G.R. No.

L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees.

Balgos& Perez Law Office for private respondent in both cases.

PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National
Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court
of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime
Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum
of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus
TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company,
judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company
of the Philippines the total amount that the Maritime Company of the Philippines may voluntarily or by compliance to a
writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC
and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including
one with the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its
behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the
vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of
Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on
the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking
Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to
Manila the vessel DofiaNati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS
YasushimaMaru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of
which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500
and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly
endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the

aforesaid shipment of Kyokuto, BoekuiKaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for
Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed
bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the
consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to
recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'DofiaNati'
vessel. (Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of
Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP
(Record on Appeal), pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed
on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to which
MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the
resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed
its answer with counterclaim and cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an
answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's
answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to
comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of
agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p.
44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its
order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision
ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal rate of
interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of
P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set
aside the decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979, this
Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases were
given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a)
OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN
DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA
NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION
OF THE PHILIPPINES.
II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE
INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 12, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE
AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE
PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER
MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY
PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT "H"
AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA
MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY
THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE
FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER
APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED
BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS
SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE
COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF
550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF
ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT
PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO
GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT
COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM
THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF
SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF
P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines;
p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to
collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided
thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar
and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the loss
or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were
adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been
relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and
both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as
earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987])
where it was held under similar circumstance "that the law of the country to which the goods are to be transported governs
the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the
rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is
governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common
carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods
by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco, California and
Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the
negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported
by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than
those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted
negigently, unless it proves that it has observed the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible
error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of
Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a
vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more
in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels,
each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their
cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is
not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is
imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is
merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung
Sheng Exchange and Trading Co. v. Urrutia& Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and
not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically
provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing
in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as
limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of
Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has
no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special

property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred
or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiffappellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of
lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees
of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to
this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said
consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to
recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the
vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in
excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6,
Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in
Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract
in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP
cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the
agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia& Co., supra citing
Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that
while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of
the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more
specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both
the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of
the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45
Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and
owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his
rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y
Co. v. McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw
cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in
determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no
less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan
Ysmael& Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such
injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the
collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of
Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS YasushimaMaru and not to the
Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance
with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that
both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the
cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to give
allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate

the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which
was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence,
had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the
complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost
or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea
Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent
Appellate Court is AFFIRMED.
SO ORDERED.
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications,
and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and
enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease
and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing
in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the
Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a
private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila,
which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit
III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing
transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC
Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-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 President Corazon C.
Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects
through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22,
1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification Bids
and Awards Committee (PBAC) and the Technical Committee.

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three newspapers of
general circulation once a week for three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five
groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel
International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and
domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox,
Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta& Co. Capitol Industrial Construction Group,
Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical
Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10 percent; (b)
Management/Organizational capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical
capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and
Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five
applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [ sic], except for
Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to
provided that the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other pertinent
laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by
Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991,
respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium,
and requesting for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the
Implementing Rules and Regulations of the BOT Law ( Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed
with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd.,
in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed
Secretary Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed
to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding
as the only mode to award BOT projects, and the prequalification proceedings was not the public bidding contemplated
under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized negotiated
award of contract in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of
priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the contract was
awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the agreement.
On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority
to sign the Agreement without need of approval by the President pursuant to the provisions of Executive Order No. 380
and that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the Agreement"

(Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent
entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer
a Light Rail Transit System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval" ( Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a
Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, ( Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and
will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such
vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a
distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own
power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations
and one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail transit
system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately
three years from the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the
system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private
respondent shall deliver the use and possession of the completed portion to DOTC which shall operate the same
(Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private
respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an
independent and internationally accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec.
6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the
DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p.
5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be
transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and
for Other Purposes" was signed into law by the President. The law was published in two newspapers of general circulation
on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and
allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993,
INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA
LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN
R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS
UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE
REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL
AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT ( Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos and are not
disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT
Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature
On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered
that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay
Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the
legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental
Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino
citizens and domestic corporations, not foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the
only mode of awarding infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by
public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo,
pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? ( Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like
the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557
558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not
require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them
to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive
character or for a longer period than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and
equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his
will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and
Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to
serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility
includes the transportation of passengers from one point to another point, their loading and unloading at designated places
and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180
P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d
1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof.
One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility
without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be
very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease
their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not
enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity,
private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of
the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and
private respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement,
Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of
the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the
agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of
DOTC operational personnel which includes actual driving of light rail vehicles under simulated operating conditions,
control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system
(Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of

private respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives,
however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC
shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and
Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon
commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new
personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of
replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon
(Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this
purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which
may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in
the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such
equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings
with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the
role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110
(1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a
collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line
lottery system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the contract,
the Court found that PGMC's participation was not confined to the construction and setting up of the on-line lottery
system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and
control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which
actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v.
United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903,
188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]).
Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies
considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a
public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise,
certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its
Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor undertakes the construction
including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates
the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges
sufficient to enable the contractor to recover its operating and maintenance expenses and its investment in the project plus
a reasonable rate of return thereon. The contractor transfers the facility to the government agency or local government unit
concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage, the contractor
may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino
constructor [sic]: Provided, That the ownership structure of the contractor of an infrastructure facility whose operation

requires a public utility franchise must be in accordance with the Constitution: Provided, however, That in the case of
corporate investors in the 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-andoperate situation which is a contractual agreement whereby the supplier of equipment and machinery for a given
infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology
transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the construction including
financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government
unit concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return
thereon. This arrangement may be employed in the construction of any infrastructure project including critical facilities
which for security or strategic reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during
which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the
ownership and operation thereof are turned over to the government. The government, in turn, shall pay the contractor its
total investment on the project in addition to a reasonable rate of return. If payment is to be effected through amortization
payments by the government infrastructure agency or local government unit concerned, this shall be made in accordance
with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT
scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the
government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation
within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and
details for the multifarious and complex situations that may be encountered in enforcing the law (Director of Forestry v.
Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to
amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a
schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental
Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and received by
private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the
project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67,
.87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain
price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art.

1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased
premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the lease
becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA
LRT III Project is a high priority project certified by Congress and the National Economic and Development Authority as
falling under the Investment Priorities Plan of Government ( Rollo, pp. 310-311). It is, therefore, outside the application of
the Uniform Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted
in the Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind
of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it
is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or
made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions
affecting high-priority economic projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector
pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial development
opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of
the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been
rigged from the very beginning to do away with the usual open international public bidding where qualified internationally
known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public
bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise
(cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree
No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as
follows:

Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may
be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is conclusive evidence that greater
economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on
the matter, subject to the approval of the Minister of Public Works and Transportation and Communications, the Minister
of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the
President of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more (Emphasis
supplied).
xxx xxxxxx
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 parimateria 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].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are
excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best terms
during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years,
exclusive rights over the depot and the air space above the stations for development into commercial premises for lease,
sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these
development rights, private respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in
the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to
collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles,
interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year
period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper
administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of
their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v.
Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this
presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other. The
matter of valuation is an esoteric field which is better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the
profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a
contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function.
DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of
government in the promotion, development and regulation of dependable and coordinated networks of transportation
and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications
services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that
has the power, authority and technical expertise determine whether or not a specific transportation or communication
project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government
agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join to
dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions on the doctrine of
standing are and, why in accordance with these decisions, petitioners do not have the rights to sue, whether as legislators,
taxpayers or citizens. As members of Congress, because they allege no infringement of prerogative as legislators. 1 As
taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress (Art
VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As this Court pointed out in Bugnay Const. and
Dev. Corp. v. Laron, 4 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 of the
lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question the legality of the
contract. I see no substantial difference, as far as the standing is 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 5 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. Thus
in the Lotto case 6 relied upon by the majority for upholding petitioners standing, this Court took into account the
"paramount public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the
Court invalidated the contract for the operation of lottery.
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 party's 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 8 and In re Bermudez 9 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. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain whether the
particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too abstract, or otherwise not
appropriate, to be considered judicially cognizable? Is the line of causation between the illegal conduct and injury too
attenuated? Is the prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by reference to the Art III notion that federal
courts may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US
339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with a system of separated powers
and [the dispute is one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen, 392
US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11

Today's 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. Consistent with the view that this case has no merit I submit with respect that petitioners, as representatives of
the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and the
arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of Mr. Justice Camilo
P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act of the
Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter
into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the contract was entered into
without complying with the mandatory requirement of public bidding.
I
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 thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby authorized to enter into contract with any duly
prequalified private contractor for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms and
conditions hereinafter set forth; (Emphasis supplied).
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.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the BT
schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not be
read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This interpretation
would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended
to include a BLT scheme, 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-and-transfer (BLT)

(3)

Build-transfer-and-operate (BTO)

(4)

Contract-add-and-operate (CAO)

(5)

Develop-operate-and-transfer (DOT)

(6)

Rehabilitate-operate-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-andtransfer scheme."
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head
of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public bidding for the projects so approved. In the case of a
build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present
value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the
present value of its proposed, schedule of amortization payments for the facility to be constructed according to the
prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino
constructor who submits an equally advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its
information.
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 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 vs. 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 is 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.
However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then a public
bidding would be "an absurd and pointless exercise." I submit that 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 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 contracts. This new section reads:
Sec. 5-A. 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 requirements, after which it is required to submit
a bid/proposal which 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, only one submit bids but only one is found by the agency/LGU to
be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision contractor of the
implementing agency/LGUs prequalification bids an award 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, That the implementing
agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof.
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., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its supplement.

FELICIANO, J., dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with many of
the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At the end of the
day, however, I find myself unable to join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow grounds.
At the same time; I wish to address briefly one of the points made by Justice Quiason in the majority opinion in his effort
to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of 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 reads as follows:
Sec. 4. 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 a conclusive evidence that
greater economy and efficiency would be achieved through this arrangement, and in accordance with provisions of laws
and acts on the matter, subject to the approval of the Ministry of public Works, 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 of
the President of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more.
xxx xxxxxx
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 BCT- and BLT
type 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. 1594, 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 on the 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 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 (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 provision 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 Degree No. 1594 to the Edsa LRT-type of contracts are aggravated
when one considers the detailed "Implementing Rules and Regulations as amended April 1988" issued under that
Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxxxxx
a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of
life and/or property.
b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the prices
obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors. Authority to
negotiate contracts for projects under these exceptional cases shall be subject to prior approval by heads of agencies within
their limits of approving authority.
c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by
the same contractor provided that he has no negative slippage and has demonstrated a satisfactory performance. (Emphasis
supplied).
Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and Regulations to absence
of pre-qualified 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 be become contractors for government projects:
1 Filipino
a.Citizens (single proprietorship)
b.Partnership of 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 foregoing shall not negate any existing and future commitments with respect to the bidding and aware of contracts
financed partly or wholly with funds from international lending institutions like the Asian Development Bank and the
Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied)

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.
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.
The instant petition should be granted and the challenged contract and its supplement should be nullified and set aside. A
true public bidding, complete with a new prequalification proceeding, should be required for the Edsa LRT Project.

Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join to
dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions petitioners do not
have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogative as legislators. 1 As taxpayers because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As this
Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 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 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 of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to
question the legality of the contract contracts I see no substantial difference, as far as the standing is of taxpayers 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 5 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. Thus
in the Lotto case 6 relied upon by the majority for upholding petitioners standing, this Court took into account the
"paramount public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the
Court invalidated the contract for the operation of lottery.
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 party's 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 8 and In re Bermudez 9 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. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain whether the
particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too abstract, or otherwise not

appropriate, to be considered judicially cognizable? Is the line of causation between the illegal conduct and injury too
attenuated? Is the prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by reference to the Art III notion that federal
courts may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US
339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with a system of separated powers
and [the dispute is one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen, 392
US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11
Today's 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. Consistent with the view that this case has no merit I submit with respect that petitioners, as representatives of
the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and the
arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of Mr. Justice Camilo
P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act of the
Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter
into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the contract was entered into
without complying with the mandatory requirement of public bidding.
I
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 thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby authorized to enter into contract with any duly
prequalified private contractor for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms and
conditions hereinafter set forth; (Emphasis supplied).
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.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the BT
schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not be
read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This interpretation
would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended

to include a BLT scheme, 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-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-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-andtransfer scheme.
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head
of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public bidding for the projects so approved. In the case of a
build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present
value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the
present value of its proposed, schedule of amortization payments for the facility to be constructed according to the
prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino
constructor who submits an equally advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its
information.
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 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 vs. Delgado Bros.,
96 Phil. 368 [1954]).

The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly disapproved the contract
because no public bidding is 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.
However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then a public
bidding would be "an absurd and pointless exercise." I submit that 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 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 contracts. This new section reads:
Sec. 5-A. 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 requirements submit a bid/proposal which
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, only one submit bids but only one is found by the agency/LGU to
be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision contractor of the
implementing agency/LGUs prequalification bids an award committee within fifteen (15) working days to the head of the
agency 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, That the implementing agency/LGUs
concerned should act on the appeal within forty-five (45) working days from receipt thereof.
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) 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., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with many of
the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At the end of the
day, however, I find myself unable to join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow grounds.
At the same time; I wish to address briefly one of Justice Quiason in the majority opinion in his effort to meet the
difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of 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 reads as follows:
Sec. 4. 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 a conclusive evidence that
greater economy and efficiency would be achieved through this arrangement, and in accordance with provisions of laws
and acts on the matter, subject to the approval of the Ministry of public Works, 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 of
the president of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more.
xxx xxxxxx
I understand the unspoken theory in the majority opinion utility and the ownership of the facilities used to serve the public
can be very w1594 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
on 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 BCT- and BLT type 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. 1594, 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 on the 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 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 (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 provision 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 Degree No. 1594 to the Edsa LRT-type of contracts are aggravated
when one considers the detailed" Implementing Rules and Regulations as amended April 1988" issued under that
Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxxxxx
a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of
life and/or property.
b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the prices
obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors. Authority to
negotiate contracts for projects under these exceptional cases shall be subject to prior approval by heads of agencies within
their limits of approving authority.
c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by
the same contractor provided that he has no negative slippage and has demonstrated a satisfactory performance. (Emphasis
supplied).
Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and Regulations to absence
of pre-qualified 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 be become contractors for government projects:
1 Filipino
a.Citizens (single proprietorship)
b.Partnership of 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 foregoing shall not negate any existing and future commitments with respect to the bidding and aware of contracts
financed partly or wholly with funds from international lending institutions like the Asian Development Bank and the
Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied)
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.
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.
The instant petition should be granted and the challenged contract and its supplement should be nullified and set aside. A
true public bidding, complete with a new prequalification proceeding, should be required for the Edsa LRT Project.
G.R. No. L-68729 May 29, 1987
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents.

GUTIERREZ, JR, J.:

This petition seeks the reversal of the decision of the National Telecommunications Commission (NTC) which ordered
petitioner Radio Communications of the Philippines, Incorporated (RCPI) to desist from operating its radio telephone
services in Catarman, Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.
Petitioner has been operating a radio communications system since 1957 under its legislative franchise granted by Republic
Act No. 2036 which was enacted on June 23, 1957.
In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971, another radio telegraph service
was put up in San Jose, Mindoro followed by another in Catarman, Samar in 1976. The installation of radio telephone
services started in 1971 in San Jose, Mindoro; then in Sorsogon, Sorsogon and Catarman, Samar in 1983.
In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio Network Incorporated
was authorized by the public respondent to operate radio communications systems in Catarman, Samar and in San Jose,
Mindoro.
On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the petitioner was operating in
Catarman, Samar and in San Jose, Mindoro without a certificate of public covenience and necessity. The petitioner, on the
other hand, counter-alleged that its telephone services in the places subject of the complaint are covered by the legislative
franchise recognized by both the public respondent and its predecessor, the Public Service Commission. In its supplemental

reply, the petitioner further stated that it has been in operation in the questioned places long before private respondent
Kayumanggi filed its application to operate in the same places.
After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to immediately cease or
desist from the operation of its radio telephone services in Catarman Northern Samar; San Jose, Occidental Mindoro; and
Sorsogon, Sorsogon stating that under Executive Order No. 546, a certificate of public convenience and necessity is
mandatory for the operation of communication utilities and services including radio communications.
On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an order dated September 12,
1984.
On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner RCPI, a grantee of a
legislative franchise to operate a radio company, is required to secure a certificate of public convenience and necessity
before it can validly operate its radio stations including radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon.
The petitioner's main argument states that the abolition of the Public Service Commission under Presidential Decree No. 1
and the creation of the National Telecommunications Commission under Executive Order No. 546 to replace the defunct
Public Service Commission did not affect sections 14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as
amended).
The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:
Section 13. (a) the Commission shall have jurisdiction, supervision, and control over all public services and their franchises,
equipment and other properties, and in the exercise of its authority, it shall have the necessary powers and the aid of public
force: ...
Section 14. The following are exempted from the provisions of the preceding section:
xxx xxxxxx
(d) Radio companies except with respect to the fixing of rates;
xxx xxxxxx
Section 15. With the exception of those enumerated in the preceding section, no public service shall operate in the
Philippines without possessing a valid and subsisting certificate from the Public Service Commission, known as "certificate of
public convenience," or "certificate of convenience and public necessity," as the case may be, to the effect that the operation
of said service and the authorization to do business will promote the public interests in a proper and suitable manner. ...
We find no merit in the petitioner's contention.
Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive branch of the National
Government, the Public Service Commission was abolished and its functions were transferred to three specialized regulatory
boards, as follows: the Board of Transportation, the Board of Communications and the Board of Power and Waterworks.
The functions so transferred were still subject to the limitations provided in sections 14 and 15 of the Public Service Law, as
amended. With the enactment of Executive Order No. 546 on July 23, 1979 implementing P.D. No.1, the Board of
Communications and the Telecommunications Control Bureau were abolished and their functions were transferred to the
National Telecommunications Commission (Sec. 19(d), Executive Order No. 546). Section 15 of said Executive Order spells
out the functions of the National Telecommunications Commission as follows:
Sec. 15. Functions of the Commission.-The Commission shall exercise the following functions:
a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio communications
petitions systems, wire or wireless telephone or telegraph system, radio and television broadcasting system and other similar
public utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of public service communications; and
determine and prescribe charges or rates pertinent to the operation of such public utility facilities and services except in
cases where charges or rates are established by international bodies or associations of which the Philippines is a participating
member or by bodies recognized by the Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio communication
systems including amateur radio stations and radio and television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications Union to the specific
services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the issued Certificate of Public
Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities concerned with any aspect involving
communications with a view to continuously improve the communications service in the country;
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage a larger and more effective
use of communications, radio and television broadcasting facilities, and to maintain effective competition among private
entities in these activities whenever the Commission finds it reasonably feasible;
h. Supervise and inspect the operation of radio stations and telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.
It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the jurisdiction of the
Public Service Commission and the Board of Communications no longer exists because of the changes effected by the
Reorganization Law and implementing executive orders. The petitioner's claim that its franchise cannot be affected by
Executive Order No. 546 on the ground that it has long been in operation since 1957 cannot be sustained.
A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the hands of a subject." This
definition was given by Finch, adopted by Blackstone, and accepted by every authority since (State v. Twin Village Water
Co., 98 Me 214, 56 A 763 (1903)). Today, a franchise, being merely a privilege emanating from the sovereign power of the
state and owing its existence to a grant, is subject to regulation by the state itself by virtue of its police power through its
administrative agencies. We ruled in Pangasinan transportation Co., Inc. v. Public Service Commission (70 Phil. 221) that:
... statutes enacted for the regulation of public utilities, being a proper exercise by the State of its police power, are
applicable not only to those public utilities coming into existence after its passage, but likewise to those already established
and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the Public Service Law (CA
No. 146, as amended) is applicable to the petitioner who must be bound by its provisions. The petitioner cannot install and
operate radio telephone services on the basis of its legislative franchise alone.
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can operate a radio
communications system anywhere within the Philippines is erroneous. Section 1 of said statute reads:
Section 1. Subject to the provisions of the Constitution, and to the provisions, not inconsistent herewith, of Act Numbered
Three thousand eight hundred and forty-six, entitled.' An Act providing for the regulation of radio stations and radio
communications in the Philippine Islands, and for other purposes;' Commonwealth Act Numbered One hundred forty-six,
known as the Public Service Act, and their amendments, and other applicable laws, there is hereby granted to the Radio

Communications of the Philippines, its successors or assigns, the right and privilege of constructing, installing, establishing

and operating in the Philippines, at such places as the said corporation may select and the Secretary of Public Works and
Communications may approve, radio stations for the reception and transmission of wireless messages on radiotelegraphy
and/or radiotelephone, including both coastal and marine telecommunications, each station to consist of two radio
apparatus comprising of a receiving and sending radio apparatus. (Emphasis supplied).
Section 4(a) of the same Act further provides that:
Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be exercised by the grantee until the Secretary

of Public works and Communications shall have allotted to the grantee the frequencies and wave lengths to be used, and
issued to the grantee a license for such case. (Emphasis supplied)
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and Communications was a
precondition before the petitioner could put up radio stations in areas where it desires to operate. It has been repeated
time and again that where the statutory norm speaks unequivocally, there is nothing for the courts to do except to apply it.
The law, leaving no doubt as to the scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA 381).
The records of the case do not show any grant of authority from the then Secretary of Public Works and Communications
before the petitioner installed the questioned radio telephone services in San Jose, Mindoro in 1971. The same is true as
regards the radio telephone services opened in Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public
convenience and necessity appears to have been secured by the petitioner from the public respondent when such
certificate,was required by the applicable public utility regulations (See executive Order No. 546, sec. 15, supra.; Philippine
Long Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo Electric Light and Power Corp. v. National Power
Corporation, et al., G.R. No. L-24912, promulgated April 9, 1987.)
It was well within the powers of the public respondent to authorize the installation by the private respondent network of
radio communications systems in Catarman, Samar and San Jose, Mindoro. Under the circumstances of this case, the mere
fact that the petitioner possesses a franchise to put up and operate a radio communications system in certain areas is not an
insuperable obstacle to the public respondent's issuing the proper certificate to an applicant desiring to extend the same
services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature nor can a franchise be
granted except that it must be subject to amendment, alteration, or even repeal by the legislature when the common good
so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express provision in the petitioner's franchise which
provides compliance with the above mandate R.A. 2036, sec. 15).
In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and conclusions of law
insofar as the private respondent was authorized to operate in Catarman, Samar and San Jose, Mindoro. As a rule, the
Commission's findings of fact, if supported by substantial evidence, are conclusive upon this Court. We may modify or
ignore them only when it clearly appears that there is no evidence to support reasonably such a conclusion. (Halili v.
Daplas, 14 SCRA 14). The petitioner has not shown why the private respondent should be denied the authority to operate
its services in Samar and Mindoro. It has not overcome the presumption that when the public respondent disturbed the
petitioner's monopoly in certain areas, it was doing so pursuant to public interest and the common good.
WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby AFFIRMED. The petition is
dismissed for lack of merit.
SO ORDERED.
G.R. No. 186312

June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 1 against Sun Holidays, Inc.
(respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort)
owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue of a tour
package-contract with respondent that included transportation to and from the Resort and the point of departure in
Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of the incident that led to
the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in the
afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners son and his wife
trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco
Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the
rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to the front, leaving
the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B Coco Beach III
capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute and the
other passengers who reached the surface asked him what they could do to save the people who were still trapped under
the boat. The captain replied "Iligtasniyonalangangsariliniyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the capsized
M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew members,
who were brought to Pisa Island. Eight passengers, including petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui Engineering &
Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death of their son in the
amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility for the incident which it considered to
be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of P10,000 to petitioners upon their
signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that respondent, as a
common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00
a.m. of September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to the general public as
they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm on September 11, 2000 as the Coast
Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its

passengers. By way of Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and litigation
expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four conditions to be met
before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is clearance
from the captain and (4) there is clearance from the Resorts assistant manager. 8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong winds and big waves, suddenly
occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners Complaint and respondents
Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2, 2005,12 they appealed to the
Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding, among other things, that the trial
court correctly ruled that respondent is a private carrier which is only required to observe ordinary diligence; that
respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16, 2009,14 they filed the present
Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a common carrier since by its
tour package, the transporting of its guests is an integral part of its resort business. They inform that another division of the
appellate court in fact held respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a common carrier;
that the Resorts ferry services for guests cannot be considered as ancillary to its business as no income is derived therefrom;
that it exercised extraordinary diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to
sail; that the incident was caused by a fortuitous event without any contributory negligence on its part; and that the other
case wherein the appellate court held it liable for damages involved different plaintiffs, issues and evidence. 16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service
Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services . . . 18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly
considered ancillary thereto. The constancy of respondents ferry services in its resort operations is underscored by its
having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be availed of by
anyone who can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to
suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of
respondents ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to have
overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately refrained from making
distinctions on whether the carrying of persons or goods is the carriers principal business, whether it is offered on a regular
basis, or whether it is offered to the general public. The intent of the law is thus to not consider such distinctions.
Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them, according to all the circumstances of
each case.19 They are bound to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances. 20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common carrier is at
fault or negligent. In fact, there is even no need for the court to make an express finding of fault or negligence on the part
of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage before it allowed
M/B Coco Beach III to sail on September 11, 2000. Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for shipping on
September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would also affect the province of
Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under
such weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other peoples
lives at risk. The extraordinary diligence required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the
debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted the
casofortuito 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
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. Borja 34teaches that
when, as in this case, there is no showing that the living expenses constituted the smaller percentage of the gross income,
the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 35 which, when converted to
Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net
earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)

= 35 x (P237,600)
Net Earning Capacity = P8,316,000
Respecting the award of moral damages, since respondent common carriers breach of contract of carriage resulted in the
death of petitioners son, following Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to moral
damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of common carriers, it is presumed to
have acted recklessly, thus warranting the award too of exemplary damages, which are granted in contractual obligations if
the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral damages 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, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in
the concept of actual and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the present petition, the interest due
shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is rendered in
favor of petitioners ordering respondent to pay petitioners the following: (1) P50,000 as indemnity for the death of Ruelito
Cruz; (2) P8,316,000 as indemnity for Ruelitos loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from the finality
of this decision until full payment.
SO ORDERED.

G.R. No. 147079

December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts Decision1 of August 10, 2000 reversing and setting aside
the judgment of Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B which dismissed the complaint
of respondent FGU Insurance Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at Dusseldorf, Germany
oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters
Trinordiol tablets for delivery to Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets
were placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3
aluminum container, while the Trinordial tablets were packed in two pallets, each of which contained 30 cartons. 3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk Note No. 4995 pursuant
to Marine Open Policy No. 138.4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA), 5 it was discharged
"without exception"6 and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) located also at the NAIA for
safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco engaged the services of
Sanchez Brokerage which had been its licensed broker since 1984. 8 As its customs broker, Sanchez Brokerage calculates and
pays the customs duties, taxes and storage fees for the cargo and thereafter delivers it to Wyeth-Suaco.9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid PSI storage fee
amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,10 was issued. On the receipt, another
representative of Sanchez Brokerage, M. Sison,11 acknowledged that he received the cargoes consisting of three pieces in
good condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which were thereupon stripped
from the aluminum containers14 and loaded inside two transport vehicles hired by Sanchez Brokerage. 15
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso and Tony
Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and insurance claim
adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo City for quality
control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992, indicated that the delivery consisted of one
container with 144 cartons of Femenal and Nordiol and 1 pallet containing Trinordiol. 18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the cargoes by affixing his
signature on the delivery receipt.19 Upon inspection, however, he, together with Ruben Alonzo of Elite Surveyors,

discovered that 44 cartons containing Femenal and Nordiol tablets were in bad order. 20 He thus placed a note above his
signature on the delivery receipt stating that 44 cartons of oral contraceptives were in bad order. The remaining 160
cartons of oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report 21 dated July 31, 1992 stating that 41
cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" ( sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an "Annexed Schedule" whereon it
was indicated that prior to the loading of the cargoes to the brokers trucks at the NAIA, they were inspected and found to
be in "apparent good condition."24 Also noted was that at the time of delivery to the warehouse of Hizon Laboratories Inc.,
slight to heavy rains fell, which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets. 25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that 38 x 700 blister packs of
Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets were heavily damaged
with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of Femenal and 3 cartons of
Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy water damaged ( sic) causing the cartons
to sagged (sic) emitting a foul order and easily attracted flies."28
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the payment of P191,384.25
representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim against FGU Insurance which
paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by
letter31 of January 7, 1993, disclaimed liability for the damaged goods, positing that the damage was due to improper and
insufficient export packaging; that when the sealed containers were opened outside the PSI warehouse, it was discovered
that some of the loose cartons were wet,32 prompting its (Sanchez Brokerages) representative Morales to inform the
Import-Export Assistant of Wyeth-Suaco, RamirCalicdan, about the condition of the cargoes but that the latter advised to
still deliver them to Hizon Laboratories where an adjuster would assess the damage. 33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of Makati City against the
Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey Report prepared by the
Elite Surveyors is bereft of any evidentiary support and a mere product of pure guesswork. 35
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez Brokerage engaged not
only in the business of customs brokerage but also in the transportation and delivery of the cargo of its clients, hence, a
common carrier within the context of Article 1732 of the New Civil Code. 36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good order and condition but
were in a damaged state when delivered to Wyeth-Suaco, the appellate court held that Sanchez Brokerage is presumed
negligent and upon it rested the burden of proving that it exercised extraordinary negligence not only in instances when
negligence is directly proven but also in those cases when the cause of the damage is not known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision of the Court a quo is
REVERSED. Another Decision is hereby rendered in favor of the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49, with interest thereupon at the
rate of 6% per annum, from the date of the Decision of the Court, until the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED. 38
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts Resolution of December 8,
2000 which was received by petitioner on January 5, 2001, it comes to this Court on petition for certiorari filed on March
6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error tantamount to abuse of
discretion when it found petitioner a "common carrier" within the context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner should have taken was
to file a petition for review on certiorari since the sole office of a writ of certiorari is the correction of errors of jurisdiction
including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction and does not include
correction of the appellate courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to overcome the
presumption of negligence, it being documented that petitioner withdrew from the warehouse of PSI the subject shipment
entirely in good order and condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of
the action or proceedings involved, may be appealed to this Court by filing a petition for review, which would be but a
continuation of the appellate process over the original case. 40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for reconsideration of its Decision of
August 10, 2000 was received by petitioner on January 5, 2001. Since petitioner failed to appeal within 15 days or on or
before January 20, 2001, the appellate courts decision had become final and executory. The filing by petitioner of a
petition for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not merely reversible error
but also grave abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial court based on its
finding that petitioner is liable for the damage to the cargo as a common carrier. What petitioner is ascribing is an error of
judgment, not of jurisdiction, which is properly the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision not the jurisdiction of the
court to render said decision the same is beyond the province of a petition for certiorari.41 The supervisory jurisdiction of
this Court to issue a cert writ cannot be exercised in order to review the judgment of lower courts as to its intrinsic
correctness, either upon the law or the facts of the case. 42
Procedural technicalities aside, the petition still fails.
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.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified that the services the firm
offers include the delivery of goods to the warehouse of the consignee or importer.

ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon approval of the importer, we
prepare the entry together for processing and claims from customs and finally deliver the goods to the warehouse of the
importer.43
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.44 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.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil Code, extraordinary
diligence in the vigilance over the goods it transports according to all the 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.46
The concept of "extra-ordinary diligence" was explained in CompaniaMaritima v. Court of Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know
and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage
and delivery. It requires common carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristics of goods tendered for shipment, and to exercise due care in the handling
and stowage, including such methods as their nature requires." 48
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in NAIA in good order and
condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were found to be in bad
order, as noted in the Delivery Receipt50 issued by petitioner, and as indicated in the Survey Report of Elite Surveyors51 and
the Destruction Report of Hizon Laboratories, Inc. 52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they were damaged due
to the fault or negligence of the shipper for failing to properly pack them and to the inherent characteristics of the goods 53;
and that it should not be faulted for following the instructions of Calicdan of Wyeth-Suaco to proceed with the delivery
despite information conveyed to the latter that some of the cartons, on examination outside the PSI warehouse, were
found to be wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if the loss or damage is
due to the character of the goods or defects in the packing or in the containers, the rule is that if the improper packing is
known to the carrier or his employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for the resulting damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true, then it should
naturally have received the cargo under protest or with reservations duly noted on the receipt issued by PSI. But it made no
such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioners employees only examined the cargoes outside the PSI
warehouse and found some to be wet, they would certainly have gone back to PSI, showed to the warehouseman the
damage, and demanded then and there for Bad Order documents or a certification confirming the damage.58 Or, petitioner
would have presented, as witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo
to prove that, indeed, part of the cargoes was already damaged when the container was allegedly opened outside the
warehouse.59

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead, it asserts that some
of the cargoes were already wet on delivery by PSI outside the PSI warehouse but such notwithstanding Calicdan directed
Morales to proceed with the delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he failed to specifically
declare what time he received the call. As to whether the call was made at the PSI warehouse when the shipment was
stripped from the airport containers, or when the cargoes were already in transit to Antipolo, it is not determinable. Aside
from that phone call, petitioner admitted that it had no documentary evidence to prove that at the time it received the
cargoes, a part of it was wet, damaged or in bad condition. 60
The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly impresses, no witness having
identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives were damaged by
rainwater while in transit to Antipolo City is more likely then. Sanchez himself testified that in the past, there was a similar
instance when the shipment of Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at the NAIA were damaged and
claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon ( sic) were wetted (sic) but Wyeth-Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon ( sic) wetted (sic) up to the bottom are
wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were turned over by the PSI
warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it was
incumbent on petitioner to prove that it exercised extraordinary diligence in the carriage of the goods. It did not, however.
Hence, its presumed negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 138334

August 25, 2003

ESTELA L. CRISOSTOMO, Petitioner,

vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC., Respondents.
DECISION
YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International,
Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed "Jewels of Europe". The package
tour included the countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the booking fee was also
waived because petitioners niece, MeriamMenor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to deliver petitioners
travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the package tour. Menor then told
her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British
Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the first
leg of her journey from Manila to Hongkong. To petitioners dismay, she discovered that the flight she was supposed to
take had already departed the previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991.
She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the "British Pageant" which included England,
Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00 (at
the then prevailing exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and
commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the
difference between the sum she paid for "Jewels of Europe" and the amount she owed respondent for the "British Pageant"
tour. Despite several demands, respondent company refused to reimburse the amount, contending that the same was nonrefundable.1 Petitioner was thus constrained to file a complaint against respondent for breach of contract of carriage and
damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondents fault since it did not
clearly indicate the departure date on the plane ticket. Respondent was also negligent in informing her of the wrong flight
schedule through its employee Menor. She insisted that the "British Pageant" was merely a substitute for the "Jewels of
Europe" tour, such that the cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied responsibility for
petitioners failure to join the first tour. Chipeco insisted that petitioner was informed of the correct departure date, which
was clearly and legibly printed on the plane ticket. The travel documents were given to petitioner two days ahead of the
scheduled trip. Petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm her flight
schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe", considering that the same
had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already billed the same even if
petitioner did not join the tour. Lotus European tour organizer, Insight International Tours Ltd., determines the cost of a
package tour based on a minimum number of projected participants. For this reason, it is accepted industry practice to
disallow refund for individuals who failed to take a booked tour. 3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that petitioner missed.
This tour was independently procured by petitioner after realizing that she made a mistake in missing her flight for "Jewels
of Europe". Petitioner was allowed to make a partial payment of only US$300.00 for the second tour because her niece
was then an employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to pay the
balance of P12,901.00 for the "British Pageant" package tour.
After due proceedings, the trial court rendered a decision,4 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred
Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve percent (12%)
per annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for reasonable
attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.5
The trial court held that respondent was negligent in erroneously advising petitioner of her departure date through its
employee, Menor, who was not presented as witness to rebut petitioners testimony. However, petitioner should have
verified the exact date and time of departure by looking at her ticket and should have simply not relied on Menors verbal
representation. The trial court thus declared that petitioner was guilty of contributory negligence and accordingly, deducted
10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However, the appellate
court held that petitioner is more negligent than respondent because as a lawyer and well-traveled person, she should have
known better than to simply rely on what was told to her. This being so, she is not entitled to any form of damages.
Petitioner also forfeited her right to the "Jewels of Europe" tour and must therefore pay respondent the balance of the price
for the "British Pageant" tour. The dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby REVERSED
and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the
amount of P12,901.00, representing the balance of the price of the British Pageant Package Tour, the same to earn legal
interest at the rate of SIX PERCENT (6%) per annum, to be computed from the time the counterclaim was filed until the
finality of this decision. After this decision becomes final and executory, the rate of TWELVE PERCENT (12%) interest per
annum shall be additionally imposed on the total obligation until payment thereof is satisfied. The award of attorneys fees
is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.6
Upon denial of her motion for reconsideration, 7 petitioner filed the instant petition under Rule 45 on the following
grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and setting aside
the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of unavailed "Jewels of
Europe" tour she being equally, if not more, negligent than the private respondent, for in the contract of carriage the
common carrier is obliged to observe utmost care and extra-ordinary diligence which is higher in degree than the ordinary
diligence required of the passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner
cannot be considered to be equally, or worse, more guilty than the private respondent. At best, petitioners negligence is
only contributory while the private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not indivisible and the
amount paid therefor refundable;
III

The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of breach of
contract of carriage.8
Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed
her wrongly of the flight schedule. She could not be deemed more negligent than respondent since the latter is required by
law to exercise extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely
contributory and not the proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it
was the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is 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.9 Such person or association of
persons are regarded as carriers and are classified as private or special carriers and common or public carriers.10 A common
carrier is defined under Article 1732 of the Civil Code 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 is obvious from the above definition that respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport
petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their
behalf. Respondents services as a travel agency include procuring tickets and facilitating travel permits or visas as well as
booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean that
the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom petitioner
ultimately contracted for her carriage to Europe. Respondents obligation to petitioner in this regard was simply to see to it
that petitioner was properly booked with the airline for the appointed date and time. Her transport to the place of
destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service of arranging and facilitating petitioners
booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the
transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary
one for services and not one of carriage. Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required in
the performance of the latters obligation under the contract. For reasons of public policy, a common carrier in a contract
of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of
very cautious persons and with due regard for all the circumstances. 11 As earlier stated, however, respondent is not a
common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
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. 12 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.13
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the wrong day of
departure. Petitioners testimony was accepted as indubitable evidence of Menors alleged negligent act since respondent
did not call Menor to the witness stand to refute the allegation. The lower court applied the presumption under Rule 131,
Section 3 (e)14 of the Rules of Court that evidence willfully suppressed would be adverse if produced and thus considered
petitioners uncontradicted testimony to be sufficient proof of her claim.

On the other hand, respondent has consistently denied that Menor was negligent and maintains that petitioners assertion is
belied by the evidence on record. The date and time of departure was legibly written on the plane ticket and the travel
papers were delivered two days in advance precisely so that petitioner could prepare for the trip. It performed all its
obligations to enable petitioner to join the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to an inference
unfavorable to the former. Menor was already working in France at the time of the filing of the complaint,15 thereby
making it physically impossible for respondent to present her as a witness. Then too, even if it were possible for respondent
to secure Menors testimony, the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and
possibility for obtaining Menors testimony belonged to both parties, considering that Menor was not just respondents
employee, but also petitioners niece. It was thus error for the lower court to invoke the presumption that respondent
willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence
is not intentionally omitted but is simply unavailable, or when the same could have been obtained by both parties. 16
In sum, we do not agree with the finding of the lower court that Menors negligence concurred with the negligence of
petitioner and resultantly caused damage to the latter. Menors negligence was not sufficiently proved, considering that the
only evidence presented on this score was petitioners uncorroborated narration of the events. It is well-settled that the
party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence. 17 If the plaintiff,
upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases
his claim, the defendant is under no obligation to prove his exception or defense. 18
Contrary to petitioners 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 ticket19 issued to petitioner clearly reflected the departure date and time, contrary to
petitioners 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 petitioners 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.
The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the
performance of the obligation as the nature of the obligation so demands. 20 There is no fixed standard of diligence
applicable to each and every contractual obligation and each case must be determined upon its particular facts. The degree
of diligence required depends on the circumstances of the specific obligation and whether one has been negligent is a
question of fact that is to be determined after taking into account the particulars of each case.211wphi1
The lower court declared that respondents employee was negligent. This factual finding, however, is not supported by the
evidence on record. While factual findings below are generally conclusive upon this court, the rule is subject to certain
exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case.22
In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not
commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV No.
51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing the

balance of the price of the British Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be
computed from the time the counterclaim was filed until the finality of this Decision. After this Decision becomes final and
executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim period being
deemed to be by then an equivalent to a forbearance of credit. 23
SO ORDERED.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon
gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized
two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered to differing establishments in
Pangasinan. For that service, respondent charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company
(Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled milk
from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December
1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were
loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other truck which was driven
by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since the
truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men
who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of Pangasinan,
demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner
argued that private respondent, being a common carrier, and having failed to exercise the extraordinary diligence required
of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held responsible
for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and holding
him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as
attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting
return loads of freight "as a casual

occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way of a
Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth, be
properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberaom
making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service
Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public
services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "backhauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or
occasional rather than regular or scheduled manner, and even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded
he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts
as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or
other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well being and property of those members of the general community

who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care
and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of the
goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common
carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a
species of force majeure fall within the scope of Article 1735, which provides as follows:

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

(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on account of the
defective condition of the car vehicle, ship, airplane or other equipment used in the contract of carriage. (Emphasis
supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to diminish such
responsibility even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with
grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo. The
record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar
Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away with
them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with
grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The
robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for several
days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by the police
in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of
the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common carriers are not
made absolute insurers against all risks of travel and of transport of goods, and are not held liable for acts or events which
cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for the
value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3
August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in her
official capacity as City Treasurer of Batangas, respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R. SP
No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil
pipelines. The original pipeline concession was granted in 1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City.
However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax

based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The respondent City Treasurer
assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion of
which reads:
Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline, to Sucat and
JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts under Section 133 of the Local
Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131, Paragraph (h)
of the Local Government Code. Therefore, the authority to impose tax "on contractors and other independent contractors"
under Section 143, Paragraph (e) of the Local Government Code does not include the power to levy on transportation
contractors.
The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local Government
Code. The said section limits the imposition of fees and charges on business to such amounts as may be commensurate to
the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the
imposition thereof based on gross receipts is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered
engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax refund with prayer
for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax on
the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors" excludes
transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of the
Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included in
the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term "common carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A) whose concession was lately
renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such being the
situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other considerations may be
of help:
1. That the exemption granted under Sec. 133 (j) encompasses 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
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. 13 Petitioner
moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition was
reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or a
transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as
ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his established roads; and
4. The transportation must be for hire.

15

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the
business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry
for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and
for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a "sideline").
Article 1732 . . . avoids making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the " general public," i.e., the general community or

population, and one who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1877 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service
Act, "public service" includes:
every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric
light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code refers
only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water,
is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to the
means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or
goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus, Article 86
thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe line shall have the preferential right to utilize installations for
the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for
the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination
such rates as may have been approved by the Secretary of Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility.
(Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a
common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to withholding tax prescribed by
Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxx xxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water, except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed
to be exempted from the taxing powers of the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states
that local government units may not impose taxes on the business of transportation, except as otherwise provided in this
code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the
power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross
annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is
the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just provided
for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .

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. L-9605

September 30, 1957

GAUDIOSO EREZO, ET AL., plaintiff-appellee,

vs.
AGUEDO JEPTE, defendant-appellant.

Gesolgon, Matti and Custodio for appellees.

Aguedo Y. Jepte in his own behalf.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay plaintiff GaudiosoErezo P3,000
on the death of Ernesto Erezo, son of plaintiff GaudiosoErezo.

Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253. On August, 9, 1949, while the
same was being driven by Rodolfo Espino y Garcia, it collided with a taxicab at the intersection of San Andres and Dakota
Streets, Manila. As the truck went off the street, it hit Ernesto Erezo and another, and the former suffered injuries, as a result
of which he died. The driver was prosecuted for homicide through reckless negligence in criminal case No. 10663 of the
Court of First Instance of Manila. The accused pleaded guilty and was sentenced to suffer imprisonment and to pay the
heirs of Ernesto Erezo the sum of P3,000. As the amount of the judgment could not be enforced against him, plaintiff
brought this action against the registered owner of the truck, the defendant-appellant. The circumstances material to the
case are stated by the court in its decision.
The defendant does not deny at the time of the fatal accident the cargo truck driven by Rodolfo Espino y Garcia was
registered in his name. He, however, claims that the vehicle belonged to the Port Brokerage, of which he was the broker at
the time of the accident. He explained that the trucks of the corporation were registered in his name as a convenient
arrangement so as to enable the corporation to pay the registration fee with his backpay as a pre-war government
employee.
The trial court held that as the defendant-appellant represented himself to be the owner of the truck and the Motor Vehicle
Office, relying on his representation, registered the vehicles in his name, the Government and all persons affected by the
representation had the right to rely on his declaration of ownership and registration. It, therefore, held that the defendantappellant is liable because he cannot be permitted to repudiate his own declaration. (Section 68 [a], Rule 123, and Art.
1431, New Civil Code.).
He further claims that at the time of the accident, the relation of employer and employee between the driver and
defendant was not established, it having been proved at the trial that the owner of the truck was the Port Brokerage, of
which defendant-appellant was merely a broker.
We find no merit or justice in the above contention. In previous decisions, We already have held that the registered owner
of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third
persons caused by the operation of said vehicle, even though the same had been transferred to a third person. (Montoya
vs. Ignacio, 94 Phil., 182, 50 Off. Gaz., 108; Roque vs. Malibay Transit Inc., 1 G. R. No. L- 8561, November 18,1955; Vda.
de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.)
In dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the
registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may
have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who
the actual owner is. How would the public or third persons know against whom to enforce their rights in case of
subsequent transfers of the vehicles?
We do not imply by this doctrine, however, that the registered owner may not recover whatever amount he had paid by
virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.
Under the same principle, the registered owner of any vehicle, even if not used for a public service, should primarily be
responsible to the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways
or streets. The Court ruled that the defendant should be held liable to plaintiff-appellee for the injuries occasioned to the
latter because of the negligence of the driver even if the defendant was no longer the owner of the vehicle at the time of
the damage because he had previously sold it to another.
What is the legal basis for his defendants liability?
There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the
Motor Vehicle Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the
responsibility for the injury to the real and actual owner? The defendant holds the affirmative of this proposition; the trial
court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any
public highway unless the same is properly registered. It has been stated that the system of licensing and the requirement

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

G.R. No. 125817, January 16, 2002

ABELARDO LIM and ESMADITO GUNNABAN, vs. COURT OF APPEALS and DONATO H. GONZALES,
BELLOSILLO, J.:
When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it
under the same certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle
meets an accident through the fault of another vehicle, may the new owner sue for damages against the erring vehicle?
Otherwise stated, does the new owner have any legal personality to bring the action, or is he the real party in interest in
the suit, despite the fact that he is not the registered owner under the certificate of public convenience?
In 1982, Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying the Monumento-Bulacan route. While Gonzales continued
offering the jeepney for public transport services, he did not have the registration of the vehicle transferred in his name nor
did he secure for himself a certificate of public convenience for its operation. Thus Vallarta remained on record as its
registered owner and operator.
On 22 July 1990, while the jeepney was running northbound along Meycauayan, Bulacan, it collided with a ten-wheelertruck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban explained that
while he was traveling towards Manila, the truck suddenly lost its brakes. To avoid colliding with another vehicle, he
swerved to the left until he reached the center island. However, as the center island eventually came to an end, he veered
farther to the left until he smashed into a Ferroza automobile, and later, into respondent's passenger jeepney driven by one
Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the passenger jeepney and left one (1)
passenger dead and many others wounded. Petitioner Lim, on the other hand, shouldered the costs for hospitalization of
the wounded, compensated the heirs of the deceased passenger, and also offered respondent Gonzales to have the
passenger jeepney repaired at his shop. However, the respondent rejected the offer.
Gonzales filed a Complaint for damages against petitioners Lim and Gunnaban. In his Answer, Lim denied liability by
contending that he exercised due diligence in the selection and supervision of his employees. He further asserted that as the
jeepney was registered in Vallartas name, it was Vallarta and not Gonzales who was the real party in interest. For his part,
petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control.
Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained
that although he wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged
vehicle.3
The main point of contention between the parties related to the amount of damages due private respondent. Private
respondent Gonzales averred that per estimate made by an automobile repair shop he would have to spend P236,000.00
to restore his jeepney to its original condition. 4 On the other hand, petitioners insisted that they could have the vehicle
repaired for P20,000.00.5
On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest
from 22 July 1990 as compensatory damages and P30,000.00 as attorney's fees. In support of its decision, the trial court
ratiocinated that as vendee and current owner of the passenger jeepney private respondent stood for all intents and
purposes as the real party in interest. Even Vallarta himself supported private respondent's assertion of interest over the
jeepney for, when he was called to testify, he dispossessed himself of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident since he panicked in the face of an emergency which was rather
palpable from his act of directing his vehicle to a perilous streak down the fast lane of the superhighway then across the
island and ultimately to the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising
his employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he
was neither tutored nor trained to handle such task.6

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In
upholding the decision of the court a quo the appeals court concluded that while an operator under the kabit system could
not sue without joining the registered owner of the vehicle as his principal, equity demanded that the present case be made
an exception.7 Hence this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their
opposition to the well-established doctrine that an operator of a vehicle continues to be its operator as long as he remains
the operator of record. According to petitioners, to recognize an operator under the kabit system as the real party in
interest and to countenance his claim for damages is utterly subversive of public policy. Petitioners further contend that
inasmuch as the passenger jeepney was purchased by private respondent for only P30,000.00, an award of P236,000.00 is
inconceivably large and would amount to unjust enrichment.8
Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the
pernicious kabit system does not persuade. Their labored efforts to demonstrate how the questioned rulings of the courts a
quo are diametrically opposed to the policy of the law requiring operators of public utility vehicles to secure a certificate of
public convenience for their operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows
other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the
earnings. Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably
recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio the Court explained that one of the primary factors considered in the granting of a
certificate of public convenience for the business of public transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such purpose
and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned by
another and operated under his license. If a registered owner is allowed to escape liability by proving who the supposed
owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no property with
which to respond financially for the damage done. Thus, for the safety of passengers and the public who may have been
wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that
another person has become the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine.
The Court ruled that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to
identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the
riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not
exist. First, neither of the parties to the pernicious kabit system is being held liable for damages. Second, the case arose from
the negligence of another vehicle in using the public road to whom no representation, or misrepresentation, as regards the
ownership and operation of the passenger jeepney was made and to whom no such representation, or misrepresentation,
was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney were in
estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was
not bothered nor inconvenienced at the very least by the illegal arrangement.
On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage
done to him. Certainly, it would be the height of inequity to deny him his right.
In light of the foregoing, it is evident that respondent Gonzales has the right to proceed against petitioners for the damage
caused on his passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity
with which petitioners framed the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by
putting the plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on

damages that a defendant cannot be held liable in damages for more than the actual loss which he has inflicted and that a
plaintiff is entitled to no more than the just and adequate compensation for the injury suffered. His recovery is, in the
absence of circumstances giving rise to an allowance of punitive damages, limited to a fair compensation for the harm
done. The law will not put him in a position better than where he should be in had not the wrong happened.12
In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award
damages considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that
indemnification for damages comprehends not only the value of the loss suffered but also that of the profits which the
obligee failed to obtain. In other words, indemnification for damages is not limited to damnumemergens or actual loss but
extends to lucrumcessans or the amount of profit lost.13
Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued
earning from the business in which it was engaged. Private respondent avers that he derives an average income of P300.00
per day from his passenger jeepney and this earning was included in the award of damages made by the trial court and
upheld by the appeals court. The award therefore of P236,000.00 as compensatory damages is not beyond reason nor
speculative as it is based on a reasonable estimate of the total damage suffered by private respondent, i.e. damage wrought
upon his jeepney and the income lost from his transportation business. Petitioners for their part did not offer any
substantive evidence to refute the estimate made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory
damages legal interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art.
2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can
be established with reasonable certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof, interest at the rate of six percent (6%) per annum
should be from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
be reasonably ascertained).14
In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated
upon by the parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they
could have the vehicle repaired easily for P20,000.00. In fine, the amount due private respondent was not a liquidated
account that was already demandable and payable.
One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the
elements. Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good
father of a family to minimize the damages resulting from the act or omission in question. One who is injured then by the
wrongful or negligent act of another should exercise reasonable care and diligence to minimize the resulting damage.
Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured and for
injuries incurred in attempting to prevent damage to it. 15
However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage
caused by private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily
not only that the injured party could have mitigated his damages but also the amount thereof; failing in this regard, the
amount of damages awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest
from 22 July 1990 as compensatory damages and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six
percent (6%) per annum shall be computed from the time the judgment of the lower court is made until the finality of this
Decision. If the adjudged principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%) per
annum computed from the time judgment becomes final and executory until it is fully satisfied. 1wphi1.nt
Costs against petitioners.
SO ORDERED.

LITA ENTERPRISES, INC., vs. SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M.
OCAMPO and FRANCISCA P. GARCIA
G.R. No. L-64693, April 27, 1984

Manuel A. Concordia for petitioner.

NicasioOcampo for himself and on behalf of his correspondents.

ESCOLIN, J.:+.wph!1

"Ex pactoillicito non orituractio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied
to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each
must bear the consequences of his acts.
The factual background of this case is undisputed.
In 1966, the spouses Nicasio M. Ocampo and Francisca Garcia purchased in installment from the Delta Motor Sales
Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs,
they contracted with petitioner Lita Enterprises, Inc., for the use of the latter's certificate of public convenience. To
effectuate the agreement, the cars were registered in the name of petitioner Lita Enterprises, Inc, the possession, however,
remained with the spouses Ocampo who operated and maintained the same under the name Acme Taxi.
On March 18, 1967, one of the taxicabs driven by their employee- Emeterio Martin, collided with a motorcycle whose
driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against
the driver while a civil case for damages was instituted against Lita Enterprises, Inc., as registered owner of the taxicab. The
trial court adjudged Lita Enterprises, Inc. as liable for damages.
in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was
adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.
Thereafter, a Writ of Execution was issued. One of the vehicles of respondent spouses was levied upon and sold at public
auction. for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise
levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the
manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter refused. Hence,
Ocampo filed a complaint against Lita Enterprises, Inc., the insuance company, and the Sheriff for reconveyance of motor
vehicles.
with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and
on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: t.hqw
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Company and the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon
with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in
favor of the plaintiff.
Plaintiff is, however, ordered to pay (Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on
October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by
including as part of its dispositive portion another paragraph, to wit: t.hqw
In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of
their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises,
Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of
public respondent so that:
(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted;
(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable
(in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim
Florante Galvez, who died as a result ot the gross negligence of private respondents' driver while driving one private
respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a
person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate
under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse
of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices. Although not outrightly
penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore,
void and inexistent under Article 1409 of the Civil Code.
It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both
where it finds them. Upon this premise, it was flagrant error on the part of the trial court to have accorded the parties relief
from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:
ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed;
(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of
the contract, or demand the performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription.
As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."
Hence, under the principle of in pari delicto is well known not only in this jurisdiction but also in the United States where
common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action
arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its

violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari

delicto,
Hence, under the principle of in pari delicto, no affirmative relief of any kind will be given to one against the
other. Although certain exceptions to the rule are provided by law, the Court see no cogent reason why the full force of
the rule should not be applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "NicasioOcampo and Francisca P. Garcia, Plaintiffs,
versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled
"NicasioOcampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the
Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs.
SO ORDERED.1wph1.t

G.R. No. L-65510, March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, vs. HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N.
NALE
G.R. No. L-65510, March 9, 1987

Cirilo A. Diaz, Jr. for petitioner.

Henry V. Briguera for private respondent.

PARAS, J.:
"'Ex pactoillicito' non orituractio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to
the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must
bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision,
as follows:
On May 9, 1975, defendant Pedro Nale bought from the plaintiff Teja Marketing a motorcycle with complete accessories
and a sidecar in the total consideration of P8, 000.00. Out of the total purchase price, the defendant gave a downpayment
of P1,700.00 with a promise that he would pay the balance within sixty days. The defendant, however, failed to comply
with his promise. The plaintiff made demands but the defendant failed to comply with the same thus forcing the plaintiff to
file this action for damage.
The plaintiff also claims that as of February 20, 1978, the total account of the defendant was already P2,731.06 as shown in
a statement of account (Exhibit. "B"). This amount includes not only the balance of P1,700.00 but an additional 12%
interest per annum on the said balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21
representing attorney's fees.
In this particular transaction a chattel mortgage was constituted as a security for the payment of the balance of the purchase
price. It has been the practice of financing firms that whenever there is a balance of the purchase price, the registration
papers of the motor vehicle subject of the sale are not given to the buyer. The records of the Land Transportation
Commission show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian

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

plaintiffs transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be
the owner of the unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that
plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit
for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as
the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against
private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay plaintiff the sum
of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of
the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's fees; to pay plaintiff the sum of
P200.00 as expenses of litigation; and to pay the costs.
SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a
petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the
pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent
Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of
Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the
motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate
of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action
against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxxxxx
WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing and/or Angel
Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of
Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone
assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a
person who has been granted a certificate of public convenience allows another person who owns motor vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified
as one of the root causes of the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public
policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court
will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would
be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following
rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the contract,
or demand, the performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse
of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court
(now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 144274, September 20, 2004
NOSTRADAMUS VILLANUEVA vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO
G.R. No. 144274, September 20, 2004

DECISION
CORONA, J.:
This is a petition to review the decision 1 of the Court of Appeals in CA-G.R. CV No. 52203 affirming in turn the decision of
the trial court finding petitioner liable to respondent for damages. The dispositive portion read:
WHEREFORE, the appealed decision is hereby AFFIRMED except the award of attorneys fees including appearance fees
which is DELETED.
SO ORDERED.2
The facts of the case, as summarized by the Court of Appeals, are as follows:
[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No.
NDW 781 91 with [co-respondent] Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva
was then the registered "owner" of a green Mitsubishi Lancer bearing Plate No. PHK 201 91.
On 22 October 1991 at about 9:45 in the evening, following a green traffic light, [respondent] Priscilla Domingos silver
Lancer car with Plate No. NDW 781 91 then driven by [co-respondent] Leandro Luis R. Domingo was cruising along the
middle lane of South Superhighway at moderate speed from north to south. Suddenly, a green Mitsubishi Lancer with plate
No. PHK 201 91 driven by Renato Dela Cruz Ocfemia darted from Vito Cruz Street towards the South Superhighway
directly into the path of NDW 781 91 thereby hitting and bumping its left front portion. As a result of the impact, NDW
781 91 hit two (2) parked vehicles at the roadside, the second hitting another parked car in front of it.
Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving
with expired license and positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua
recommended the filing of information for reckless imprudence resulting to (sic) damage to property and physical injuries.
The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyerseller and second, impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace
Car Exchange.
Petitioner Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it
was swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. One Linda Gonzales declared that her
presence at the scene of the accident was upon the request of the actual owner of the Mitsubishi Lancer which is Albert
Jaucian, for whom she had been working as agent. On the other hand, Auto Palace Car Exchange represented by Albert
Jaucian claimed that he was not the registered owner of the car.
Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was off-duty as utility employee
at the time of the incident. Neither was Ocfemia performing a duty related to his employment.
After trial, the trial court found petitioner Nostradamus Villanueva liable and ordered him to pay the respondent.
actual, moral and exemplary damages plus appearance and attorneys fees:
WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount
of P99,580 as actual damages, P25,000.00 as moral damages, P25,000.00 as exemplary damages and attorneys fees in the
amount of P10,000.00 plus appearance fees of P500.00 per hearing with legal interest counted from the date of judgment.
In conformity with the law on equity and in accordance with the ruling in First Malayan Lending and Finance Corporation
vs. Court of Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for whatever amount
the latter is hereby ordered to pay under the judgment.
SO ORDERED.4

The CA upheld the trial courts decision but deleted the award for appearance and attorneys fees because the justification
for the grant was not stated in the body of the decision. Thus, this petition for review which raises a singular issue:
Whether or not THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A
VEHICULAR ACCIDENT INVOLVING HIS MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS
BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE
Yes.
The Court have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public
and third persons while it is being operated.6 The rationale behind such doctrine was explained way back in 1957 in Erezo
vs. Jepte7:
The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the
public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for
the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated
if the public should be required to prove who the actual owner is. How would the public or third persons know against
whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply by his doctrine, however, that
the registered owner may not recover whatever amount he had paid by virtue of his liability to third persons from the
person to whom he had actually sold, assigned or conveyed the vehicle.

Under the same principle, the registered owner of any vehicle, even if not used for a public service, should primarily be
responsible to the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways
or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiffappellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant
was no longer the owner of the vehicle at the time of the damage because he had previously sold it to another . What is the
legal basis for his (defendant-appellants) liability?
There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the
Motor Vehicles Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the
responsibility for the injury to the real and actual owner? The defendant holds the affirmative of this proposition; the trial
court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any
public highway unless the same is property registered. It has been stated that the system of licensing and the requirement
that each machine must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the
danger of injury to pedestrians and other travelers from the careless management of automobiles. And to furnish a means
of ascertaining the identity of persons violating the laws and ordinances, regulating the speed and operation of machines
upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or
operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish thee Motor
Vehicles Office a report showing the name and address of each purchaser of motor vehicle during the previous month and
the manufacturers serial number and motor number. (Section 5(c), Act No. 3992, as amended.)
Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in
land registration cases, because the administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and
operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended). The main aim of motor
vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the
vehicle on the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. Instances
are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles
without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the
interest of the determination of persons responsible for damages or injuries caused on public highways:

One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of
accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax
observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules
of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the
displayed number becomes a "share and delusion," if courts would entertain such defenses as that put forward by appellee
in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they
should be allowed to pace a "middleman" between them and the public, and escape liability by the manner in which they
recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)
With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed
at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility by
and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him
to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and
places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by
proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to
escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to
respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means
to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the
registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him
would
become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the
policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to
the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may
thereby be relieved of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We
do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party
complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is
the price he pays for failure to comply with the registration that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage
caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or
actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.8
Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the accident was not an
authorized driver of the new (actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing and Finance
Corporation vs. CA9 implies that to hold the registered owner liable for damages, the driver of the vehicle must have been
authorized, allowed and permitted by its actual owner to operate and drive it. Thus, if the vehicle is driven without the
knowledge and consent of the actual owner, then the registered owner cannot be held liable for damages.
He further argues that this was the underlying theory behind Duavit vs. CA10 wherein the court absolved the registered
owner from liability after finding that the vehicle was virtually stolen from the owners garage by a person who was neither
authorized nor employed by the owner. Petitioner concludes that the ruling in Duavit and not the one in First
Malayan should be applicable to him.
Petitioners argument lacks merit.
Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered owner
who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the
vehicle in the streets and highways. To require the driver of the vehicle to be authorized by the actual owner before

the registered owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in
the first place.
Furthermore, there is nothing in First Malayan which even remotely suggests that the driver must be authorized before the
registered owner can be held accountable. In First Malayan, the registered owner, First Malayan Corporation, was held
liable for damages arising from the accident even if the vehicle involved was already owned by another party:
This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered
owner is the operator of the same with respect to the public and third persons, and as such, directly and primarily
responsible for the consequences of its operation. In contemplation of law, the owner/operator of record is the employer
of the driver, the actual operator and employer being considered merely as his agent ( MYC-Agro-Industrial Corporation vs.
Vda. de Caldo, 132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil. 949).
We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It is even not
necessary to prove who the actual owner of the vehicle and the employer of the driver is. Granting that, in this case, the
father of the driver is the actual owner and that he is the actual employer, following the well-settled principle that the
operator of record continues to be the operator of the vehicle in contemplation of law, as regards the public and third
person, and as such is responsible for the consequences incident to its operation, we must hold and consider such owneroperator of record as the employer, in contemplation of law, of the driver. And, to give effect to this policy of law as
enunciated in the above cited decisions of this Court, we must now extend the same and consider the actual operator and
employer as the agent of the operator of record. 11
Contrary to petitioners position, the First Malayan ruling is applicable to him since the case involves the same set of facts
the registered owner had previously sold the vehicle to someone else and was being driven by an employee of the new
(actual) owner. Duavit is inapplicable since the vehicle there was not transferred to another; the registered and the actual
owner was one and the same person. Besides, in Duavit, the defense of the registered owner, Gilberto Duavit, was that the
vehicle was practically stolen from his garage by Oscar Sabiano, as affirmed by the latter:
Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from the garage of defendant Duavit
without the consent and authority of the latter. He testified further that Duavit even filed charges against him for the theft
of the jeep but which Duavit did not push through as his (Sabianos) parents apologized to Duavit on his behalf. 12
As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioners case since the circumstance of
unauthorized use was not present. He in fact voluntarily delivered his car to Albert Jaucian as part of the downpayment for
a vehicle he purchased from Jaucian. Thus, he could not claim that the vehicle was stolen from him since he voluntarily
ceded possession thereof to Jaucian. It was the latter, as the new (actual) owner, who could have raised the defense of theft
to prove that he was not liable for the acts of his employee Ocfemia. Thus, there is no reason to apply the Duavit ruling to
this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA13 and more recently in Aguilar, Sr. vs.
Commercial Savings Bank.14 In BA Finance, we held the registered owner liable even if, at the time of the accident, the
vehicle was leased by another party and was driven by the lessees employee. In Aguilar, the registered owner-bank
answered for damages for the accident even if the vehicle was being driven by the Vice-President of the Bank in his private
capacity and not as an officer of the Bank, as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any
accident, damage or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party
injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that the driver
was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to
determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle
behind the registration requirement under the motor vehicle law.
WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
G.R. No. 160286, July 30, 2004
SPOUSES FRANCISCO M. HERNANDEZ vs. SPOUSES LORENZO DOLOR
G.R. No. 160286, July 30, 2004

DECISION

YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision 1 of the Court of
Appeals, dated April 29, 2003, in CA-G.R. CV No. 60357, which affirmed with modification the amount of damages
awarded in the November 24, 1997 decision2 of the Regional Trial Court of Batangas City, Branch IV.
The undisputed facts are as follows:
On December 19, 1986, Lorenzo Menard "Boyet" Dolor, Jr. was driving an owner-type jeepney with plate no. DEB 804
owned by her mother, Margarita, towards Anilao, Batangas. As he was traversing the road at Barangay Anilao East, Mabini,
Batangas, his vehicle collided with a passenger jeepney bearing plate no. DEG 648, driven by petitioner Juan Gonzales and
owned by his co-petitioner Francisco Hernandez, which was travelling towards Batangas City.
Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo and Joseph
Sandoval, who were also on board the owner-type jeep, which was totally wrecked, suffered physical injuries. The collision
also damaged the passenger jeepney of Francisco Hernandez and caused physical injuries to its passengers, namely, Virgie
Cadavida, Fiscal Artemio Reyes and Francisca Corona. 3
Consequently, respondents commenced an action 4 for damages against petitioners before the Regional Trial Court of
Batangas City, alleging that driver Juan Gonzales was guilty of negligence and lack of care and that the Hernandez spouses
were guilty of negligence in the selection and supervision of their employees. 5
Petitioners countered that the proximate cause of the death and injuries sustained by the passengers of both vehicles was
the recklessness of Boyet Dolor, the driver of the owner-type jeepney, who was driving in a zigzagging manner under the
influence of alcohol. Petitioners also alleged that Gonzales was not the driver-employee of the Hernandez spouses as the
former only leased the passenger jeepney on a daily basis. The Hernandez spouses further claimed that even if an
employer-employee relationship is found to exist between them, they cannot be held liable because as employers they
exercised due care in the selection and supervision of their employee.
During the trial of the case, it was established that the drivers of the two vehicles were duly licensed to drive and that the
road where the collision occurred was asphalted and in fairly good condition. 6 The owner-type jeep was travelling uphill
while the passenger jeepney was going downhill. It was further established that the owner-type jeep was moderately
moving and had just passed a road bend when its passengers, private respondents Joseph Sandoval and Rene Castillo, saw
the passenger jeepney at a distance of three meters away. The passenger jeepney was traveling fast when it bumped the
owner type jeep.7 Moreover, the evidence presented by respondents before the trial court showed that petitioner Juan
Gonzales obtained his professional driver's license only on September 24, 1986, or three months before the accident. Prior
to this, he was holder of a student driver's permit issued on April 10, 1986. 8

On November 24, 1997, the trial court rendered a decision in favor of respondents, the dispositive portion of which states:
Premises duly considered and the plaintiffs having satisfactorily convincingly and credibly presented evidence clearly
satisfying the requirements of preponderance of evidence to sustain the complaint, this Court hereby declares judgment in
favor of the plaintiffs and against the defendants. Defendants-spouses Francisco Hernandez and Aniceta Abel Hernandez
and Juan Gonzales are therefore directed to pay jointly and severally, the following:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 for the death of their son, Lorenzo Menard "Boyet" Dolor, Jr.;
b) P142,000.00 as actual and necessary funeral expenses;
c) P50,000.00 reasonable value of the totally wrecked owner-type jeep with plate no. DEB 804 Phil '85;
d) P20,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorney's fees.
2) To spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 for the death of their son, Oscar Balmocina (sic);
b) P20,000.00 as moral damages;
c) P18,400.00 for funeral expenses;
d) P10,000.00 for litigation expenses and attorney's fees.
3) To spouses Victor Panopio and Martina Panopio:
a) P10,450.00 for the cost of the artificial leg and crutches being used by their son Fred Panopio;
b) P25,000.00 for hospitalization and medical expenses they incurred for the treatment of their son, Fred Panopio.
4) To Fred Panopio:
a) P25,000.00 for the loss of his right leg;
b) P10,000.00 as moral damages.
5) To Joseph Sandoval:
a) P4,000.00 for medical treatment.
The defendants are further directed to pay the costs of this proceedings.
SO ORDERED.9
Petitioners appealed10 the decision to the Court of Appeals, which affirmed the same with modifications as to the amount
of damages, actual expenses and attorney's fees awarded to the private respondents. The decretal portion of the decision of
the Court of Appeals reads:
WHEREFORE, the foregoing premises considered, the appealed decision is AFFIRMED. However, the award for damages,
actual expenses and attorney's fees shall be MODIFIED as follows:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 civil indemnity for their son Lorenzo Menard Dolor, Jr.;

b) P58,703.00 as actual and necessary funeral expenses;

c) P25,000,00 as temperate damages;
d) P100,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorney's fees.
2) To Spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 civil indemnity for the death of their son, Oscar Valmocina;
b) P100,000.00 as moral damages;
c) P10,000.00 as temperate damages;
d) P10,000.00 as reasonable litigation expenses and attorney's fees.
3) To Spouses Victor Panopio and Martina Panopio:
a) P10,352.59 as actual hospitalization and medical expenses;
b) P5,000.00 as temperate damages.
4) To Fred Panopio:
a) P50,000.00 as moral damages.
5) To Joseph Sandoval:
a) P3,000.00 as temperate damages.
SO ORDERED.11
Hence the present petition raising the following issues:
1. Whether the Court of Appeals was correct when it pronounced the Hernandez spouses as solidarily liable with Juan
Gonzales, although it is of record that they were not in the passenger jeepney driven by latter when the accident occurred;
2. Whether the Court of Appeals was correct in awarding temperate damages to private respondents namely the Spouses
Dolor, Spouses Valmocina and Spouses Panopio and to Joseph Sandoval, although the grant of temperate damages is not
provided for in decision of the court a quo;
3. Whether the Court of Appeals was correct in increasing the award of moral damages to respondents, Spouses Dolor,
Spouses Valmocina and Fred Panopio;
4. Whether the Court of Appeals was correct in affirming the grant of attorney's fees to Spouses Dolor and to Spouses
Valmocina although the lower court did not specify the fact and the law on which it is based.
Petitioners contend that the absence of the Hernandez spouses inside the passenger jeepney at the time of the collision
militates against holding them solidarily liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of the Civil
Code, which provides:
ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the
vehicle, could have, by the use of the due diligence, prevented the misfortune. It is disputably presumed that a driver was
negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next
preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.
The Hernandez spouses argues that since they were not inside the jeepney at the time of the collision, the provisions of
Article 2180 of the Civil Code, which does not provide for solidary liability between employers and employees, should be
applied.
We are not persuaded.
Article 2180 provides:
ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by
the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons who are under their
authority and live in their company.
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the latter are employed or on the occasion of their
functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not when the damage has
been caused by the official to whom the task done properly pertains, in which case what is provided in
article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage. (Underscoring supplied)
On the other hand, Article 2176 provides
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.
While the above provisions of law do not expressly provide for solidary liability, the same can be inferred from the
wordings of the first paragraph of Article 2180 which states that the obligation imposed by article 2176 is demandable not

only for one's own acts or omissions, but also for those of persons for whom one is responsible.
Moreover, Article 2180 should be read with Article 2194 of the Civil Code, which categorically states that the responsibility
of two or more persons who are liable for quasi-delict is solidary. In other words, the liability of joint tortfeasors is solidary.
Verily, under Article 2180 of the Civil Code, an employer may be held solidarily liable for the negligent act of his
employee.
The solidary liability of employers with their employees for quasi-delicts having been established, the next question is
whether Julian Gonzales is an employee of the Hernandez spouses. An affirmative answer will put to rest any issue on the
solidary liability of the Hernandez spouses for the acts of Julian Gonzales. The Hernandez spouses maintained that Julian
Gonzales is not their employee since their relationship relative to the use of the jeepney is that of a lessor and a lessee. They
argue that Julian Gonzales pays them a daily rental of P150.00 for the use of the jeepney. In essence, petitioners are

practicing the "boundary system" of jeepney operation albeit disguised as a lease agreement between them for the use of
the jeepney.
We hold that an employer-employee relationship exists between the Hernandez spouses and Julian Gonzales.
Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the ground
that he is a mere lessor would be not only to abet flagrant violations of the Public Service Law, but also to place the riding
public at the mercy of reckless and irresponsible drivers reckless because the measure of their earnings depends largely
upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of
them are in no position to pay the damages they might cause.
Anent the award of temperate damages to the private respondents, we hold that the appellate court committed no
reversible error in awarding the same to the respondents.
Temperate or moderate damages are damages which are more than nominal but less than compensatory which may be
recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the
case, be proved with certainty.16 Temperate damages are awarded for those cases where, from the nature of the case,
definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. A judge
should be empowered to calculate moderate damages in such cases, rather than the plaintiff should suffer, without redress,
from the defendant's wrongful act.17 The assessment of temperate damages is left to the sound discretion of the court
provided that such an award is reasonable under the circumstances. 18
We have gone through the records of this case and we find that, indeed, respondents suffered losses which cannot be
quantified in monetary terms. These losses came in the form of the damage sustained by the owner type jeep of the Dolor
spouses; the internment and burial of Oscar Valmocina; the hospitalization of Joseph Sandoval on account of the injuries he
sustained from the collision and the artificial leg and crutches that respondent Fred Panopio had to use because of the
amputation of his right leg. Further, we find that the amount of temperate damages awarded to the respondents were
reasonable under the circumstances.
As to the amount of moral damages which was awarded to respondents, a review of the records of this case shows that
there exists no cogent reason to overturn the action of the appellate court on this aspect.
Under Article 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand
moral damages for mental anguish for the death of the deceased." The reason for the grant of moral damages has been
explained, thus:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and
therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the
victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of
the offender.19
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to
allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has
undergone due to the defendant's culpable action and must, perforce, be proportional to the suffering inflicted. 20
Truly, the pain of the sudden loss of one's offspring, especially of a son who was in the prime of his youth, and who holds
so much promise waiting to be fulfilled is indeed a wellspring of intense pain which no parent should be made to suffer.
While it is true that there can be no exact or uniform rule for measuring the value of a human life and the measure of
damages cannot be arrived at by a precise mathematical calculation, 21 we hold that the Court of Appeals' award of moral
damages of P100,000.00 each to the Spouses Dolor and Spouses Valmocina for the death of their respective sons, Boyet
Dolor and Oscar Valmocina, is in full accord with prevailing jurisprudence. 22
With respect to the award of attorney's fees to respondents, no sufficient basis was established for the grant thereof.

It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the instances
enumerated in Article 2208 of the Civil Code. As we have held in Rizal Surety and Insurance Company v. Court of
Appeals:23
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is compelled to litigate
with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from
whom it is sought. While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or
equitable justification. The matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84
SCRA 337; Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).
In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees and to adjudge its
payment by petitioner. x xx.
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:
"In Abrogar v. Intermediate Appellate Court G.R. No. 67970, January 15, 1988, 157 SCRA 57], the Court had occasion to
state that '[t]he reason for the award of attorney's fees must be stated in the text of the court's decision, otherwise, if it is
stated only in the dispositive portion of the decision, the same must be disallowed on appeal.' x x x." 24
WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the grant of attorney's fees is DELETED for lack of basis.
Costs against petitioners.

SO ORDERED.
FEB LEASING AND FINANCE CORPORATION, vs. SPOUSES SERGIO P. BAYLON and MARITESS VILLENA-BAYLON, BG
HAULER, INC., and MANUEL Y. ESTILLOSO
G.R. No. 181398, June 29, 2011

DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 of the 9 October 2007 Decision2 and the 18 January 2008 Resolution3of the
Court of Appeals in CA-G.R. CV No. 81446. The 9 October 2007 Decision affirmed the 30 October 2003 Decision 4 of the
Regional Trial Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner to pay respondents damages.
The 18 January 2008 Resolution denied petitioners motion for reconsideration.
The Facts
On 2 September 2000, an Isuzu oil tanker running along Del Monte Avenue in Quezon City and bearing plate number TDY
712 hit Loretta V. Baylon (Loretta), daughter of respondent spouses Sergio P. Baylon and MaritessVillena-Baylon (spouses
Baylon). At the time of the accident, the oil tanker was registered 5 in the name of petitioner FEB Leasing and Finance
Corporation6 (petitioner). The oil tanker was leased7 to BG Hauler, Inc. (BG Hauler) and was being driven by the latters
driver, Manuel Y. Estilloso. The oil tanker was insured 8 by FGU Insurance Corp. (FGU Insurance).

The accident took place at around 2:00 p.m. as the oil tanker was coming from Balintawak and heading towards Manila.
Upon reaching the intersection of Bonifacio Street and Del Monte Avenue, the oil tanker turned left. While the driver of
the oil tanker was executing a left turn side by side with another vehicle towards Del Monte Avenue, the oil tanker hit
Loretta who was then crossing Del Monte Avenue coming from Mayon Street. Due to the strong impact, Loretta was
violently thrown away about three to five meters from the point of impact. She fell to the ground unconscious. She was
brought for treatment to the Chinese General Hospital where she remained in a coma until her death two days after. 9
The spouses Baylon filed with the RTC (Branch 35) of Gapan City a Complaint 10 for damages against petitioner, BG Hauler,
the driver, and FGU Insurance. Petitioner filed its answer with compulsory counterclaim while FGU Insurance filed its
answer with counterclaim. On the other hand, BG Hauler filed its answer with compulsory counterclaim and cross-claim
against FGU Insurance.
Petitioner claimed that the spouses Baylon had no cause of action against it because under its lease contract with BG Hauler,
petitioner was not liable for any loss, damage, or injury that the leased oil tanker might cause. Petitioner claimed that no
employer-employee relationship existed between petitioner and the driver.
BG Hauler alleged that neither do the spouses Baylon have a cause of action against it since the oil tanker was not
registered in its name. BG Hauler contended that the victim was guilty of contributory negligence in crossing the street. BG
Hauler claimed that even if its driver was at fault, BG Hauler exercised the diligence of a good father of a family in the
selection and supervision of its driver. BG Hauler also contended that FGU Insurance is obliged to assume all liabilities
arising from the use of the insured oil tanker.
For its part, FGU Insurance averred that the victim was guilty of contributory negligence. FGU Insurance concluded that the
spouses Baylon could not expect to be paid the full amount of their claims. FGU Insurance pointed out that the insurance
policy covering the oil tanker limited any claim to a maximum of P400,000.00.
During trial, FGU Insurance moved that (1) it be allowed to deposit in court the amount of P450,000.00 in the joint names
of the spouses Baylon, petitioner, and BG Hauler and (2) it be released from further participating in the proceedings. After
the RTC granted the motion, FGU Insurance deposited in the Branch Clerk of Court a check in the names of the spouses
Baylon, petitioner, and BG Hauler. The RTC then released FGU Insurance from its contractual obligations under the
insurance policy.
The Ruling of the RTC
After weighing the evidence submitted by the parties, the RTC found that the death of Loretta was due to the negligent act
of the driver. The RTC held that BG Hauler, as the employer, was solidarily liable with the driver. The RTC further held
that petitioner, as the registered owner of the oil tanker, was also solidarily liable.
The RTC found that since FGU Insurance already paid the amount of P450,000.00 to the spouses Baylon, BG Hauler, and
petitioner, the insurers obligation has been satisfactorily fulfilled. The RTC thus dismissed the cross-claim of BG Hauler
against FGU Insurance. The decretal part of the RTCs decision reads:
Wherefore, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants FEB Leasing
(now BPI Leasing), BG Hauler, and Manuel Estilloso, to wit:
1. Ordering the defendants, jointly and severally, to pay plaintiffs the following:
a. the amount of P62,000.00 representing actual expenses incurred by the plaintiffs;
b. the amount of P50,000.00 as moral damages;
c. the amount of P2,400,000.00 for loss of earning capacity of the deceased victim, Loretta V. Baylon;
d. the sum of P50,000.00 for death indemnity;
e. the sum of P50,000.00 for and as attorneys fees; and

f. with costs against the defendants.

2. Ordering the dismissal of defendants counter-claim for lack of merit and the cross claim of defendant BG Hauler against
defendant FGU Insurance.
SO ORDERED.11
Petitioner, BG Hauler, and the driver appealed the RTC Decision to the Court of Appeals. Petitioner claimed that as
financial lessor, it is exempt from liability resulting from any loss, damage, or injury the oil tanker may cause while being
operated by BG Hauler as financial lessee.
On the other hand, BG Hauler and the driver alleged that no sufficient evidence existed proving the driver to be at fault.
They claimed that the RTC erred in finding BG Hauler negligent despite the fact that it had exercised the diligence of a
good father of a family in the selection and supervision of its driver and in the maintenance of its vehicles. They contended
that petitioner, as the registered owner of the oil tanker, should be solely liable for Lorettas death.
The Ruling of the Court of Appeals
The Court of Appeals held that petitioner, BG Hauler, and the driver are solidarily liable for damages arising from Lorettas
death. Petitioners liability arose from the fact that it was the registered owner of the oil tanker while BG Haulers liability
emanated from a provision in the lease contract providing that the lessee shall be liable in case of any loss, damage, or
injury the leased oil tanker may cause.
Thus, the Court of Appeals affirmed the RTC Decision but with the modification that the award of attorneys fees be
deleted for being speculative. The dispositive part of the appellate courts Decision reads:
WHEREFORE, in the light of the foregoing, the instant appeal is DENIED. Consequently, the assailed Decision of the lower
court is AFFIRMED with the MODIFICATION that the award of attorneys fees is DELETED.
IT IS SO ORDERED.12
Dissatisfied, petitioner and BG Hauler, joined by the driver, filed two separate motions for reconsideration. In its 18 January
2008 Resolution, the Court of Appeals denied both motions for lack of merit.
Unconvinced, petitioner alone filed with this Court the present petition for review on certiorari impleading the spouses
Baylon, BG Hauler, and the driver as respondents. 13
The Issue
The sole issue submitted for resolution is whether the registered owner of a financially leased vehicle remains liable for loss,
damage, or injury caused by the vehicle notwithstanding an exemption provision in the financial lease contract.
The Courts Ruling
Petitioner contends that the lease contract between BG Hauler and petitioner specifically provides that BG Hauler shall be
liable for any loss, damage, or injury the leased oil tanker may cause even if petitioner is the registered owner of the said oil
tanker. Petitioner claims that the Court of Appeals erred in holding petitioner solidarily liable with BG Hauler despite
having found the latter liable under the lease contract.
For their part, the spouses Baylon counter that the lease contract between petitioner and BG Hauler cannot bind third
parties like them. The spouses Baylon maintain that the existence of the lease contract does not relieve petitioner of direct
responsibility as the registered owner of the oil tanker that caused the death of their daughter.
On the other hand, BG Hauler and the driver argue that at the time petitioner and BG Hauler entered into the lease
contract, Republic Act No. 598014 was still in effect. They point out that the amendatory law, Republic Act No.
8556,15 which exempts from liability in case of any loss, damage, or injury to third persons the registered owners of vehicles
financially leased to another, was not yet enacted at that time.

In point is the 2008 case of PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc. 16 There, we held liable PCI
Leasing and Finance, Inc., the registered owner of an 18-wheeler Fuso Tanker Truck leased to Superior Gas & Equitable Co.,
Inc. (SUGECO) and being driven by the latters driver, for damages arising from a collision. This despite an express
provision in the lease contract to the effect that the lessee, SUGECO, shall indemnify and hold the registered owner free
from any liabilities, damages, suits, claims, or judgments arising from SUGECOs use of the leased motor vehicle.
In the instant case, Section 5.1 of the lease contract between petitioner and BG Hauler provides:
Sec. 5.1. It is the principle of this Lease that while the title or ownership of the EQUIPMENT, with all the
rights consequent thereof, are retained by the LESSOR, the risk of loss or damage of the EQUIPMENT from
whatever source arising, as well as any liability resulting from the ownership, operation and/or possession
thereof, over and above those actually compensated by insurance, are hereby transferred to and assumed
by the LESSEE hereunder which shall continue in full force and effect. 17 (Emphasis supplied)
If it so wishes, petitioner may proceed against BG Hauler to seek enforcement of the latters contractual obligation under
Section 5.1 of the lease contract. In the present case, petitioner did not file a cross-claim against BG Hauler. Hence, this
Court cannot require BG Hauler to reimburse petitioner for the latters liability to the spouses Baylon. However, as the
registered owner of the oil tanker, petitioner may not escape its liability to third persons.
Under Section 5 of Republic Act No. 4136, as amended, all motor vehicles used or operated on or upon any highway of
the Philippines must be registered with the Bureau of Land Transportation (now Land Transportation Office) for the current
year. Furthermore, any encumbrances of motor vehicles must be recorded with the Land Transportation Office in order to
be valid against third parties.
In accordance with the law on compulsory motor vehicle registration, this Court has consistently ruled that, with respect to
the public and third persons, the registered owner of a motor vehicle is directly and primarily responsible for the
consequences of its operation regardless of who the actual vehicle owner might be. Well-settled is the rule that the
registered owner of the vehicle is liable for quasi-delicts resulting from its use. Thus, even if the vehicle has already been
sold, leased, or transferred to another person at the time the vehicle figured in an accident, the registered vehicle owner
would still be liable for damages caused by the accident. The sale, transfer or lease of the vehicle, which is not registered
with the Land Transportation Office, will not bind third persons aggrieved in an accident involving the vehicle. The
compulsory motor vehicle registration underscores the importance of registering the vehicle in the name of the actual
owner.
The policy behind the rule is to enable the victim to find redress by the expedient recourse of identifying the registered
vehicle owner in the records of the Land Transportation Office. The registered owner can be reimbursed by the actual
owner, lessee or transferee who is known to him. Unlike the registered owner, the innocent victim is not privy to the lease,
sale, transfer or encumbrance of the vehicle. Hence, the victim should not be prejudiced by the failure to register such
transaction or encumbrance.
As the Court held in PCI Leasing:
The burden of registration of the lease contract is minuscule compared to the chaos that may result if registered owners or
operators of vehicles are freed from such responsibility. Petitioner pays the price for its failure to obey the law on
compulsory registration of motor vehicles for registration is a pre-requisite for any person to even enjoy the privilege of
putting a vehicle on public roads. 22
In the landmark case of Erezo v. Jepte,23 the Court succinctly laid down the public policy behind the rule, thus:
The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or
injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle

registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused
on public highways.
x xx
Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be
easy for him, by collusion with others or, or otherwise, to escape said responsibility and transfer the same to an indefinite
person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of
recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or
damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the
owner. The protection that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the
registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is to prove that a
third person or another has become the owner, so that he may be thereby be relieved of the responsibility to the injured
person.24
In this case, petitioner admits that it is the registered owner of the oil tanker that figured in an accident causing the death of
Loretta. As the registered owner, it cannot escape liability for the loss arising out of negligence in the operation of the oil
tanker. Its liability remains even if at the time of the accident, the oil tanker was leased to BG Hauler and was being driven
by the latters driver, and despite a provision in the lease contract exonerating the registered owner from liability.
As a final point, we agree with the Court of Appeals that the award of attorneys fees by the RTC must be deleted for lack
of basis. The RTC failed to justify the award of P50,000 attorneys fees to respondent spouses Baylon. The award of
attorneys fees must have some factual, legal and equitable bases and cannot be left to speculations and
conjectures.25 Consistent with prevailing jurisprudence, 26 attorneys fees as part of damages are awarded only in the
instances enumerated in Article 2208 of the Civil Code. 27 Thus, the award of attorneys fees is the exception rather than the
rule. Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should be
placed on the right to litigate.28
WHEREFORE, we DENY the petition. We AFFIRM the 9 October 2007 Decision and the 18 January 2008 Resolution of
the Court of Appeals in CA-G.R. CV No. 81446 affirming with modification the 30 October 2003 Decision of the Regional
Trial Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner FEB Leasing and Finance Corporation, BG
Hauler, Inc., and driver Manuel Y. Estilloso to solidarily pay respondent spouses Sergio P. Baylon and MaritessVillenaBaylon the following amounts:
a. P62,000.00 representing actual expenses incurred by the plaintiffs;
b. P50,000.00 as moral damages;
c. P2,400,000.00 for loss of earning capacity of the deceased victim, Loretta V. Baylon; and
d. P50,000.00 for death indemnity.
Costs against petitioner.
SO ORDERED.

G.R. No. 157917

August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

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
TeresitaZarate (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 air-conditioning 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 JhonnyAlano
(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 cross-claims 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, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;
(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;
(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;
(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;
(11) The eventual closure of the railroad crossing alleged by PNR was an internal arrangement between the former and its
project contractor; and
(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters from the Magallanes station of
PNR.
B. ISSUES

(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 motorists for
railroad crossings, constituting the proximate cause of the vehicular collision which resulted in the death of the plaintiff
spouses' son;
(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) Whether or not defendants spouses are liable for actual, moral damages, exemplary damages, and attorney's fees;
(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;
(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;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and exemplary damages and attorney's
fees.2
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.
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
TeodoroPerea 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 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 defendantappellants 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
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 TeodoroPerea 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, 9primarily
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. 11The 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.12Contracts 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,15viz:
"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 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 xx 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, 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. 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 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.
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 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 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
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 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.
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., quasidelict 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 JussiLeinos 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 JussiLeino 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." 38Accordingly, 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 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 good-paying 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.
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 everpresent need for greater and constant vigilance in the conduct of a business imbued with public interest.
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.