, the respondent appellate court aptly stated that "[in the case of] a
private carrier, a stipulation exempting the owner from liability even for the
Indeed, where the reason for the rule ceases, the rule itself does not apply. negligence of its agents is valid." 24
The general public enters into a contract of transportation with common
carriers without a hand or a voice in the preparation thereof. The riding Other Arguments
public merely adheres to the contract; even if the public wants to, it cannot
submit its own stipulations for the approval of the common carrier. Thus, On the basis of the foregoing alone, the present petition may already be
the law on common carriers extends its protective mantle against one-sided denied; the Court, however, will discuss the other arguments of petitioner
stipulations inserted in tickets, invoices or other documents over which the for the benefit and satisfaction of all concerned.
riding public has no understanding or, worse, no choice. Compared to the
general public, a charterer in a contract of private carriage is not similarly Articles 586 and 587, Code of Commerce
situated. It can and in fact it usually does enter into a free and
voluntary agreement. In practice, the parties in a contract of private Petitioner Valenzuela insists that the charter party stipulation is contrary to
carriage can stipulate the carrier's obligations and liabilities over the Articles 586 and 587 of the Code of Commerce which confer on petitioner
shipment which, in turn, determine the price or consideration of the charter. the right to recover damages from the shipowner and ship agent for the
Thus, a charterer, in exchange for convenience and economy, may opt to acts or conduct of the captain. 25 We are not persuaded. Whatever rights
set aside the protection of the law on common carriers. When the charterer petitioner may have under the aforementioned statutory provisions were
decides to exercise this option, he takes a normal business risk.
waived when it entered into the charter party.
Petitioner contends that the rule in Home Insurance is not applicable to the
present case because it "covers only a stipulation exempting a private
carrier from liability for the negligence of his agent, but it does not apply to
a stipulation exempting a private carrier like private respondent from the
negligence of his employee or servant which is the situation in this case."
20 This contention of petitioner is bereft of merit, for it raises a distinction
without any substantive difference. The case Home Insurance specifically
dealt with "the liability of the shipowner for acts or negligence of its captain
and crew" 21 and a charter party stipulation which "exempts the owner of
the vessel from any loss or damage or delay arising from any other source,

Article 6 of the Civil Code provides that "(r)ights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good
customs, or prejudicial to a person with a right recognized by law." As a
general rule, patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of waiver.
26 Being patently and undoubtedly patrimonial, petitioner's right conferred
under said articles may be waived. This, the petitioner did by acceding to
the contractual stipulation that it is solely responsible or any damage to the
cargo, thereby exempting the private carrier from any responsibility for loss
or damage thereto. Furthermore, as discussed above, the contract of
private carriage binds petitioner and private respondent alone; it is not

TRANSPO | 06Dec | 63

imbued with public policy considerations for the general public or third
persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is
void for being contrary to Articles 1170 and 1173 of the Civil Code 27 which
read:
Art. 1170.
Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages
Art. 1173.
The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of articles 1171
and 2201, shall apply.
If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.
The Court notes that the foregoing articles are applicable only to the obligor
or the one with an obligation to perform. In the instant case, Private
Respondent Seven Brothers is not an obligor in respect of the cargo, for this
obligation to bear the loss was shifted to petitioner by virtue of the charter
party. This shifting of responsibility, as earlier observed, is not void. The
provisions cited by petitioner are, therefore, inapplicable to the present
case.
Moreover, the factual milieu of this case does not justify the application of
the second paragraph of Article 1173 of the Civil Code which prescribes the
standard of diligence to be observed in the event the law or the contract is
silent. In the instant case, Article 362 of the Code of Commerce 28 provides
the standard of ordinary diligence for the carriage of goods by a carrier. The
standard of diligence under this statutory provision may, however, be
modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn,
quoted Juan Ysmael & Co. vs. Gabino Barreto & Co. 30 and argues that the
public policy considerations stated there vis-a-vis contractual stipulations
limiting the carrier's liability be applied "with equal force" to this case. 31 It
also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends

that stipulations exempting a party from liability for damages due to


negligence "should not be countenanced" and should be "strictly construed"
against the party claiming its benefit. 33 We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus,
they necessarily justify the application of such policy considerations and
concomitantly stricter rules. As already discussed above, the public policy
considerations behind the rigorous treatment of common carriers are
absent in the case of private carriers. Hence, the stringent laws applicable
to common carriers are not applied to private carries. The case of Manila
Railroad is also inapplicable because the action for damages there does not
involve a contract for transportation. Furthermore, the defendant therein
made a "promise to use due care in the lifting operations" and,
consequently, it was "bound by its undertaking"'; besides, the exemption
was intended to cover accidents due to hidden defects in the apparatus or
other unforseeable occurrences" not caused by its "personal negligence."
This promise was thus constructed to make sense together with the
stipulation against liability for damages. 34 In the present case, we stress
that the private respondent made no such promise. The agreement of the
parties to exempt the shipowner from responsibility for any damage to the
cargo and place responsibility over the same to petitioner is the lone
stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,
35 Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 36 N. T .
Hashim and Co. vs. Rocha and Co., 37 Ohta Development Co. vs.
Steamship "Pompey" 38 and Limpangco Sons vs. Yangco Steamship Co. 39
in support of its contention that the shipowner be held liable for damages.
40 These however are not on all fours with the present case because they
do not involve a similar factual milieu or an identical stipulation in the
charter party expressly exempting the shipowner form responsibility for any
damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of
action against it because this Court has earlier affirmed the liability of South
Sea for the loss suffered by petitioner. Private respondent submits that
petitioner is not legally entitled to collect twice for a single loss. 41 In view
of the above disquisition upholding the validity of the questioned charter
party stipulation and holding that petitioner may not recover from private
respondent, the present issue is moot and academic. It suffices to state
that the Resolution of this Court dated June 2, 1995 42 affirming the
liability of South Sea does not, by itself, necessarily preclude the petitioner
from proceeding against private respondent. An aggrieved party may still
recover the deficiency for the person causing the loss in the event the

TRANSPO | 06Dec | 64

amount paid by the insurance company does not fully cover the loss. Article
2207 of the Civil Code provides:
Art. 2207.
If the plaintiff's property has been insured, and he has
received indemnity for the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency form the person
causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its
utter failure to show any reversible error on the part of Respondent Court.
The assailed Decision is AFFIRMED.
SO ORDERED.

G.R. No. 208802, October 14, 2015

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G.V. FLORIDA TRANSPORT, INC., Petitioner, v. HEIRS OF ROMEO L.


BATTUNG,
JR.,
REPRESENTED
BY ROMEO
BATTUNG,
SR.,
Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated
May 31, 2013 and the Resolution3 dated August 23, 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 97757, which affirmed in toto the Decision4
dated August 29, 2011 of the Regional Trial Court of Cabagan, Isabela,
Branch 22 (RTC) in Civil Case No. 22-1103 finding petitioner G.V. Florida
Transport, Inc. (petitioner), Federico M. Duplio, Jr. (Duplio), and Christopher
Daraoay (Daraoay) jointly and severally liable to respondents heirs of
Romeo L. Battung, Jr. (respondents) for damages arising from culpa
contractual.

well as the payment of their counterclaims for damages and attorney's


fees.10
The RTC Ruling
In a Decision11 dated August 29, 2011, the RTC ruled in respondents' favor
and, accordingly, ordered petitioner, et al. to pay respondent the amounts
of: (a) P1,586,000.00 as compensatory damages for unearned income; (b)
P50,000.00 as actual damages; and (c) P50,000.00 as moral damages.12
The RTC found that petitioner, et al. were unable to rebut the presumed
liability of common carriers in case of injuries/death to its passengers due
to their failure to show that they implemented the proper security measures
to prevent passengers from carrying deadly weapons inside the bus which,
in this case, resulted in the killing of Battung. As such, petitioner, et al.
were held civilly liable for the latter's death based on culpa contractual.13
Dissatisfied, petitioner, et al. appealed to the CA.14

The Facts

The CA Ruling

Respondents alleged that in the evening of March 22, 2003, Romeo L.


Battung, Jr. (Battung) boarded petitioner's bus with body number 037 and
plate number BVJ-525 in Delfin Albano, Isabela, bound for Manila.5 Battung
was seated at the first row behind the driver and slept during the ride.
When the bus reached the Philippine Carabao Center in Muoz, Nueva Ecija,
the bus driver, Duplio, stopped the bus and alighted to check the tires. At
this point, a man who was seated at the fourth row of the bus stood up,
shot Battung at his head, and then left with a companion. The bus
conductor, Daraoay, notified Duplio of the incident and thereafter, brought
Romeo to the hospital, but the latter was pronounced dead on arrival.6
Hence, respondents filed a complaint7 on July 15, 2008 for damages in the
aggregate amount of P1,826,000.008 based on a breach of contract of
carriage against petitioner, Duplio, and Baraoay (petitioner, et al.) before
the RTC, docketed as Civil Case No. 22-1103. Respondents contended that
as a common carrier, petitioner and its employees are bound to observe
extraordinary diligence in ensuring the safety of passengers; and in case of
injuries and/or death on the part of a passenger, they are presumed to be
at fault and, thus, responsible therefor. As such, petitioner, et al. should be
held civilly liable for Battung's death.9

In a Decision15 dated May 31, 2013, the CA affirmed the ruling of the RTC
in toto.16 It held that the killing of Battung cannot be deemed as a
fortuitous event, considering that such killing happened right inside
petitioner's bus and that petitioner, et al. did not take any safety measures
in ensuring that no deadly weapon would be smuggled inside the bus.17

In their defense, petitioner, et al. maintained that they had exercised the
extraordinary diligence required by law from common carriers. In this
relation, they claimed that a common carrier is not an absolute insurer of
its passengers and that Battung's death should be properly deemed a
fortuitous event. Thus, they prayed for the dismissal of the complaint, as

I.

Aggrieved, only petitioner moved for reconsideration18 which was,


however, denied in a Resolution19 dated August 23, 2013; hence, the
instant petition.chanrobleslaw
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA correctly
affirmed the ruling of the RTC finding petitioner liable for damages to
respondent arising from culpa contractual.
The Court's Ruling
The petition is meritorious.chanrobleslaw

The law exacts from


firms, or associations
passengers or goods
offering their services

common carriers (i.e., those persons, corporations,


engaged in the business of carrying or transporting
or both, by land, water, or air, for compensation,
to the public20) the highest degree of diligence (i.e.,

TRANSPO | 06Dec | 66

extraordinary diligence) in ensuring the safety of its passengers. Articles


1733 and 1755 of the Civil Code state:
Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case.
Art. 1755. A common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
In this relation, Article 1756 of the Civil Code provides that "[i]n case of
death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in Articles 1733 and 1755."
This disputable presumption may also be overcome by a showing that the
accident was caused by a fortuitous event.21
The foregoing provisions notwithstanding, it should be pointed out that the
law does not make the common carrier an insurer of the absolute safety of
its passengers. In Mariano, Jr. v. Callejas,22 the Court explained that:
While the law requires the highest degree of diligence from common
carriers in the safe transport of their passengers and creates a presumption
of negligence against them, it does not, however, make the carrier an
insurer of the absolute safety of its passengers.
Article 1755 of the Civil Code qualifies the duty of extraordinary care,
vigilance[,] and precaution in the carriage of passengers by common
carriers to only such as human care and foresight can provide. What
constitutes compliance with said duty is adjudged with due regard to all the
circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or
negligence on the part of the common carrier when its passenger is injured,
merely relieves the latter, for the time being, from introducing evidence to
fasten the negligence on the former, because the presumption stands in the
place of evidence. Being a mere presumption, however, the same is
rebuttable by proof that the common carrier had exercised extraordinary
diligence as required by law in the performance of its contractual obligation,
or that the injury suffered by the passenger was solely due to a fortuitous
event.
In fine, we can only infer from the law the intention of the Code
Commission and Congress to curb the recklessness of drivers and operators
of common carriers in the conduct of their business.

Thus, it is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger's safety, but
that its liability for personal injuries sustained by its passenger rests upon
its negligence, its failure to exercise the degree of diligence that the law
requires.23
(Emphases
and
underscoring
supplied)ChanRoblesVirtualawlibrary
Therefore, it is imperative for a party claiming against a common carrier
under the above-said provisions to show that the injury or death to the
passenger/s arose from the negligence of the common carrier and/or its
employees in providing safe transport to its passengers.
In Pilapil v. CA,24 the Court clarified that where the injury sustained by the
passenger was in no way due (1) to any defect in the means of transport or
in the method of transporting, or (2) to the negligent or willful acts of the
common carrier's employees with respect to the foregoing - such as when
the injury arises wholly from causes created by strangers which the carrier
had no control of or prior knowledge to prevent there would be no issue
regarding the common carrier's negligence in its duty to provide safe and
suitable care, as well as competent employees in relation to its transport
business; as such, the presumption of fault/negligence foisted under Article
1756 of the Civil Code should not apply:
First, as stated earlier, the presumption of fault or negligence against the
carrier is only a disputable presumption.[The presumption] gives in where
contrary facts are established proving either that the carrier had exercised
the degree of diligence required by law or the injury suffered by the
passenger was due to a fortuitous event. Where, as in the instant case, the
injury sustained by the petitioner was in no way due to any defect in the
means of transport or in the method of transporting or to the negligent or
wilful acts of [the common carrier'sl employees, and therefore involving no
issue of negligence in its duty to provide safe and suitable [care] as well as
competent employees, with the injury arising wholly from causes created by
strangers over which the carrier had no control or even knowledge or could
not have prevented, the presumption is rebutted and the carrier is not and
ought not to be held liable. To rule otherwise would make the common
carrier the insurer of the absolute safety of its passengers which is not the
intention of the lawmakers. (Emphasis and underscoring supplied)
In this case, Battung's death was neither caused by any defect in the
means of transport or in the method of transporting, or to the negligent or
willful acts of petitioner's employees, namely, that of Duplio and Daraoay, in
their capacities as driver and conductor, respectively. Instead, the case
involves the death of Battung wholly caused by the surreptitious act of a
co-passenger who, after consummating such crime, hurriedly alighted from
the vehicle.25 Thus, there is no proper issue on petitioner's duty to observe

TRANSPO | 06Dec | 67

extraordinary diligence in ensuring the safety of the passengers transported


by it, and the presumption of fault/negligence against petitioner under
Article 1756 in relation to Articles 1733 and 1755 of the Civil Code should
not apply.
II.
On the other hand, since Battung's death was caused by a co-passenger,
the applicable provision is Article 1763 of the Civil Code, which states that
"a common carrier is responsible for injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers,
if the common carrier's employees through the exercise of the diligence of a
good father of a family could have prevented or stopped the act or
omission." Notably, for this obligation, the law provides a lesser degree of
diligence, i.e., diligence of a good father of a family, in assessing the
existence of any culpability on the common carrier's part.

ensure the safety of its passengers. There was also no showing that during
the course of the trip, Battung's killer made suspicious actions which would
have forewarned petitioner's employees of the need to conduct thorough
checks on him or any of the passengers. Relevantly, the Court, in Nocum v.
Laguna Tayabas Bus Company,29 has held that common carriers should be
given sufficient leeway in assuming that the passengers they take in will not
bring anything that would prove dangerous to himself, as well as his copassengers, unless there is something that will indicate that a more
stringent inspection should be made, viz.:

In this particular case before Us, it must be considered that while it is true
the passengers of appellant's bus should not be made to suffer for
something over which they had no control, as enunciated in the decision of
this Court cited by His Honor, fairness demands that in measuring a
common carrier's duty towards its passengers, allowance must be given to
the reliance that should be reposed on the sense of responsibility of all the
passengers in regard to their common safety. It is to be presumed that a
Case law states that the concept of diligence of a good father of a family passenger will not take with him anything dangerous to the lives and limbs
"connotes reasonable care consistent with that which an ordinarily prudent of his co-passengers, not to speak of his own. Not to be lightly considered
person would have observed when confronted with a similar situation. The must be the right to privacy to which each passenger is entitled. He cannot
test to determine whether negligence attended the performance of an be subjected to any unusual search, when he protests the innocuousness of
obligation is: did the defendant in doing the alleged negligent act use that his baggage and nothing appears to indicate the contrary, as in the case at
reasonable care and caution which an ordinarily prudent person would have bar. In other words, inquiry may be verbally made as to the nature of a
used in the same situation? If not, then he is guilty of negligence."26
passenger's baggage when such is not outwardly perceptible, but beyond
this, constitutional boundaries are already in danger of being transgressed.
In ruling on this case, the CA cited Fortune Express, Inc. v. Court of Calling a policeman to his aid, as suggested by the service manual invoked
Appeals27 (Fortune) in ascribing negligence on the part of petitioner, by the trial judge, in compelling the passenger to submit to more rigid
ratiocinating that it failed to implement measures to detect if its passengers inspection, after the passenger had already declared that the box contained
were carrying firearms or deadly weapons which would pose a danger to mere clothes and other miscellaneous, could not have justified invasion of a
the other passengers.28 However, the CA's reliance was plainly misplaced constitutionally protected domain. Police officers acting without judicial
in view of Fortune's factual variance with the case at bar.
authority secured in the manner provided by law are not beyond the pale of
constitutional inhibitions designed to protect individual human rights and
In Fortune, the common carrier had already received intelligence reports liberties. Withal, what must be importantly considered here is not so much
from law enforcement agents that certain lawless elements were planning the infringement of the fundamental sacred rights of the particular
to hijack and burn some of its buses; and yet, it failed to implement the passenger herein involved, but the constant threat any contrary ruling
necessary precautions to ensure the safety of its buses and its passengers. would pose on the right of privacy of all passengers of all common carriers,
A few days later, one of the company's buses was indeed hijacked and considering how easily the duty to inspect can be made an excuse for
burned by the lawless elements pretending as mere passengers, resulting in mischief and abuse. Of course, when there are sufficient indications that
the death of one of the bus passengers. Accordingly, the Court held that the the representations of the passenger regarding the nature of his baggage
common carrier's failure to take precautionary measures to protect the may not be true, in the interest of the common safety of all, the assistance
safety of its passengers despite warnings from law enforcement agents of the police authorities may be solicited, not necessarily to force the
showed that it failed to exercise the diligence of a good father of a family in passenger to open his baggage, but to conduct the needed investigation
preventing the attack against one of its buses; thus, the common carrier consistent with the rules of propriety and, above all, the constitutional
was rightfully held liable for the death of the aforementioned passenger.
rights of the passenger. It is in this sense that the mentioned service
manual issued by appellant to its conductors must be understood.30
In contrast, no similar danger was shown to exist in this case so as to impel (Emphases and underscoring supplied)
petitioner or its employees to implement heightened security measures to

TRANSPO | 06Dec | 68

In this case, records reveal that when the bus stopped at San Jose City to
let four (4) men ride petitioner's bus (two [2] of which turned out to be
Battung's murderers), the bus driver, Duplio, saw them get on the bus and
even took note of what they were wearing. Moreover, Duplio made the bus
conductor, Daraoay, approach these men and have them pay the
corresponding fare, which Daraoay did.31 During the foregoing, both Duplio
and Daraoay observed nothing which would rouse their suspicion that the
men were armed or were to carry out an unlawful activity. With no such
indication, there was no need for them to conduct a more stringent search
(i.e., bodily search) on the aforesaid men. By all accounts, therefore, it
cannot be concluded that petitioner or any of its employees failed to employ
the diligence of a good father of a family in relation to its responsibility
under Article 1763 of the Civil Code. As such, petitioner cannot altogether
be held civilly liable.
WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated May
31, 2013 and the Resolution dated August 23, 2013 of the Court of Appeals
in CA-G.R. CV No. 97757 are hereby REVERSED and SET ASIDE.
Accordingly, the complaint for damages filed by respondents heirs of Romeo
L. Battung, Jr. is DISMISSED for lack of merit.
SO ORDERED.

G.R. No. 185891

June 26, 2013

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CATHAY PACIFIC AIRWAYS, Petitioner,


vs.
JUANITA REYES, WILFREDO REYES, MICHAEL ROY REYES, SIXTA
LAPUZ, and SAMPAGUITA TRAVEL CORP., Respondents.
DECISION
PEREZ, J.:
Assailed in this petition for review are the Decision 1 dated 22 October 2008
in CA-G.R. CV. No. 86156 and the 6 January 2009 Resolution 2 in the same
case of the Court of Appeals.
This case started as a complaint for damages tiled by respondents against
Cathay Pacific Airways (Cathay Pacific) and Sampaguita Travel Corp.
(Sampaguita Travel), now joined as a respondent. The factual backdrop
leading to the filing of the complaint is as follows:
Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a
travel reservation with Sampaguita Travel for his familys trip to Adelaide,
Australia scheduled from 12 April 1997 to 4 May 1997. Upon booking and
confirmation of their flight schedule, Wilfredo paid for the airfare and was
issued four (4) Cathay Pacific round-trip airplane tickets for ManilaHongKong-Adelaide-HongKong-Manila with the following record locators:
1wphi1
Name of Passenger

PNR OR RECORD LOCATOR NOS.3

Reyes, Wilfredo

J76TH

Reyes, Juanita

HDWC3

Reyes, Michael Roy

H9VZF

Lapuz, Sixta

HTFMG4

On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita),
son Michael Roy Reyes (Michael) and mother-in-law Sixta Lapuz (Sixta),
flew to Adelaide, Australia without a hitch.
One week before they were scheduled to fly back home, Wilfredo
reconfirmed his familys return flight with the Cathay Pacific office in
Adelaide. They were advised that the reservation was "still okay as
scheduled."

On the day of their scheduled departure from Adelaide, Wilfredo and his
family arrived at the airport on time. When the airport check-in counter
opened, Wilfredo was informed by a staff from Cathay Pacific that the
Reyeses did not have confirmed reservations, and only Sixtas flight booking
was confirmed. Nevertheless, they were allowed to board the flight to
HongKong due to adamant pleas from Wilfredo. When they arrived in
HongKong, they were again informed of the same problem. Unfortunately
this time, the Reyeses were not allowed to board because the flight to
Manila was fully booked. Only Sixta was allowed to proceed to Manila from
HongKong. On the following day, the Reyeses were finally allowed to board
the next flight bound for Manila.
Upon arriving in the Philippines, Wilfredo went to Sampaguita Travel to
report the incident. He was informed by Sampaguita Travel that it was
actually Cathay Pacific which cancelled their bookings.
On 16 June 1997, respondents as passengers, through counsel, sent a
letter to Cathay Pacific advising the latter of the incident and demanding
payment of damages.
After a series of exchanges and with no resolution in sight, respondents
filed a Complaint for damages against Cathay Pacific and Sampaguita Travel
and prayed for the following relief: a) P1,000,000.00 as moral damages;
b) P300,000.00 as actual damages; c) P100,000.00 as exemplary
damages; and d) P100,000.00 as attorneys fees.5
In its Answer, Cathay Pacific alleged that based on its computerized booking
system, several and confusing bookings were purportedly made under the
names of respondents through two (2) travel agencies, namely:
Sampaguita Travel and Rajah Travel Corporation. Cathay Pacific explained
that only the following Passenger Name Records (PNRs) appeared on its
system: PNR No. H9V15, PNR No. HTFMG, PNR No. J9R6E, PNR No. J76TH,
and PNR No. H9VSE. Cathay Pacific went on to detail each and every
booking, to wit:
1. PNR No. H9V15
Agent: Sampaguita Travel Corp.
Party: Ms. J Reyes, Mr. M R Reyes, Mr. W Reyes
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR.
The itinerary listed above was confirmed booking. However, the itinerary did
not include booking for the return flights. From information retrieved from

TRANSPO | 06Dec | 70

ABACUS (the booking system used by agents), the agent has, on 10 April,
added segments CX104/CX905 ADL/HKG/MNL 04 MAY on MK status, which
was not a confirmed booking. MK function is used for synchronizing records
or for ticketing purposes only. It does not purport to be a real booking. As a
result, no booking was transmitted into CPAs system.
2. PNR No. HTFMG

Party: Mrs. Sixta Lapuz


MNL/HKG/ADL

Party: Mr. W Reyes


Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
The booking on the above itinerary was confirmed initially. When the agent
was asked for the ticket number as the flight CX905 04 May was very
critical, the agent has inputted the ticket number on 10 Apr. but has
removed the record on 11 April. Since the booking was reflected as not
ticketed, the booking was cancelled on 18 Apr. accordingly.

Agent: Sampaguita Travel Corp.

Itinerary:
CX902/CX105
ADL/HKG/MNL 04/05 MAY.

Agent: Sampaguita Travel Corp.

12

APR,

CX104/CX907

This PNR was split from another PNR record, H9VSE.


5. PNR No. H9VSE

The above itinerary is the actual itinerary that the passenger has flown.
However, for the return sector, HKG/MNL, the original booking was on
CX905 of 04 May. This original booking was confirmed on 21 Mar. and
ticketed on 11 Apr.
This booking was cancelled on 04 May at 9:03 p.m. when CX905 was
almost scheduled to leave at the behest of the passenger and she was rebooked on CX907 of 05 May at the same time.
3. PNR No. J9R6E
Agent: Rajah Travel Corp.
Party: Mrs. Julieta Gaspar, Mrs. Sixta Lapuz, Mrs. Juanita Reyes,
Mr. Michael Roy Reyes, Mr. Wilfredo Reyes.
Itinerary: CX900 & CX902 MNL/HKG 12 APR, CX105 HKG/ADL 12 APR,
CX104/CX905 ADL/HKG/MNL 04 MAY & 07 MAY

Agent: Sampaguita Travel Corp.


Party: Ms. R Lapuz, Mr. R Lapuz, Mr. A Samson, originally Mr. W Reyes was
included in this party as well
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
The booking was confirmed initially but were not ticketed by 11 Apr. and
was cancelled accordingly. However, the PNR of Mr. W Reyes who was
originally included in this party was split to a separate record of J76TH. 6
Cathay Pacific asserted that in the case of Wilfredo with PNR No. J76TH, no
valid ticket number was inputted within a prescribed period which means
that no ticket was sold. Thus, Cathay Pacific had the right to cancel the
booking. Cathay Pacific found that Sampaguita Travel initially inputted a
ticket number for PNR No. J76TH and had it cancelled the following day,
while the PNR Nos. HDWC3 and HTFMG of Juanita and Michael do not exist.

The Answer also contained a cross-claim against Sampaguita Travel and


The party was confirmed initially on CX900/12 Apr, CX105/12 Apr, blamed the same for the cancellation of respondents return flights. Cathay
CX104/CX9095 07 May and on waiting list for CX902/12 Apr, CX104/CX905 Pacific likewise counterclaimed for payment of attorneys fees.
04 May.
On the other hand, Sampaguita Travel, in its Answer, denied Cathay Pacifics
claim that it was the cause of the cancellation of the bookings. Sampaguita
However, on 31 Mar., the booking was cancelled by the agent.
Travel maintained that it made the necessary reservation with Cathay
Pacific for respondents trip to Adelaide. After getting confirmed bookings
4. PNR No. J76TH
with Cathay Pacific, Sampaguita Travel issued the corresponding tickets to

TRANSPO | 06Dec | 71

respondents. Their confirmed bookings were covered with the following


PNRs:
PASSENGER NAME

PNR No.

Lapuz, Sixta

H9V15/ J76TH

Reyes, Wilfredo

H9V15/HDWC3

Reyes, Michael Roy

H9V15/H9VZF

Reyes, Juanita

HTFMG7

Sampaguita Travel explained that the Reyeses had two (2) PNRs each
because confirmation from Cathay Pacific was made one flight segment at a
time. Sampaguita Travel asserted that it only issued the tickets after Cathay
Pacific confirmed the bookings. Furthermore, Sampaguita Travel exonerated
itself from liability for damages because respondents were claiming for
damages arising from a breach of contract of carriage. Sampaguita Travel
likewise filed a cross-claim against Cathay Pacific and a counterclaim for
damages.

computer reservation system and each of such request was issued a


PNR;
7. That, as a travel agent, defendant Sampaguita Travel Corporation
merely acts as a booking/sales/ticketing arm for airline companies
and it has nothing to do with the airline operations;
8. That in the travel industry, the practice of reconfirmation of
return flights by passengers is coursed or done directly with the
airline company and not with the travel agent, which has no
participation, control or authority in making such reconfirmations.
9. That in the travel industry, the practice of cancellation of flights is
within the control of the airline and not of the travel agent, unless
the travel agent is requested by the passengers to make such
cancellations; and,
10. That defendant Cathay Pacific Airways has advertised that
"there is no need to confirm your flight when travelling with us",
although Cathay Pacific Airways qualifies the same to the effect that
in some cases there is a need for reconfirmations. 8

During the pre-trial, the parties agreed on the following stipulation of facts:
1. That the plaintiffs did not deal directly with Cathay Pacific
Airways;
2. That the plaintiffs did not make their bookings directly with
Cathay Pacific Airways;
3. That the plaintiffs did not purchase and did not get their tickets
from Cathay Pacific Airways;
4. That Cathay Pacific Airways has promptly replied to all
communications sent by the plaintiffs through their counsel;
5. That the plane tickets issued to plaintiffs were valid, which is why
they were able to depart from Manila to Adelaide, Australia and that
the reason why they were not able to board their return flight from
Adelaide was because of the alleged cancellation of their booking by
Cathay Pacific Airways at Adelaide, save for that of Sixta Lapuz
whose booking was confirmed by Cathay Pacific Airways;
6. That several reservations and bookings for the plaintiffs were
done by defendant Sampaguita Travel Corporation through the

After trial on the merits, the Regional Trial Court (RTC) rendered a
Decision,9 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the defendants and against the herein plaintiff. Accordingly, plaintiffs
complaint is hereby ordered DISMISSED for lack of merit. Defendants
counterclaims and cross-claims are similarly ordered dismissed for lack of
merit. No pronouncement as to cost.10
The trial court found that respondents were in possession of valid tickets
but did not have confirmed reservations for their return trip to Manila.
Additionally, the trial court observed that the several PNRs opened by
Sampaguita Travel created confusion in the bookings. The trial court
however did not find any basis to establish liability on the part of either
Cathay Pacific or Sampaguita Travel considering that the cancellation was
not without any justified reason. Finally, the trial court denied the claims for
damages for being unsubstantiated.
Respondents appealed to the Court of Appeals. On 22 October 2008, the
Court of Appeals ordered Cathay Pacific to pay P25,000.00 each to
respondents as nominal damages.

TRANSPO | 06Dec | 72

Upon denial of their motion for reconsideration, Cathay Pacific filed the
instant petition for review assigning the following as errors committed by
the Court of Appeals:
A.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR
AND REVERSIBLE ERROR IN HOLDING THAT CATHAY PACIFIC
AIRWAYS IS LIABLE FOR NOMINAL DAMAGES FOR ITS ALLEGED
INITIAL BREACH OF CONTRACT WITH THE PASSENGERS EVEN
THOUGH CATHAY PACIFIC AIRWAYS WAS ABLE TO PROVE BEYOND
REASONABLE DOUBT THAT IT WAS NOT AT FAULT FOR THE
PREDICAMENT OF THE RESPONDENT PASSENGERS.
B.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR
AND REVERSIBLE ERROR IN RELYING ON MATTERS NOT PROVED
DURING THE TRIAL AND NOT SUPPORTED BY THE EVIDENCE AS
BASIS FOR HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR
NOMINAL DAMAGES.
C.

Cathay Pacific assails the award of nominal damages in favor of


respondents on the ground that its action of cancelling the flight bookings
was justifiable. Cathay Pacific reveals that upon investigation, the
respondents had no confirmed bookings for their return flights. Hence, it
was not obligated to transport the respondents. In fact, Cathay Pacific adds,
it exhibited good faith in accommodating the respondents despite holding
unconfirmed bookings.
Cathay Pacific also scores the Court of Appeals in basing the award of
nominal damages on the alleged asthmatic condition of passenger Michael
and old age of Sixta. Cathay Pacific points out that the records, including
the testimonies of the witnesses, did not make any mention of Michaels
asthma. And Sixta was in fact holding a confirmed booking but she refused
to take her confirmed seat and instead stayed in HongKong with the other
respondents.
Cathay Pacific blames Sampaguita Travel for negligence in not ensuring that
respondents had confirmed bookings for their return trips.
Lastly, assuming arguendo that the award of nominal damages is proper,
Cathay Pacific contends that the amount should be reduced to P5,000.00
for each passenger.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR


AND REVERSIBLE ERROR IN NOT HOLDING SAMPAGUITA TRAVEL
CORP. LIABLE TO CATHAY PACIFIC AIRWAYS FOR WHATEVER
DAMAGES THAT THE AIRLINE COMPANY WOULD BE ADJUDGED THE
RESPONDENT PASSENGERS.

At the outset, it bears pointing out that respondent Sixta had no cause of
action against Cathay Pacific or Sampaguita Travel. The elements of a cause
of action consist of: (1) a right existing in favor of the plaintiff, (2) a duty
on the part of the defendant to respect the plaintiffs right, and (3) an act
or omission of the defendant in violation of such right. 12 As culled from the
records, there has been no violation of any right or breach of any duty on
the part of Cathay Pacific and Sampaguita Travel. As a holder of a valid
booking, Sixta had the right to expect that she would fly on the flight and
on the date specified on her airplane ticket. Cathay Pacific met her
expectations and Sixta was indeed able to complete her flight without any
trouble. The absence of any violation to Sixtas right as passenger
effectively deprived her of any relief against either Cathay Pacific or
Sampaguita Travel.

E.

With respect to the three remaining respondents, we rule as follows:

ALTERNATIVELY, WHETHER OR NOT THE COURT OF APPEALS


COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT FAILED TO
APPLY THE DOCTRINE OF STARE DECISIS IN FIXING THE AMOUNT
OF NOMINAL DAMAGES TO BE AWARDED.11

The determination of whether or not the award of damages is correct


depends on the nature of the respondents contractual relations with Cathay
Pacific and Sampaguita Travel. It is beyond dispute that respondents were
holders of Cathay Pacific airplane tickets and they made the booking
through Sampaguita Travel.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR


AND REVERSIBLE ERROR IN HOLDING CATHAY PACIFIC AIRWAYS
LIABLE FOR NOMINAL DAMAGES TO RESPONDENT SIXTA LAPUZ.
D.

TRANSPO | 06Dec | 73

Respondents cause of action against Cathay Pacific stemmed from a breach


of contract of carriage. A contract of carriage is defined as one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed
price.13 Under Article 1732 of the Civil Code, this "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" is called a common carrier.
Respondents entered into a contract of carriage with Cathay Pacific. As far
as respondents are concerned, they were holding valid and confirmed
airplane tickets. The ticket in itself is a valid written contract of carriage
whereby for a consideration, Cathay Pacific undertook to carry respondents
in its airplane for a round-trip flight from Manila to Adelaide, Australia and
then back to Manila. In fact, Wilfredo called the Cathay Pacific office in
Adelaide one week before his return flight to re-confirm his booking. He was
even assured by a staff of Cathay Pacific that he does not need to reconfirm
his booking.
In its defense, Cathay Pacific posits that Wilfredos booking was cancelled
because a ticket number was not inputted by Sampaguita Travel, while
bookings of Juanita and Michael were not honored for being fictitious.
Cathay Pacific clearly blames Sampaguita Travel for not finalizing the
bookings for the respondents return flights. Respondents are not privy to
whatever misunderstanding and confusion that may have transpired in their
bookings. On its face, the airplane ticket is a valid written contract of
carriage. This Court has held that when an airline issues a ticket to a
passenger confirmed on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would
fly on that flight and on that date. If he does not, then the carrier opens
itself to a suit for breach of contract of carriage. 14
As further elucidated by the Court of Appeals:
Now, Article 1370 of the Civil Code mandates that "if the terms of a
contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control." Under Section
9, Rule 130 of the Rules of Court, once the terms of an agreement have
been reduced to writing, it is deemed to contain all the terms agreed upon
by the parties and no evidence of such terms other than the contents of the
written agreement shall be admissible. The terms of the agreement of
appellants and appellee Cathay Pacific embodied in the tickets issued by the
latter to the former are plain appellee Cathay Pacific will transport
appellants to Adelaide, Australia from Manila via Hongkong on 12 April 1991
and back to Manila from Adelaide, Australia also via Hongkong on 4 May
1997. In addition, the tickets reveal that all appellants have confirmed

bookings for their flight to Adelaide, Australia and back to Manila as


manifested by the words "Ok" indicated therein. Arlene Ansay, appellee
Cathay Pacifics Reservation Supervisor, validated this fact in her testimony
saying that the return flights of all appellants to the Philippines on 4 May
1997 were confirmed as appearing on the tickets. Indubitably, when
appellee Cathay Pacific initially refused to transport appellants to the
Philippines on 4 May 1997 due to the latters lack of reservation, it has, in
effect, breached their contract of carriage. Appellants, however, were
eventually accommodated and transported by appellee Cathay Pacific to
Manila.15
Cathay Pacific breached its contract of carriage with respondents when it
disallowed them to board the plane in Hong Kong going to Manila on the
date reflected on their tickets. Thus, Cathay Pacific opened itself to claims
for compensatory, actual, moral and exemplary damages, attorneys fees
and costs of suit.
In contrast, the contractual relation between Sampaguita Travel and
respondents is a contract for services. The object of the contract is
arranging and facilitating the latters booking and ticketing. It was even
Sampaguita Travel which issued the tickets.
Since the contract between the parties is an ordinary one for services, the
standard of care required of respondent is that of a good father of a family
under Article 1173 of the Civil Code. This connotes reasonable care
consistent with that which an ordinarily prudent person would have
observed when confronted with a similar situation. The test to determine
whether negligence attended the performance of an obligation is: did the
defendant in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. 16
There was indeed failure on the part of Sampaguita Travel to exercise due
diligence in performing its obligations under the contract of services. It was
established by Cathay Pacific, through the generation of the PNRs, that
Sampaguita Travel failed to input the correct ticket number for Wilfredos
ticket. Cathay Pacific even asserted that Sampaguita Travel made two
fictitious bookings for Juanita and Michael.
The negligence of Sampaguita Travel renders it also liable for damages.
For one to be entitled to actual damages, it is necessary to prove the actual
amount of loss with a reasonable degree of certainty, premised upon
competent proof and the best evidence obtainable by the injured party. To
justify an award of actual damages, there must be competent proof of the

TRANSPO | 06Dec | 74

actual amount of loss. Credence can be given only to claims which are duly
supported by receipts.17
We echo the findings of the trial court that respondents failed to show proof
of actual damages. Wilfredo initially testified that he personally incurred
losses amounting to P300,000.00 which represents the amount of the
contract that he was supposedly scheduled to sign had his return trip not
been cancelled. During the cross-examination however, it appears that the
supposed contract-signing was a mere formality and that an agreement had
already been hatched beforehand. Hence, we cannot fathom how said
contract did not materialize because of Wilfredos absence, and how
Wilfredo incurred such losses when he himself admitted that he entered
into said contract on behalf of Parsons Engineering Consulting Firm, where
he worked as construction manager. Thus, if indeed there were losses,
these were losses suffered by the company and not by Wilfredo. Moreover,
he did not present any documentary evidence, such as the actual contract
or affidavits from any of the parties to said contract, to substantiate his
claim of losses. With respect to the remaining passengers, they likewise
failed to present proof of the actual losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral
damages, in breaches of contract, is in order upon a showing that the
defendant acted fraudulently or in bad faith. 18 What the law considers as
bad faith which may furnish the ground for an award of moral damages
would be bad faith in securing the contract and in the execution thereof, as
well as in the enforcement of its terms, or any other kind of deceit. In the
same vein, to warrant the award of exemplary damages, defendant must
have acted in wanton, fraudulent, reckless, oppressive, or malevolent
manner.19
In the instant case, it was proven by Cathay Pacific that first, it extended all
possible accommodations to respondents.1wphi1 They were promptly
informed of the problem in their bookings while they were still at the
Adelaide airport. Despite the non-confirmation of their bookings,
respondents were still allowed to board the Adelaide to Hong Kong flight.
Upon arriving in Hong Kong, they were again informed that they could not
be accommodated on the next flight because it was already fully booked.
They were however allowed to board the next available flight on the
following day. Second, upon receiving the complaint letter of respondents,
Cathay Pacific immediately addressed the complaint and gave an
explanation on the cancellation of their flight bookings.
The Court of Appeals is correct in stating that "what may be attributed to x
x x Cathay Pacific is negligence concerning the lapses in their process of
confirming passenger bookings and reservations, done through travel
agencies. But this negligence is not so gross so as to amount to bad

faith."20 Cathay Pacific was not motivated by malice or bad faith in not
allowing respondents to board on their return flight to Manila. It is evident
and was in fact proven by Cathay Pacific that its refusal to honor the return
flight bookings of respondents was due to the cancellation of one booking
and the two other bookings were not reflected on its computerized booking
system.
Likewise, Sampaguita Travel cannot be held liable for moral damages. True,
Sampaguita Travel was negligent in the conduct of its booking and ticketing
which resulted in the cancellation of flights. But its actions were not proven
to have been tainted with malice or bad faith. Under these circumstances,
respondents
are
not
entitled
to
moral
and
exemplary
damages.1wphi1 With respect to attorneys fees, we uphold the appellate
courts finding on lack of factual and legal justification to award attorneys
fees.
We however sustain the award of nominal damages in the amount
of P25,000.00 to only three of the four respondents who were aggrieved by
the last-minute cancellation of their flights. Nominal damages are
recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of
any kind or where there has been a breach of contract and no substantial
injury or actual damages whatsoever have been or can be shown. 21 Under
Article 2221 of the Civil Code, nominal damages may be awarded to a
plaintiff whose right has been violated or invaded by the defendant, for the
purpose of vindicating or recognizing that right, not for indemnifying the
plaintiff for any loss suffered.
Considering that the three respondents were denied boarding their return
flight from HongKong to Manila and that they had to wait in the airport
overnight for their return flight, they are deemed to have technically
suffered injury. Nonetheless, they failed to present proof of actual damages.
Consequently, they should be compensated in the form of nominal
damages.
The amount to be awarded as nominal damages shall be equal or at least
commensurate to the injury sustained by respondents considering the
concept and purpose of such damages. The amount of nominal damages to
be awarded may also depend on certain special reasons extant in the
case.22
The amount of such damages is addressed to the sound discretion of the
court and taking into account the relevant circumstances, 23 such as the
failure of some respondents to board the flight on schedule and the slight
breach in the legal obligations of the airline company to comply with the
terms of the contract, i.e., the airplane ticket and of the travel agency to

TRANSPO | 06Dec | 75

make the correct bookings. We find the award of P25,000.00 to the Reyeses
correct and proper.
Cathay Pacific and Sampaguita Travel acted together in creating the
confusion in the bookings which led to the erroneous cancellation of
respondents bookings. Their negligence is the proximate cause of the
technical injury sustained by respondents. Therefore, they have become
joint tortfeasors, whose responsibility for quasi-delict, under Article 2194 of
the Civil Code, is solidary.
Based on the foregoing, Cathay Pacific and Sampaguita Travel are jointly
and solidarily liable for nominal damages awarded to respondents Wilfredo,
Juanita and Michael Roy.
WHEREFORE, the Petition is DENIED. The 22 October 2008 Decision of the
Court of Appeals is AFFIRMED with MODIFICATION that Sampaguita Travel
is held to be solidarily liable with Cathay Pacific in the payment of nominal
damages of ~25,000.00 each for Wilfredo Reyes, Juanita Reyes, and
Michael Rox Reyes. The complaint of respondent Sixta
Lapuz is DISMISSED for lack of cause of action.
SO ORDERED.

TRANSPO | 06Dec | 76

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.:

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.

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.

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.

The facts are undisputed.1wphi1.nt

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.

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 PGAI) 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

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

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.

TRANSPO | 06Dec | 77

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 shipowner delivers them to the shipper in bad order and
condition, it then devolves upon the shipowner 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."

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

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.

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.

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

Secondly, LOADSTAR did not raise the issue of prescription in the court
below; hence, the same must be deemed waived.

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

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.

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.

TRANSPO | 06Dec | 78

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 and 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

TRANSPO | 06Dec | 79

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 and National
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.

TRANSPO | 06Dec | 80

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.:

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.

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.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

The basic facts are not in controversy:

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.

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. 71478

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.

TRANSPO | 06Dec | 81

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.

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:

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 lower-numbered 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.

(1)
Flood, storm, earthquake, lightning or other natural disaster or
calamity;

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

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.

TRANSPO | 06Dec | 82

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

TRANSPO | 06Dec | 83

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

TRANSPO | 06Dec | 84

polyester goods are packed into cardboard cartons which are then placed in
containers, the cartons and not the containers are the packages.
xxx

xxx

container(s) at the time of receipt, the Carrier shall be at liberty to pack


and carry them in any type of container(s).

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 carrierfurnished 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

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

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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.

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G.R. No. 104685

March 14, 1996

SABENA BELGIAN WORLD AIRLINES, petitioner,


vs.
HON. COURT OF APPEALS and MA. PAULA
respondents.

At the time of the filing of the complaint, the luggage with its content has
not been found.
SAN

AGUSTIN,

VITUG, J.:p
The appeal before the Court involves the issue of an airline's liability for lost
luggage. The petition for review assails the decision of the Court of Appeals,
1 dated 27 February 1992, affirming an award of damages made by the
trial court in a complaint filed by private respondent against petitioner.
The factual background of the case, narrated by the trial court and
reproduced at length by the appellate court, is hereunder quoted:
On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of
defendant airline originating from Casablanca to Brussels, Belgium on her
way back to Manila. Plaintiff checked in her luggage which contained her
valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00
shoes/bag $150; accessories $75; luggage itself $10.00; or a total of
$4,265.00, for which she was issued Tag No. 71423. She stayed overnight
in Brussels and her luggage was left on board Flight SN 284.
Plaintiff arrived at Manila International Airport on September 2, 1987 and
immediately submitted her Tag No. 71423 to facilitate the release of her
luggage but the luggage was missing. She was advised to accomplish and
submit a property Irregularity Report which she submitted and filed on the
same day.
She followed up her claim on September 14, 1987 but the luggage
remained to be missing.
On September 15, 1987, she filed her formal complaint with the office of
Ferge Massed, defendant's Local Manager, demanding immediate attention
(Exh. "A").
On September 30, 1987, on the occasion of plaintiffs following up of her
luggage claim, she was furnished copies of defendant's telexes with an
information that the Burssel's Office of defendant found the luggage and
that they have broken the locks for identification (Exhibit "B"). Plaintiff was
assured by the defendant that it has notified its Manila Office that the
luggage will be shipped to Manila on October 27, 1987. But unfortunately
plaintiff was informed that the luggage was lost for the second time
(Exhibits "C" and "C-1").

Plaintiff demanded from the defendant the money value of the luggage and
its contents amounting to $4,265.00 or its exchange value, but defendant
refused to settle the claim.
Defendant asserts in its Answer and its evidence tend to show that while it
admits that the plaintiff was a passenger on board Flight No. SN 284 with a
piece of checked in luggage bearing Tag No. 71423, the loss of the luggage
was due to plaintiff's sole if not contributory negligence; that she did not
declare the valuable items in her checked in luggage at the flight counter
when she checked in for her flight from Casablanca to Brussels so that
either the representative of the defendant at the counter would have
advised her to secure an insurance on the alleged valuable items and
required her to pay additional charges, or would have refused acceptance of
her baggage as required by the generally accepted practices of international
carriers; that Section 9(a), Article IX of General Conditions of carriage
requiring passengers to collect their checked baggage at the place of stop
over, plaintiff neglected to claim her baggage at the Brussels Airport; that
plaintiff should have retrieved her undeclared valuables from her baggage
at the Brussels Airport since her flight from Brussels to Manila will still have
to visit for confirmation inasmuch as only her flight from Casablanca to
Brussels was confirmed; that defendant incorporated in all Sabena Plane
Tickets, including Sabena Ticket No. 082422-72502241 issued to plaintiff in
Manila on August 21, 1987, a warning that "Items of value should be
carried on your person" and that some carriers assume no liability for
fragile, valuable or perishable articles and that further information may be
obtained from the carrier for guidance;' that granting without conceding
that defendant is liable, its liability is limited only to US $20.00 per kilo due
to plaintiffs failure to declare a higher value on the contents of her checked
in luggage and pay additional charges thereon. 2
The trial court rendered judgment ordering petitioner Sabena Belgian World
Airlines to pay private respondent Ma. Paula San Agustin
(a)

. . . US $4,265.00 or its legal exchange in Philippine pesos;

(b)

. . . P30,000.00 as moral damages;

(c)

. . . P10,000.00 as exemplary damages;

(d)

. . . P10,000.00 as attorney's fees; and

(e)

(t)he costs of the suit. 3

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Sabena appealed the decision of the Regional Trial Court to the Court of
Appeals. The appellate court, in its decision of 27 February 1992, affirmed
in toto the trial court's judgment.

or deteriorated, common carriers are presumed to have been at fault or to


have acted negligently, unless they prove that they had observed
extraordinary diligence as required in Article 1733.

Petitioner airline company, in contending that the alleged negligence of


private respondent should be considered the primary cause for the loss of
her luggage, avers that, despite her awareness that the flight ticket had
been confirmed only for Casablanca and Brussels, and that her flight from
Brussels to Manila had yet to be confirmed, she did not retrieve the luggage
upon arrival in Brussels. Petitioner insists that private respondent, being a
seasoned international traveler, must have likewise been familiar with the
standard provisions contained in her flight ticket that items of value are
required to be hand-carried by the passenger and that the liability of the
airline for loss, delay or damage to baggage would be limited, in any event,
to only US $20.00 per kilo unless a higher value is declared in advance and
corresponding additional charges are paid thereon. At the Casablanca
International Airport, private respondent, in checking in her luggage,
evidently did not declare its contents or value. Petitioner cites Section 5(c),
Article IX, of the General Conditions of Carriage, signed at Warsaw, Poland,
on 02 October 1929, as amended by the Hague Protocol of 1955, generally
observed by International carriers, stating, among other things, that:

The only exceptions to the foregoing extraordinary responsibility of the


common carrier is when the loss, destruction, or deterioration of the goods
is due to any of the following causes:

Passengers shall not include in his checked baggage, and the carrier may
refuse to carry as checked baggage, fragile or perishable articles, money,
jewelry, precious metals, negotiable papers, securities or other valuable. 4

The above rules remain basically unchanged even when the contract is
breached by tort 6 although noncontradictory principles on quasi-delict may
then be assimilated as also forming part of the governing law. Petitioner is
not thus entirely off track when it has likewise raised in its defense the tort
doctrine of proximate cause. Unfortunately for petitioner, however, the
doctrine cannot, in this particular instance, support its case. Proximate
cause is that which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces injury and without which the result
would not have occurred. The exemplification by the Court in one case 7 is
simple and explicit; viz:

Fault or negligence consists in the omission of that diligence which is


demanded by the nature of an obligation and corresponds with the
circumstances of the person, of the time, and of the place. When the source
of an obligation is derived from a contract, the mere breach or nonfulfillment of the prestation gives rise to the presumption of fault on the
part of the obligor. This rule is no different in the case of common carriers
in the carriage of goods which, indeed, are bound to observe not just the
due diligence of a good father of a family but that of "extraordinary" care in
the vigilance over the goods. The appellate court has aptly observed:
. . . Art. 1733 of the [Civil] Code provides that from the very nature of their
business and by reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods transported
by them. This extraordinary responsibility, according to Art. 1736, lasts
from the time the goods are unconditionally placed in the possession of and
received by the carrier until they are delivered actually or constructively to
the consignee or person who has the right to receive them. Art. 1737 states
that the common carrier's duty to observe extraordinary diligence in the
vigilance over the goods transported by them remains in full force and
effect even when they are temporarily unloaded or stored in transit. And
Art. 1735 establishes the presumption that if the goods are lost, destroyed

(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.

Not one of the above excepted causes obtains in this case. 5

(T)he proximate legal cause is that acting first and producing the injury,
either immediately or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain
immediately affecting the injury as a natural and probable result of the
cause which first acted, under such circumstances that the person
responsible for the first event should, as an ordinarily prudent and
intelligent person, have reasonable ground to expect at the moment of his
act or default that an injury to some person might probably result
therefrom.
It remained undisputed that private respondent's luggage was lost while it
was in the custody of petitioner. It was supposed to arrive on the same
flight that private respondent took in returning to Manila on 02 September

TRANSPO | 06Dec | 88

1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She followed up her
claim on 14 September 1987, and filed, on the following day, a formal
letter-complaint with petitioner. She felt relieved when, on 23 October
1987, she was advised that her luggage had finally been found, with its
contents intact when examined, and that she could expect it to arrive on 27
October 1987. She then waited anxiously only to be told later that her
luggage had been lost for the second time. Thus, the appellate court, given
all the facts before it, sustained the trial court in finding petitioner
ultimately guilty of "gross negligence" in the handling of private
respondent's luggage. The "loss of said baggage not only once but twice,
said the appellate court, "underscores the wanton negligence and lack of
care" on the part of the carrier.
The above findings, which certainly cannot be said to be without basis,
foreclose whatever rights petitioner might have had to the possible
limitation of liabilities enjoyed by international air carriers under the
Warsaw Convention (Convention for the Unification of Certain Rules Relating
to International Carriage by Air, as amended by the Hague Protocol of 1955,
the Montreal Agreement of 1966, the Guatemala Protocol of 1971 and the
Montreal Protocols of 1975). In Alitalia vs. Intermediate Appellate Court, 8
now Chief Justice Andres R. Narvasa, speaking for the Court, has explained
it well; he said:
The Warsaw Convention however denies to the carrier availment of the
provisions which exclude or limit his liability, if the damage is caused by his
wilful misconduct or by such default on his part as, in accordance with the
law of the court seized of the case, is considered to be equivalent to wilful
misconduct, or if the damage is (similarly) caused . . . by any agent of the
carrier acting within the scope of his employment. The Hague Protocol
amended the Warsaw Convention by removing the provision that if the
airline took all necessary steps to avoid the damage, it could exculpate
itself completely, and declaring the stated limits of liability not applicable if
it is proved that the damage resulted from an act or omission of the carrier,
its servants or agents, done with intent to cause damage or recklessly and
with knowledge that damage would probably result. The same deletion was
effected by the Montreal Agreement of 1966, with the result that a
passenger could recover unlimited damages upon proof of wilful
misconduct.

The Convention does not thus operate as an exclusive enumeration of the


instances of an airline's liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the
Convention, as this Court has now, and at an earlier time, pointed out.
Moreover, slight reflection readily leads to the conclusion that it should be
deemed a limit of liability only in those cases where the cause of the death
or injury to person, or destruction, loss or damage to property or delay in
its transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness, or otherwise improper conduct on the part of any official
or employee for which the carrier is responsible, and there is otherwise no
special or extraordinary form of resulting injury. The Convention's
provisions, in short, do not regulate or exclude liability for other breaches of
contract by the carrier or misconduct of its officers and employees, or for
some particular or exceptional type of damage. Otherwise, an air carrier
would be exempt from any liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of carriage, which is absurd.
Nor may it for a moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a passenger, or
maliciously destroy or damage the latter's property, the Convention might
successfully be pleaded as the sole gauge to determine the carrier's liability
to the passenger. Neither may the Convention be invoked to justify the
disregard of some extraordinary sort of damage resulting to a passenger
and preclude recovery therefor beyond the limits set by said Convention. It
is in this sense that the Convention has been applied, or ignored, depending
on the peculiar facts presented by each case.
The Court thus sees no error in the preponderant application to the instant
case by the appellate court, as well as by the trial court, of the usual rules
on the extent of recoverable damages beyond the Warsaw limitations.
Under domestic law and jurisprudence (the Philippines being the country of
destination), the attendance of gross negligence (given the equivalent of
fraud or bad faith) holds the common carrier liable for all damages which
can be reasonably attributed, although unforeseen, to the non-performance
of the obligation, 9 including moral and exemplary damages. 10
WHEREFORE, the decision appealed from is AFFIRMED. Costs against
petitioner.
SO ORDERED.