1

THIRD DIVISION

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and
the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that he could
not be held responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

 2

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)

We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.

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

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or
dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

 3

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:

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

calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case — the hijacking of the carrier's truck — does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted
negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on
the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary
diligence required private respondent to retain a security guard to ride with the truck and to engage
brigands in a firelight at the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745,
numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust

and contrary to public policy:

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;

(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
 4

(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.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes

1 Rollo, p. 14.

2 Article 1733, Civil Code.

3 Rollo, p. 22.

4 The evidence of the prosecution did not show that more than three (3) of the five
(5) hold-uppers were armed. Thus, the existence of a "band" within the technical
meaning of Article 306 of the Revised Penal Code, was not affirmatively proved by
the prosecution.
 1

FIRST DIVISION

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,

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

DAVIDE, JR., C.J.:

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

The facts are undisputed.1âwphi1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter,

the vessel) the following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC
against various risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE
VESSEL." The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc.
(hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the
port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa
Island. As a result of the total loss of its shipment, the consignee made a claim with
LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to
the insured in full settlement of its claim, and the latter executed a subrogation receipt
therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that
the sinking of the vessel was due to the fault and negligence of LOADSTAR and its
employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the
loss the vessel directly to MIC, said amount to be deducted from MIC's claim from
LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and
claimed that sinking of its vessel was due to force majeure. PGAI, on the other hand,
averred that MIC had no cause of action against it, LOADSTAR being the party insured.
In any event, PGAI was later dropped as a party defendant after it paid the insurance
proceeds to LOADSTAR.
 2

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the court of Appeals, which, however, agreed with
the trial court and affirmed its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following

observations:

1) LOADSTAR cannot be considered a private carrier on the

sole ground that there was a single shipper on that fateful
voyage. The court noted that the charter of the vessel was
limited to the ship, but LOADSTAR retained control over its
crew. 4

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

Civil Code, which should be applied in determining the rights
and liabilities of the parties.

3) The vessel was not seaworthy because it was

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

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

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

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

the shipper's goods never reached their destination.
LOADSTAR's defense of "diligence of a good father of a
family" in the training and selection of its crew is unavailing
because this is not a proper or complete defense in culpa
contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially

construed to mean that when goods are delivered on board
a ship in good order and condition, and the shipowner
delivers them to the shipper in bad order and condition, it
then devolves upon the shipowner to both allege and prove
that the goods were damaged by reason of some fact which
legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means
that the latter bears the risk of loss or deterioration of his
goods arising from fortuitous events, force majeure, or the
inherent nature and defects of the goods, but not those
caused by the presumed negligence or fault of the carrier,
unless otherwise proved. 7
 3

The errors assigned by LOADSTAR boil down to a determination of the following

issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in

these premises.

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier
because it was not issued certificate of public convenience, it did not have a regular trip
or schedule nor a fixed route, and there was only "one shipper, one consignee for a
special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee"
was not timely raised below; hence, it is barred by estoppel. While it is true that the
vessel had on board only the cargo of wood products for delivery to one consignee, it
was also carrying passengers as part of its regular business. Moreover, the bills of
lading in this case made no mention of any charter party but only a statement that the
vessel was a "general cargo carrier." Neither was there any "special arrangement"
between LOADSTAR and the shipper regarding the shipment of the cargo. The singular
fact that the vessel was carrying a particular type of cargo for one shipper is not
sufficient to convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be
presumed to have been negligent, and the burden of proving otherwise devolved upon
MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on
19 November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard
and was duly inspected by the maritime safety engineers of the Philippine Coast Guard,
who certified that the ship was fit to undertake a voyage. Its crew at the time was
experienced, licensed and unquestionably competent. With all these precautions, there
could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss
being due to force majeure. It points out that when the vessel left Nasipit, Agusan del
Norte, on 19 November 1984, the weather was fine until the next day when the vessel
sank due to strong waves. MCI's witness, Gracelia Tapel, fully established the existence
of two typhoons, "WELFRING" and "YOLING," inside the Philippine area of
responsibility. In fact, on 20 November 1984, signal no. 1 was declared over Eastern
Visayas, which includes Limasawa Island. Tapel also testified that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and
eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its
liability, such as what transpired in this case, is valid. Since the cargo was being
shipped at "owner's risk," LOADSTAR was not liable for any loss or damage to the
same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of
lading apply only to the shipper and the carrier, and not to the insurer of the goods,
which conclusion runs counter to the Supreme Court's ruling in the case of St. Paul Fire
& Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company
of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having
been instituted beyond the period stated in the bills of lading for instituting the same —
 4

suits based upon claims arising from shortage, damage, or non-delivery of shipment
shall be instituted within sixty days from the accrual of the right of action. The vessel
sank on 20 November 1984; yet, the case for recovery was filed only on 4 February
1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the
loss of the cargo was due toforce majeure, because the same concurred with
LOADSTAR's fault or negligence.

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

Thirdly, the " limited liability " theory is not applicable in the case at bar because
LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy
vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public
character is not altered by the fact that the carriage of the goods in question was
periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc., 11 where this Court held that a common carrier
transporting special cargo or chartering the vessel to a special person becomes a
private carrier that is not subject to the provisions of the Civil Code. Any stipulation in
the charter party absolving the owner from liability for loss due to the negligence of its
agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship totally chartered
for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial
Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both
of which upheld the Home Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple
reason that the factual settings are different. The records do not disclose that the M/V
"Cherokee," on the date in question, undertook to carry a special cargo or was
chartered to a special person only. There was no charter party. The bills of lading failed
to show any special arrangement, but only a general provision to the effect that the
M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the vessel
was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private
carrier, especially where, as in this case, it was shown that the vessel was also carrying
passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition
of a common carrier under Article 1732 of the Civil Code. In the case of De Guzman v.
Court of Appeals,15 the Court juxtaposed the statutory definition of "common carriers"
with the peculiar circumstances of that case, viz.:

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

Art. 1732. Common carriers are persons, corporations, firms

or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
 5

The above article makes no distinction between one

whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as ancillary activity (in local
idiom, as "a sideline". Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making
such distinctions.

xxx xxx xxx

It appears to the Court that private respondent is properly characterized as

a common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such backhauling was
done on a periodic or occasional rather than regular or scheduled manner,
and eventhough private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently fell
below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common
carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or
firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable
regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory
requirements The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those members
of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a
common carrier to render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not
even sufficiently manned at the time. "For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain in seaworthy condition its
vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should
be applied in this case. The doctrine of limited liability does not apply where there was
negligence on the part of the vessel owner or agent. 17 LOADSTAR was at fault or
negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail
 6

despite knowledge of an approaching typhoon. In any event, it did not sink because of
any storm that may be deemed as force majeure, inasmuch as the wind condition in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine
to escape responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of
the goods, in utter disregard of this Court's pronouncements in St. Paul Fire & Marine
Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen
Phils., Inc. 19 It was ruled in these two cases that after paying the claim of the insured
for damages under the insurance policy, the insurer is subrogated merely to the rights of
the assured, that is, it can recover only the amount that may, in turn, be recovered by
the latter. Since the right of the assured in case of loss or damage to the goods is
limited or restricted by the provisions in the bills of lading, a suit by the insurer as
subrogee is necessarily subject to the same limitations and restrictions. We do not
agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the
carrier's liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the
other hand, the stipulation in the case at bar effectively reduces the common carrier's
liability for the loss or destruction of the goods to a degree less than extraordinary
(Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at "owner's risk." Such stipulation is obviously null and void for being
contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading.

The first one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing
for an unqualified limitation of such liability to an agreed valuation. And
the third is one limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of.
freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the
shipper, it was subrogated to all the rights which the latter has against the
common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by
prescription. MIC's cause of action had not yet prescribed at the time it was concerned.
Inasmuch as neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) — which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes
sustained during transit — may be applied suppletorily to the case at bar. This one-year
prescriptive period also applies to the insurer of the goods. 22In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the
one-year period is null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30

January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs
against petitioner.1âwphi1.nêt

SO ORDERED.

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

 1

SECOND DIVISION

G.R. No. 148496 March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co.,
Inc.) respondent.

MENDOZA, J.:

This is a petition for review of the decision,1 dated May 31, 2001, of the Court of
Appeals, affirming the decision2 of the Regional Trial Court, Makati City, Branch 148,
which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00
with legal interest, representing the value of damaged cargo handled by petitioner,
25% thereof as attorney's fees, and the cost of the suit.1âwphi1.nêt

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,

Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this case,
petitioner entered into a contract with San Miguel Corporation (SMC) for the transfer
of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the
Port Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez
St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance
Co., Inc.

On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July
23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the
cargo from the arrastre operator and delivered it to SMC's warehouse in Ermita,
Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors,
who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn"
and 3 reels of kraft liner board were likewise torn. The damage was placed
at P93,112.00.

SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit
against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on
December 20, 1995, rendered judgment finding petitioner liable to respondent for
the damage to the shipment.

The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in

the custody of defendants. Evidence such as the Warehouse Entry Slip (Exh.
"E"); the Damage Report (Exh. "F") with entries appearing therein, classified
as "TED" and "TSN", which the claims processor, Ms. Agrifina De Luna,
claimed to be tearrage at the end and tearrage at the middle of the subject
damaged cargoes respectively, coupled with the Marine Cargo Survey Report
(Exh. "H" - "H-4-A") confirms the fact of the damaged condition of the subject
cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular, which provides
among others that:
 2

" . . . we opine that damages sustained by shipment is attributable to

improper handling in transit presumably whilst in the custody of the
broker . . . ."

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her]

defense that [she is] are not liable. Defendant by reason of the nature of [her]
business should have devised ways and means in order to prevent the
damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on
what precaution [she] performed to prevent [the] said incident, hence the
presumption is that the moment the defendant accepts the cargo [she] shall
perform such extraordinary diligence because of the nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are
proved to have been lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden
is shifted to the carrier to prove that he has exercised the extraordinary
diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of
destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must
be held responsible. It is incumbent upon the carrier to prove that the loss
was due to accident or some other circumstances inconsistent with its
liability." (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol.
IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a

common carrier is supposed [to] exercise [the] extraordinary diligence
required by law, hence the extraordinary responsibility lasts from the time the
goods are unconditionally placed in the possession of and received by the
carrier for transportation until the same are delivered actually or constructively
by the carrier to the consignee or to the person who has the right to receive
the same.3

Accordingly, the trial court ordered petitioner to pay the following amounts --

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

3. Costs of suit.4

The decision was affirmed by the Court of Appeals on appeal. Hence this petition for
review on certiorari.

Petitioner contends that:

 3

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE

ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED
BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY
MISTAKEN INFERENCE.

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE

ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER
AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.5

It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of
Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence
in the vigilance over the goods transported by her, would require.6 Consequently,
any damage to the cargo she agrees to transport cannot be presumed to have been
due to her fault or negligence.

Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs
broker and warehouseman, she does not indiscriminately hold her services out to
the public but only offers the same to select parties with whom she may contract in
the conduct of her business.

The contention has no merit. In De Guzman v. Court of Appeals,7 the Court

dismissed a similar contention and held the party to be a common carrier, thus -

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

"Article 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their
services to the public."

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity . . . Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1732 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be

seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:

" x x x every person that now or hereafter may own, operate, manage,
or control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad,
 4

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. x x x" 8

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's
contention would be to deprive those with whom she contracts the protection which
the law affords them notwithstanding the fact that the obligation to carry goods for
her customers, as already noted, is part and parcel of petitioner's business.

Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to
all the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence

in the vigilance over goods" was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it
for sale, carriage and delivery. It requires common carriers to render service
with the greatest skill and foresight and "to use all reasonable means to
ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as
their nature requires."

In the case at bar, petitioner denies liability for the damage to the cargo. She claims
that the "spoilage or wettage" took place while the goods were in the custody of
either the carrying vessel "M/V Hayakawa Maru," which transported the cargo to
Manila, or the arrastre operator, to whom the goods were unloaded and who
allegedly kept them in open air for nine days from July 14 to July 23, 1998
notwithstanding the fact that some of the containers were deformed, cracked, or
otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

 5

ICSU-412105-0 - rubber gasket on left side/door panel partly detached

loosened.10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified
that he has no personal knowledge on whether the container vans were first stored
in petitioner's warehouse prior to their delivery to the consignee. She likewise claims
that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMC's warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port Area where the cargo came
from. Thus, the damage to the cargo could not have taken place while these were in
her custody.11

Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioner's employees withdrew the cargo from the arrastre operator,
they did so without exception or protest either with regard to the condition of
container vans or their contents. The Survey Report pertinently reads --

Details of Discharge:

Shipment, provided with our protective supervision was noted discharged ex

vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990,
containerized onto 30' x 20' secure metal vans, covered by clean
EIRs. Except for slight dents and paint scratches on side and roof panels,
these containers were deemed to have [been] received in good condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30' x 20' cargo containers was
[withdrawn] by Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignee's storage warehouse

located at Tabacalera Compound, Romualdez Street, Ermita, Manila from
July 23/25, 1990.12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from
the vessel to the arrastre, Marina Port Services Inc., in good order and
condition as evidenced by clean Equipment Interchange Reports (EIRs). Had
there been any damage to the shipment, there would have been a report to
that effect made by the arrastre operator. The cargoes were withdrawn by the
defendant-appellant from the arrastre still in good order and condition as the
same were received by the former without exception, that is, without any
report of damage or loss. Surely, if the container vans were deformed,
cracked, distorted or dented, the defendant-appellant would report it
immediately to the consignee or make an exception on the delivery receipt or
note the same in the Warehouse Entry Slip (WES). None of these took place.
To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the
possession of the defendant-appellant. Whenever the thing is lost (or
 6

damaged) in the possession of the debtor (or obligor), it shall be presumed

that the loss (or damage) was due to his fault, unless there is proof to the
contrary. No proof was proffered to rebut this legal presumption and the
presumption of negligence attached to a common carrier in case of loss or
damage to the goods.13

Anent petitioner's insistence that the cargo could not have been damaged while in
her custody as she immediately delivered the containers to SMC's compound,
suffice it to say that to prove the exercise of extraordinary diligence, petitioner must
do more than merely show the possibility that some other party could be responsible
for the damage. It must prove that it used "all reasonable means to ascertain the
nature and characteristic of goods tendered for [transport] and that [it] exercise[d]
due care in the handling [thereof]." Petitioner failed to do this.

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides --

Common carriers are responsible for the loss, destruction, or deterioration of

the goods, unless the same is due to any of the following causes only:

....

(4) The character of the goods or defects in the packing or in the containers.

....

For this provision to apply, the rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.14 In this case, petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of
goods in this case or that she is exempt from liability, the presumption of negligence
as provided under Art. 173515 holds.

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.1âwphi1.nêt

SO ORDERED.
 1

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON

CARRIER. — Article 1732 of the Civil Code defines a common carrier as "(a) person,
corporation or 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 to determine a common carrier is "whether the given undertaking is a
part of the business engaged in by the carrier which he has held out to the general public as
his occupation rather than the quantity or extent of the business transacted." . . . The
holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article
1732 of the Civil Code, it held thus: "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 distinguished between
a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of
the general population. We think that Article 1732 deliberately refrained from making such
distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED;

WHEN PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME;
WHEN PRESUMPTION MADE ABSOLUTE. — Common carriers are obliged to observe
extraordinary diligence in the vigilance over the goods transported by them. Accordingly,
they are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. In those
cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption . . . The presumption of
negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus,
contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER

ABSOLVED FROM LIABILITY. — In De Guzman vs. Court of Appeals, the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that
the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is
in accordance with Article 1745 of the Civil Code which provides: "Art. 1745. Any of the
following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy . . . (6) That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violences or force, is dispensed with
or diminished"; In the same case, the Supreme Court also held that: "Under Article 1745 (6)
above, a common carrier is held responsible — and will not be allowed to divest or to
 2

diminish such responsibility — even for acts of strangers like thieves or robbers, except
where such thieves or robbers in fact acted "with grave of irresistible threat, violence of
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."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case,

petitioner herself has made the admission that she was in the trucking business, offering
her trucks to those with cargo to move. Judicial admissions are conclusive and no evidence
is required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. —
Petitioner presented no other proof of the existence of the contract of lease. He who alleges
a fact has the burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE

AS WITNESSES. — While the affidavit of Juanito Morden, the truck helper in the hijacked
truck, was presented as evidence in court, he himself was a witness as could be gleaned
from the contents of the petition. Affidavits are not considered the best evidence if the
affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES

IT TO BE. — Granting that the said evidence were not self-serving, the same were not
sufficient to prove that the contract was one of lease. It must be understood that a contract
is what the law defines it to be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in
"RODOLFO A. CIPRIANO, doing business under the name CIPRIANO TRADING
ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M. BASCOS, doing business under the
name of BASCOS TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216, the
dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is
hereby affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered
into a hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former
bound itself to haul the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del
Pan, Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out
its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos
(petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from
the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner
failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair
Shipping Agency the amount of the lost goods in accordance with the contract which stated
that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft,
hijacking and non-delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary
attachment 4 for breach of a contract of carriage. The prayer for a Writ of Preliminary
Attachment was supported by an affidavit 5 which contained the following allegations:
 3

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of
Court, whereby a writ of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to
do so, with intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present
action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of
carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to
Laguna; that CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the
cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on
the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE
and that petitioner and the police exerted all efforts to locate the hijacked properties; that
after preliminary investigation, an information for robbery and carnapping were filed against
Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from
any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as
follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant

ordering the latter to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR

PESOS (P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent
per annum to be counted from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's
judgment.

Consequently, petitioner filed this petition where she makes the following assignment of
errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL

RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS
CARRIAGE OF GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT

COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND
PRIVATE RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS,
IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF
THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.
 4

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL
COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF
PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND ACADEMIC BY THE
DECISION OF THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common
carrier?; and (2) was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she
admitted in her answer that she did business under the name A.M. Bascos Trucking and
that said admission dispensed with the presentation by private respondent, Rodolfo
Cipriano, of proofs that petitioner was a common carrier. The respondent Court also
adopted in toto the trial court's decision that petitioner was a common carrier, Moreover,
both courts appreciated the following pieces of evidence as indicators that petitioner was a
common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the
cargo consisting of 400 bags of soya bean meal as evidenced by a cargo receipt signed by
Maximo Sanglay; the fact that the truck helper, Juanito Morden, was also an employee of
petitioner; and the fact that control of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common
carrier, she alleged in this petition that the contract between her and Rodolfo A. Cipriano,
representing CIPTRADE, was lease of the truck. She cited as evidence certain affidavits
which referred to the contract as "lease". These affidavits were made by Jesus Bascos 8
and by petitioner herself. 9 She further averred that Jesus Bascos confirmed in his
testimony his statement that the contract was a lease contract. 10 She also stated that: she
was not catering to the general public. Thus, in her answer to the amended complaint, she
said that she does business under the same style of A.M. Bascos Trucking, offering her
trucks for lease to those who have cargo to move, not to the general public but to a few
customers only in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or 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
to determine a common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation
rather than the quantity or extent of the business transacted." 12 In this case, petitioner
herself has made the admission that she was in the trucking business, offering her trucks to
those with cargo to move. Judicial admissions are conclusive and no evidence is required to
prove the same. 13

But petitioner argues that there was only a contract of lease because they offer their
services only to a select group of people and because the private respondents, plaintiffs in
the lower court, did not object to the presentation of affidavits by petitioner where the
transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals
14 is instructive. In referring to Article 1732 of the Civil Code, it held thus:

"The above article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as an
ancillary activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions."
 5

Regarding the affidavits presented by petitioner to the court, both the trial and appellate
courts have dismissed them as self-serving and petitioner contests the conclusion. We are
bound by the appellate court's factual conclusions. Yet, granting that the said evidence
were not self-serving, the same were not sufficient to prove that the contract was one of
lease. It must be understood that a contract is what the law defines it to be and not what it is
called by the contracting parties. 15 Furthermore, petitioner presented no other proof of the
existence of the contract of lease. He who alleges a fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not
due to force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the
goods transported by them. 17 Accordingly, they are presumed to have been at fault or to
have acted negligently if the goods are lost, destroyed or deteriorated. 18 There are very
few instances when the presumption of negligence does not attach and these instances are
enumerated in Article 1734. 19 In those cases where the presumption is applied, the
common carrier must prove that it exercised extraordinary diligence in order to overcome
the presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her
from liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held
that hijacking, not being included in the provisions of Article 1734, must be dealt with under
the provisions of Article 1735 and thus, the common carrier is presumed to have been at
fault or negligent. To exculpate the carrier from liability arising from hijacking, he must prove
that the robbers or the hijackers acted with grave or irresistible threat, violence, or force.
This is in accordance with Article 1745 of the Civil Code which provides:

"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do
not act with grave or irresistible threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"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."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22
Jesus Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial
court and the Court of Appeals have concluded that these affidavits were not enough to
overcome the presumption. Petitioner's affidavit about the hijacking was based on what had
been told her by Juanito Morden. It was not a first-hand account. While it had been admitted
in court for lack of objection on the part of private respondent, the respondent Court had
discretion in assigning weight to such evidence. We are bound by the conclusion of the
appellate court. In a petition for review on certiorari, We are not to determine the probative
value of evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos
did not dwell on how the hijacking took place. Thirdly, while the affidavit of Juanito Morden,
the truck helper in the hijacked truck, was presented as evidence in court, he himself was a
witness as could be gleaned from the contents of the petition. Affidavits are not considered
the best evidence if the affiants are available as witnesses. 25 The subsequent filing of the
information for carnapping and robbery against the accused named in said affidavits did not
 6

necessarily mean that the contents of the affidavits were true because they were yet to be
determined in the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any
evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary
diligence made the presumption conclusive against her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We
find no reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary
attachment has been rendered moot and academic by the decision on the merits.

In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be
sustained. The petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.

Footnotes

** July 17, 1991; penned by Associate Justice Nicolas P. Lapeña, Jr., and concurred in by Associate Justices Ricardo L.
Pronove, Jr., and Consuelo V. Santiago.
1. Rollo, p. 59.
2. Annex "K" of Memorandum for Petitioner; Rollo, p. 229.
3. Ibid.
4. Civil Case No. 49965; Regional Trial Court, Quezon City, Branch 83.
5. Annex "L" of Memorandum for Petitioner; Rollo, p. 230.
*** Civil Case No. 49965, October 12, 1989. Penned by Judge Reynaldo Roura.
6. Rollo, p. 217.
7. Rollo, p. 16.
8. Petition, pp. 12-13; Rollo, pp. 20-21; Annex "G" of Memorandum for Petitioner; rollo, p. 225.
9. Petition, pp. 13-14; Rollo, pp. 21-22.
10. Ibid.; Rollo, p. 21; Annex "E" of Memorandum for Petitioner; Rollo, p. 222.
11. Court of Appeals Decision, p. 51; Rollo, p. 55.
12. 4 AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF THE PHILIPPINES, 5
(1987).
13. Solivio vs. Court of Appeals, 182 SCRA 119 (1990).
14. 168 SCRA 612 (1988).
15. Schmid and Oberly, Inc. vs. RJL Martinez Fishing Corp., 166 SCRA 493 (1988).
16. Imperial Victory Shipping Agency vs. NLRC, 200 SCRA 178 (1991).
17. "Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according
to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6,
and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756."
18. "Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in article 1733."
19. "Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."
20. Supra, note 14.
21. Ibid., p. 621.
22. Annex "G" of Memorandum for Petitioner; Rollo, p. 225; and Juanito Morden's affidavit Annex "H" of Memorandum for
Petitioner; Rollo, p. 226.
23. Annex "E" of Memorandum for Petitioner; Rollo, p. 222.
24. Annex "H" of Memorandum for Petitioner; Rollo, p. 226.
25. Ayco vs. Fernandez, 195 SCRA 328 (1991).
 1

FIRST DIVISION

[G.R. No. 141910. August 6, 2002]

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING

CORPORATION and LAMBERT M. EROLES, respondents.

DECISION
VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty
(30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in
Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was
traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban,
Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in
damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion
Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being
the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of
the amount it had paid to the latter from GPS. Since the trucking company failed to heed the
claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and
its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer,
respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as a common carrier. Respondents further
claimed that the cause of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting
its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to
evidence on the ground that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining
thusly:

Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his
own affirmative allegation, xxx.

In the instant case, plaintiff did not present any single evidence that would prove that defendant
is a common carrier.

xxxxxxxxx

Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss, damage or
deterioration of goods during transport under 1735 of the Civil Code is not availing.

Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was
subrogated and the owner of the vehicle which transports the cargo are the laws on obligation
and contract of the Civil Code as well as the law on quasi delicts.

Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi
delict provides for some presumption of negligence but only upon the attendance of some
circumstances.Thus, Article 2185 provides:

Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor
vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.

Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.
 2

Considering that plaintiff failed to adduce evidence that defendant is a common carrier and
defendants driver was the one negligent, defendant cannot be made liable for the damages of
the subject cargoes.[2]

The subsequent motion for reconsideration having been denied, [3] plaintiff interposed an
appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the
appellee corporation was not a common carrier defined under the law and existing
jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The
appellate court, in its decision of 10 June 1999, [4] discoursed, among other things, that -

"x x x in order for the presumption of negligence provided for under the law governing common
carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a
common carrier. Should the appellant fail to prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant would have to prove that the carrier
was negligent.

"x x x x x x x x x

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

"x x x x x x x x x

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

"x x x x x x x x x

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not
warranted and the presumption of fault or negligence on the part of a common carrier in case of
loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is
not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of fact of a trial
court are entitled to great weight on appeal and should not be disturbed unless for strong and
valid reasons."[5]

Petitioner's motion for reconsideration was likewise denied; [6] hence, the instant
petition,[7] raising the following issues:
I

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS

DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE

CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT
UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.
 3

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT

CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals
to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries,
Inc., rendering or offering its services to no other individual or entity, cannot be considered a
common carrier. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air, for
hire or compensation, offering their services to the public,[8]whether to the public in general or
to a limited clientele in particular, but never on an exclusive basis. [9] The true test of a common
carrier is the carriage of passengers or goods, providing space for those who opt to avail
themselves of its transportation service for a fee.[10] Given accepted standards, GPS scarcely
falls within the term common carrier.
The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.[11] The law, recognizing the
obligatory force of contracts,[12] will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. [13] A
breach upon the contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests of the promisee
that may include his expectation interest, which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been performed,
or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not
been made; or his restitution interest, which is his interest in having restored to him any benefit
that he has conferred on the other party.[14] Indeed, agreements can accomplish little, either for
their makers or for society, unless they are made the basis for action. [15] The effect of every
infraction is to create a new duty, that is, to make recompense to the one who has been injured
by the failure of another to observe his contractual obligation [16] unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the diligence of a
good father of a family or, exceptionally by stipulation or by law such as in the case of common
carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him
from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage between
it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost
or damaged while in its custody. In such a situation, a default on, or failure of compliance with,
the obligation in this case, the delivery of the goods in its custody to the place of destination -
gives rise to a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage
between petitioners principal and defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it or their successors who have
assumed their personality or their juridical position.[17] Consonantly with the axiom res inter alios
acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third
person. Petitioners civil action against the driver can only be based on culpa aquiliana, which,
unlike culpa contractual, would require the claimant for damages to prove negligence or fault on
the part of the defendant.[18]
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a
defendant liable where the thing which caused the injury complained of is shown to be under the
latters management and the accident is such that, in the ordinary course of things, cannot be
expected to happen if those who have its management or control use proper care. It affords
reasonable evidence, in the absence of explanation by the defendant, that the accident arose
from want of care.[19] It is not a rule of substantive law and, as such, it does not create an
independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural
convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of
 4

producing specific proof of negligence. The maxim simply places on the defendant the burden of
going forward with the proof.[20] Resort to the doctrine, however, may be allowed only when (a)
the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other
responsible causes, including the conduct of the plaintiff and third persons, are sufficiently
eliminated by the evidence; and (c) the indicated negligence is within the scope of the
defendant's duty to the plaintiff.[21] Thus, it is not applicable when an unexplained accident may
be attributable to one of several causes, for some of which the defendant could not be
responsible.[22]
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties.[23] Nevertheless, the requirement that responsible causes other than those due to
defendants conduct must first be eliminated, for the doctrine to apply, should be understood as
being confined only to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure
of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is
predicated on culpa acquiliana, while he admittedly can be said to have been in control and
management of the vehicle which figured in the accident, it is not equally shown, however, that
the accident could have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur to work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the
movant shall be deemed to have waived the right to present evidence. [24] Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in transporting
the cargoes of the assured so as to still warrant a remand of the case to the trial court.
WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of
Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only
insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court
and decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking
Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of
the damaged and lost cargoes in the amount of P204,450.00. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez,
JJ., concur.

[1]
Rollo, p. 14.
[2]
Rollo, pp. 14-15.
[3]
Rollo, p. 17
[4]
Rollo, p. 20.
[5]
Rollo, pp. 24-28.
[6]
Rollo, p. 32.
[7]
Rollo, p. 3.
[8]
Article 1732, Civil Code.
[9]
Sec. 13[b], Public Service Act as amended; see also Guzman vs. Court of Appeals, G.R. L-47822, 22 December 1988.
[10]
National Steel Corporation vs. Court of Appeals, 283 SCRA 45.
[11]
Calalas vs. Court of Appeals, 332 SCRA 356; Sabena Belgian World Airlines vs. Court of Appeals, 255 SCRA 38.
[12]
See Articles 1159, 1308, 1315, 1356, Civil Code.
[13]
Anson on Contracts, 1939, p. 424; 17A Am Jur 2d, p. 728 citing Parks vs. Parks, 187 P2d 145.
[14]
Restatement, Second, Contracts, 344.
[15]
Fuller and Purdue, The Reliance Interest in Contract Damages, 46 Yale L.J.61 (1936).
[16]
Richardson on Contracts, 1951, p. 309.
[17]
Article 1311, Civil Code.
[18]
Calalas vs. Court of Appeals, supra; See Article 2176, Civil Code.
[19]
Africa vs. Caltex (Phils.) Inc., 16 SCRA 448; Layugan vs. Intermediate Appellate Court, 167 SCRA 376.
[20]
Ramos vs. Court of Appeals, 321 SCRA 600.
[21]
Sangco, Torts and Damages V.1, 1993, p. 29, citing 58 Am Jur 2d, pp. 56-58. See Ramos vs. Court of Appeals, supra.
[22]
Words and Phrases Vol. 37, p. 483.
[23]
57B Am Jur 2d, p. 496.
[24]
Section 1, Rule 35, Rules of Court; Section 1, Rule 33, 1997 Rules of Civil Procedure.
 1

SECOND DIVISION

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF

APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.

DECISION
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 x x x x

"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]
 2

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 a 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:

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

xxx 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, x x x 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]
 3

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 20, 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.
Article 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 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basisand 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.
 4

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.'
"(Underscoring 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 a 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 x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring
Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common

carrier." In BIR Ruling No. 069-83, it declared:

"x x x 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 x x
x. Such being the case, it is not subject to withholding tax prescribed by Revenue
Regulations No. 13-78, as amended."
 5

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:

"Section 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 :

xxxxxxxxx

(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." x x x

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. x x x[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.
 6

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.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

[1]
Rollo, pp. 90-94.
[2]
Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of petitioner First Philippine
Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp. 95-100).
[3]
Sec. 143. Tax on Business. The municipality may impose taxes on the following business:

xxx xxx xxx

(e) On contractors and other independent contractors, in accordance with the following schedule:
With gross receipts for the preceding Amount of Tax Per Annum
Calendar year in the amount:
xxxxxx
P2,000,000.00 or more at a rate not exceeding fifty

Percent (50%) of one (1%)

[4]
Letter Protest dated January 20, 1994, Rollo, pp. 110-111.
[5]
Letter of respondent City Treasurer, Rollo, p. 112.
[6]
Complaint, Annex "C", Rollo, pp. 51-56.
[7]
Rollo, pp. 51-57.
[8]
Answer, Annex "J", Rollo, pp. 122-127.
[9]
RTC Decision, Rollo, pp. 58-62.
[10]
Rollo, p. 84.
[11]
CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and Justice Eduardo
G. Montenegro; Rollo, pp. 33-47.
[12]
Rollo, p. 49.
[13]
Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious.

"As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not offering its services to the public.
"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms 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.
"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that petitioner is not offering its
services to the public.

"We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly construed against the
taxpayer. The present understanding of the concept of "common carriers" does not include carriers of petroleum using pipelines. It is
highly unconventional to say that the business of transporting petroleum through pipelines involves "common carrier" business. The
Local Government Code intended to give exemptions from local taxation to common carriers transporting goods and passengers
through moving vehicles or vessels and not through pipelines. The term common carrier under Section 133 (j) of the Local
Government Code must be given its simple and ordinary or generally accepted meaning which would definitely not include operators
of pipelines."
[14]
G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds of the motion for
reconsideration, dated December 23, 1996, filed by counsel for petitioner, of the resolution of November 11, 1996 which denied the
petition for review on certiorari, the Court Resolved:

(a) to GRANT the motion for reconsideration and to REINSTATE the petition; and
(b) to require respondent to COMMENT on the petition, within ten (10) days from notice.
[15]
Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.
[16]
168 SCRA 617-618 [1998].
[17]
Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct
131.
[18]
Journal and Record of the House of Representatives, Fourth Regular Session, Volume 2, pp. 87-89, September 6, 1990;
Underscoring Ours.
[19]
Annex "D" of Petition, Rollo, pp. 101-109.
 1

FIRST DIVISION

G.R. No. 101503 | September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI
KISEN KABUSHIKI KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common

carrier into a private one as to negate the civil law presumption of negligence in
case of loss or damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation

(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46%
fertilizer which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel
M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha
(KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the
vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V
"Sun Plum" pursuant to the Uniform General Charter2 was entered into between
Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to
the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-
printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974,
respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all
presumably inspected by the charterer's representative and found fit to take a load
of urea in bulk pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by

certificate from National Cargo Bureau inspector or substitute
appointed by charterers for his account certifying the vessel's
readiness to receive cargo spaces. The vessel's hold to be properly
swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector
before daytime commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the
supervision of the shipper, the steel hatches were closed with heavy iron lids,
covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches
remained closed and tightly sealed throughout the entire voyage. 5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon
hatches were opened with the use of the vessel's boom. Petitioner unloaded the
cargo from the holds into its steelbodied dump trucks which were parked alongside
the berth, using metal scoops attached to the ship, pursuant to the terms and
 2

conditions of the charter-partly (which provided for an F.I.O.S. clause).6 The

hatches remained open throughout the duration of the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin
before it was transported to the consignee's warehouse located some fifty (50)
meters from the wharf. Midway to the warehouse, the trucks were made to pass
through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain portions
of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's warehouse was
made of corrugated galvanized iron (GI) sheets, with an opening at the front where
the dump trucks entered and unloaded the fertilizer on the warehouse floor.
Tarpaulins and GI sheets were placed in-between and alongside the trucks to
contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974
(except July 12th, 14th and 18th).10A private marine and cargo surveyor, Cargo
Superintendents Company Inc. (CSCI), was hired by PPI to determine the "outturn"
of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19
July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the
Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results
were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974
prepared by PPI which showed that the cargo delivered was indeed short of 94.839
M/T and about 23 M/T were rendered unfit for commerce, having been polluted with
sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont

Steamship Agencies (SSA), the resident agent of the carrier, KKKK, for
P245,969.31 representing the cost of the alleged shortage in the goods shipped and
the diminution in value of that portion said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's
claim for payment because, according to them, what they received was just a
request for shortlanded certificate and not a formal claim, and that this "request"
was denied by them because they "had nothing to do with the discharge of the
shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the
Court of First Instance of Manila. The defendant carrier argued that the strict public
policy governing common carriers does not apply to them because they have
become private carriers by reason of the provisions of the charter-party. The
court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is

presumed negligent in case of loss or damage of the goods it contracts
to transport, all that a shipper has to do in a suit to recover for loss or
damage is to show receipt by the carrier of the goods and to delivery
by it of less than what it received. After that, the burden of proving
that the loss or damage was due to any of the causes which exempt
him from liability is shipted to the carrier, common or private he may
be. Even if the provisions of the charter-party aforequoted are deemed
valid, and the defendants considered private carriers, it was still
incumbent upon them to prove that the shortage or contamination
sustained by the cargo is attributable to the fault or negligence on the
part of the shipper or consignee in the loading, stowing, trimming and
discharge of the cargo. This they failed to do. By this omission,
coupled with their failure to destroy the presumption of negligence
against them, the defendants are liable (emphasis supplied).
 3

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

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

plaintiff-appellee to adduce sufficient evidence to prove the negligence
of the defendant carrier as alleged in its complaint. It is an old and
well settled rule that if the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner the
facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on
the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to

prove the basis of its cause of action, i.e. the alleged negligence of
defendant carrier. It appears that the plaintiff was under the
impression that it did not have to establish defendant's negligence. Be
that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier
was not negligent in performing its obligation . . . 18 (emphasis
supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of
the Court of Appeals. Petitioner theorizes that the Home Insurance case has no
bearing on the present controversy because the issue raised therein is the validity
of a stipulation in the charter-party delimiting the liability of the shipowner for loss
or damage to goods cause by want of due deligence on its part or that of its
manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since the
possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for the negligence of
the captain and crew. In fine, PPI faults the appellate court in not applying the
presumption of negligence against respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence on the part of the carrier,
when he was not even at hand to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a
private carrier by reason of a charter-party; in the negative, whether the shipowner
in the instant case was able to prove that he had exercised that degree of diligence
required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial

cases. This being so, we find it fitting to first define important terms which are
relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal

part thereof, is let by the owner to another person for a specified time or use; 20 a
contract of affreightment by which the owner of a ship or other vessel lets the
whole or a part of her to a merchant or other person for the conveyance of goods,
on a particular voyage, in consideration of the payment of freight; 21 Charter parties
are of two types: (a) contract of affreightment which involves the use of shipping
space on vessels leased by the owner in part or as a whole, to carry goods for
 4

others; and, (b) charter by demise or bareboat charter, by the terms of which the
whole vessel is let to the charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including the master and the
crew, who are his servants. Contract of affreightment may either be time charter,
wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the
charter-party provides for the hire of vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship's
stores, pay for the wages of the master and the crew, and defray the expenses for
the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of
the Civil Code. 23 The definition extends to carriers either by land, air or water
which hold themselves out as ready to engage in carrying goods or transporting
passengers or both for compensation as a public employment and not as a casual
occupation. The distinction between a "common or public carrier" and a "private or
special carrier" lies in the character of the business, such that if the undertaking is
a single transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation offering such
service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of
the nature of their business, should observe extraordinary diligence in the vigilance
over the goods they carry.25 In the case of private carriers, however, the exercise
of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of
loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving
otherwise rests on them.26 On the contrary, no such presumption applies to private
carriers, for whosoever alleges damage to or deterioration of the goods carried has
the onus of proving that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business,

operates as a common carrier, transporting goods indiscriminately for all persons.
When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers
and compliment were under the employ of the shipowner and therefore continued
to be under its direct supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with the duty of caring for his
cargo when the charterer did not have any control of the means in doing so. This is
evident in the present case considering that the steering of the ship, the manning
of the decks, the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers and crew who
were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding

the charter of the whole or portion of a vessel by one or more persons, provided
the charter is limited to the ship only, as in the case of a time-charter or voyage-
charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the
particular voyage covering the charter-party is concerned. Indubitably, a shipowner
in a time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the
controversy therein was the validity of a stipulation in the charter-party exempting
the shipowners from liability for loss due to the negligence of its agent, and not the
effects of a special charter on common carriers. At any rate, the rule in the United
States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have
 5

observed that the growing concern for safety in the transportation of passengers
and /or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-
at-law 30 —

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

cases in which a ship is used to convey the goods of one and of several
persons. Where the ship herself is let to a charterer, so that he takes
over the charge and control of her, the case is different; the shipowner
is not then a carrier. But where her services only are let, the same
grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case
his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or
collusion occur; and the same difficulty in discovering the truth as to
what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods

shipped, the shipper or consignee should first prove the fact of shipment and its
consequent loss or damage while the same was in the possession, actual or
constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to
prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other
circumstances inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing
proof, the prima faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on
19 April 1977 before the Philippine Consul and Legal Attache in the Philippine
Embassy in Tokyo, Japan, testified that before the fertilizer was loaded, the four (4)
hatches of the vessel were cleaned, dried and fumigated. After completing the
loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were
closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly
sealed while the ship was in transit as the weight of the steel covers made it
impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water
inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place,
representatives of the consignee boarded, and in the presence of a representative
of the shipowner, the foreman, the stevedores, and a cargo surveyor representing
CSCI, opened the hatches and inspected the condition of the hull of the vessel. The
stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has
been efficaciously overcome by the showing of extraordinary zeal and assiduity
exercised by the carrier in the care of the cargo. This was confirmed by respondent
appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record

of the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligations. Particularly, the
following testimonies of plaintiff-appellee's own witnesses clearly show
 6

absence of negligence by the defendant carrier; that the hull of the

vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo
and the representatives of the vessel (TSN, 20 July 1977, p. 14); that
the cover of the hatches was made of steel and it was overlaid with
tarpaulins, three layers of tarpaulins and therefore their contents were
protected from the weather (TSN, 5 April 1978, p. 24); and, that to
open these hatches, the seals would have to be broken, all the seals
were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).

The period during which private respondent was to observe the degree of diligence
required of it as a public carrier began from the time the cargo was unconditionally
placed in its charge after the vessel's holds were duly inspected and passed scrutiny
by the shipper, up to and until the vessel reached its destination and its hull was
reexamined by the consignee, but prior to unloading. This is clear from the
limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the
loading, stowing, trimming and discharge of the cargo was to be done by the
charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is
liable for damage to the cargo resulting from improper stowage only when the
stowing is done by stevedores employed by him, and therefore under his control
and supervision, not when the same is done by the consignee or stevedores under
the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not
responsible for the loss, destruction or deterioration of the goods if caused by the
charterer of the goods or defects in the packaging or in the containers. The Code of
Commerce also provides that all losses and deterioration which the goods may
suffer during the transportation by reason of fortuitous event, force majeure, or the
inherent defect of the goods, shall be for the account and risk of the shipper, and
that proof of these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the preceding
causes if it is proved, as against him, that they arose through his negligence or by
reason of his having failed to take the precautions which usage has established
among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the

fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao
Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as a
chemical compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not
normally evaporate even on a long voyage, provided that the temperature inside
the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped shell, losses due
to spillage during such operation amounting to one percent (1%) against the bill of
lading is deemed "normal" or "tolerable." The primary cause of these spillages is
the clamped shell which does not seal very tightly. Also, the wind tends to blow
away some of the materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused

either by an extremely high temperature in its place of storage, or when it comes in
contact with water. When Urea is drenched in water, either fresh or saline, some of
its particles dissolve. But the salvaged portion which is in liquid form still remains
potent and usable although no longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with
foreign particles was made greater by the fact that the fertilizer was transported in
 7

"bulk," thereby exposing it to the inimical effects of the elements and the grimy
condition of the various pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for
sea water to seep into the vessel's holds during the voyage since the hull of the
vessel was in good condition and her hatches were tightly closed and firmly sealed,
making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was
chartered for. If there was loss or contamination of the cargo, it was more likely to
have occurred while the same was being transported from the ship to the dump
trucks and finally to the consignee's warehouse. This may be gleaned from the
testimony of the marine and cargo surveyor of CSCI who supervised the unloading.
He explained that the 18 M/T of alleged "bar order cargo" as contained in their
report to PPI was just an approximation or estimate made by them after the
fertilizer was discharged from the vessel and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and
unloaded her cargo. It rained from time to time at the harbor area while the cargo
was being discharged according to the supply officer of PPI, who also testified that
it was windy at the waterfront and along the shoreline where the dump trucks
passed enroute to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble
goods like fertilizer carries with it the risk of loss or damage. More so, with a
variable weather condition prevalent during its unloading, as was the case at bar.
This is a risk the shipper or the owner of the goods has to face. Clearly, respondent
carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which
further contributed to the loss. On the other hand, no proof was adduced by the
petitioner showing that the carrier was remise in the exercise of due diligence in
order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of

Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case No.
98623 of the then Court of the First Instance, now Regional Trial Court, of Manila
should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

# Footnotes

1 A charter-party is a contract by which an entire ship or some principal part thereof, is let by the owner to another
person for a specified time or use (70 Am Jur 2d,
p. 580, citing Ward v. Thompson, 63 US 330, 16 L Ed 249; a contract in which the owner of a vessel lets for
consideration the whole or part thereof for the conveyance of goods and/or passengers on a particular voyage to
one or more places or until the expiration of a specified time and surrender unto the lessee or charterer the
control, by vesting upon the latter the right to appoint the captain, officers and members of the crew, of the vessel
leased or chartered during the duration of the contract (R.A. 913).
2 The Baltic and International Maritime Uniform General Charter (As Revised 1922 and 1976), Including "F.I.O.S."
Alternative, etc., Code Name: "GENCON" Adopted by the Documentary Committee of the General Council of British
Shipping, London, and the Documentary Committee of the Japan Shipping Exchange, Inc., Tokyo.
3 Rollo, pp. 105, 128.
4 Although par. 40 of the Rider (Description of "Sun Plum") states that the vessel has 3 holds/3 hatches, Hatch No.
4 which usually was not used for cargo, was converted for such purpose. The time sheet for 12 July 1974 shows
that Hatch
No. 4 was first to be discharge of cargo. This was also testified by the master of the vessel, Captain Lee Tae Bo.
5 Id., p. 129.
6 Under the terms and conditions of the charter-party, F.I.O.S. (Free In and Out Shipping/Stevedoring) means that
the shipper takes care of the loading, while the unloading is the sole responsibility of the consignee (Rollo, pp. 128,
184).
7 TSN, 20 July 1977, p. 17.
8 TSN, 20 July 1977, p. 18.
9 Rollo, p. 130.
 8

10 Id., p. 129; ADDENDUM No. 4 dated 17 May 1974 provides: "The cargo to be discharged at the average rate of
1,000 metric tons per day of 24 hours weather working days, Sundays, holidays excluded unless used, assuming
four (4) sets of vessel's gear simultaneously workable a vessel's bearthing side."
11 TSN, 5 April 1978, pp. 7-8. "Drop survey" is the drop of the vessel showing certain meters or centimeters of the
vessel. In the ship there is a draft from one meter upward. When the vessel arrives, (CSCI) conducted initial draft
survey before discharging, together with the ship's representative by getting the draft forward and aft. They
divided it by 2 to get the mean draft and the average draft. After getting the mean draft, they got the displacement
scale of the vessel to show certain tons of the ship, then deducted the non-cargo weight, like the fuel oil, the
freshwater. Finally, the total load of the ship is taken. After discharging, CSCI went over same procedure to get the
weight of the vessel. These figures were then subtracted from the total load of the ships to get the weight of the
cargo.
12 Id., p. 106.
13 Id., pp. 49, 68.
14 TSN, 28 Aug. 1979, pp. 9-10.
15 Id., p. 68 "Planters Products, Inc. v. Soriamont Steamship Agencies, et al., "Civil Case No. 98623, CFI of Manila,
Br. 27, decision penned by Judge E.L. Peralta, 24 March 1980.
16 The Court of Appeals (Twelfth Division) rendered its decision on 13 August 1991 in CA-G.R. CV No. 02736
entitled "Planters Products, Inc. vs. Kyosei Kisen Kabushiki Kaisha & Soriamont Steamship Agencies." Decision
penned by Justice Alfredo L. Benipayo, concurred in by Justices Manuel C. Herrera and Cancio C. Garcia, Rollo, pp.
13-24.
17 No. L-25599, 4 April 1968, 23 SCRA 24.
18 Rollo, p. 109.
19 Rollo, pp. 8 & 9.
20 Charter Partis; Charters of Demise and Contracts of Affreightment; 70 Am Jur 2d, p. 580; citing Ward v.
Thompson, 63 US 330, 16 L d 249; E.R. Harvey Ivamy, Carriage of Goods by Sea, 13th Ed., Chap. 2, pp. 5, 8-10.
The term is also defined under R.A. No. 913, known as "An Act Defining 'Lease'or 'Charter' of Vessels" as to mean a
"contract in which the owner of a vessel lets for consideration the whole or principal part thereof for the
conveyance of goods and/or passengers on a particular voyage to one or more places or until the expiration of a
specified time and surrenders unto the lessee or charterer the control, by vesting upon the latter the right to
appoint the captain, officers and members of the crew, of the vessel leased or chartered during the duration of the
contract."
21 Bouvier's Law Dictionary, Third Rev., Vol. I, p. 470.
22 Id., pp. 581-582.
23 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.
24 See De Guzman v. Court of Appeals, No. L-47822, 22 December 1988, 168 SCRA 612; U.S. v. Quinajon, No.
8686, 30 July 1915.
25 Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Arts. 1734, 1735 and 1745,
Nos. 5, 6 and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Arts. 1755
and 1756.
26 Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods
are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required in article 1733.
27 E.R. Harvey Ivamy, pp. 8-10.
28 70 Am Jur 2nd, P, 608 S 238, citing Grace v. Palmer, 21 US 605, 5 L Ed 696, and Kerry v. Pacific Marine Co., 12
CAL 564, 54, p. 89.
29 30 C.J.S., pp. 269-693.
30 British Shipping Laws, Vol. 2, "Carver's Carriage by Sea," By Raoul Colinvaux, Vol. 1, 12th Ed., Published by
Stevens & Sons Limited of London, Printed in Great Britain, 1971.
31 See Ynchausti Steamship Co. v. Dexter, No. 15652, 41 Phil. 289, 14 Dec. 1920; Mirasol v. Robert Dollar, Co.,
No. 29721, 53 Phil. 124, 27 March 1929.
32 Deposition of Capt. Lee Tae Bo, Exh. "4", pp. 22-23.
33 TSN, 20 July 1977, p. 14.
34 TSN, 5 April 1978, pp. 24-25.
35 See Note 6.
36 70 Am Jur 2d, p. 603 S 230, citing Oxford Paper Co. v. The Nidarholm, 282 US 681, 75L ed 614, 51 S Ct 266.
37 Art. 361, par. 4, Code of Commerce.
38 Art. 362, par. 1, id.
 1

THIRD DIVISION

LOADSTAR SHIPPING CO., INC., Petitioner, G.R. No. 157481

- versus - Promulgated: January 24, 2006
PIONEER ASIA INSURANCE CORP., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

For review on certiorari are (1) the Decision[1] dated October 15, 2002 and (2)
the Resolution[2] dated February 27, 2003, of the Court of Appeals in CA-G.R. CV No. 40999, which
affirmed with modification the Decision[3] dated February 15, 1993 of the Regional Trial Court of Manila,
Branch 8 in Civil Case No. 86-37957.

The pertinent facts are as follows:

Petitioner Loadstar Shipping Co., Inc. (Loadstar for brevity) is the registered owner and operator
of the vessel M/V Weasel. It holds office at 1294 Romualdez St., Paco, Manila.

On June 6, 1984, Loadstar entered into a voyage-charter with Northern Mindanao Transport
Company, Inc. for the carriage of 65,000 bags of cement from Iligan Cityto Manila. The shipper was Iligan
Cement Corporation, while the consignee in Manila was Market Developers, Inc.

On June 24, 1984, 67,500 bags of cement were loaded on board M/V Weasel and stowed in the
cargo holds for delivery to the consignee. The shipment was covered by petitioners Bill of
Lading[4] dated June 23, 1984.

Prior to the voyage, the consignee insured the shipment of cement with respondent Pioneer Asia
Insurance Corporation for P1,400,000, for which respondent issued Marine Open Policy No. MOP-006
dated September 17, 1980, covering all shipments made on or after September 30, 1980.[5]

At 12:50 in the afternoon of June 24, 1984, M/V Weasel left Iligan City for Manila in good
weather. However, at 4:31 in the morning of June 25, 1984, Captain Vicente C. Montera, master of M/V
Weasel, ordered the vessel to be forced aground. Consequently, the entire shipment of cement was good
as gone due to exposure to sea water. Petitioner thus failed to deliver the goods to the consignee
in Manila.

The consignee demanded from petitioner full reimbursement of the cost of the lost shipment.
Petitioner, however, refused to reimburse the consignee despite repeated demands.

Nonetheless, on March 11, 1985, respondent insurance company paid the consignee P1,400,000
plus an additional amount of P500,000, the value of the lost shipment of cement. In return, the consignee
executed a Loss and Subrogation Receipt in favor of respondent concerning the latters subrogation rights
against petitioner.

Hence, on October 15, 1986, respondent filed a complaint docketed as Civil Case No. 86-37957,
against petitioner with the Regional Trial Court of Manila, Branch 8. It alleged that: (1) the M/V
Weasel was not seaworthy at the commencement of the voyage; (2) the weather and sea conditions then
prevailing were usual and expected for that time of the year and as such, was an ordinary peril of the
voyage for which the M/V Weasel should have been normally able to cope with; and (3) petitioner was
negligent in the selection and supervision of its agents and employees then manning the M/V Weasel.

In its Answer, petitioner alleged that no fault nor negligence could be attributed to it because it
exercised due diligence to make the ship seaworthy, as well as properly manned and equipped. Petitioner
insisted that the failure to deliver the subject cargo to the consignee was due to force majeure. Petitioner
claimed it could not be held liable for an act or omission not directly attributable to it.

On February 15, 1993, the RTC rendered a Decision in favor of respondent, to wit:
 2

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of

plaintiff and against defendant Loadstar Shipping Co., Inc. ordering the latter to pay as
follows:

1. To pay plaintiff the sum of P1,900,000.00 with legal rate of interest per
annum from date of complaint until fully paid;

2. To pay the sum equal to 25% of the claim as and for attorneys fees and
litigation expenses; and,

3. To pay the costs of suit.

IT IS SO ORDERED.[6]

The RTC reasoned that petitioner, as a common carrier, bears the burden of proving that it
exercised extraordinary diligence in its vigilance over the goods it transported. The trial court explained
that in case of loss or destruction of the goods, a statutory presumption arises that the common carrier
was negligent unless it could prove that it had observed extraordinary diligence.

Petitioners defense of force majeure was found bereft of factual basis. The RTC called attention
to the PAG-ASA report that at the time of the incident, tropical storm Asiang had moved away from
the Philippines. Further, records showed that the sea and weather conditions in the area of Hinubaan,
Negros Occidental from 8:00 p.m. of June 24, 1984 to 8:00 a.m. the next day were slight and smooth.
Thus, the trial court concluded that the cause of the loss was not tropical storm Asiang or any other force
majeure, but gross negligence of petitioner.

Petitioner appealed to the Court of Appeals.

In its Decision dated October 15, 2002, the Court of Appeals affirmed the RTC Decision with
modification that Loadstar shall only pay the sum of 10% of the total claim for attorneys fees and litigation
expenses. It ruled,

WHEREFORE, premises considered, the Decision dated February 15, 1993, of

the Regional Trial Court of Manila, National Capital Judicial Region, Branch 8, in Civil
Case No. 86-37957 is hereby AFFIRMED with the MODIFICATION that the appellant
shall only pay the sum of 10% of the total claim as and for attorneys fees and litigation
expenses. Costs against the appellant.

SO ORDERED.[7]

Petitioners Motion for Reconsideration was denied. [8]

The instant petition is anchored now on the following assignments of error:

I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS
A COMMON CARRIER UNDER ARTICLE 1732 OF THE CIVIL CODE.

II
ASSUMING ARGUENDO THAT PETITIONER IS A COMMON CARRIER, THE
HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE
CAUSE OF THE LOSS OF CARGO WAS NOT A FORTUITOUS EVENT BUT WAS
ALLEGEDLY DUE TO THE FAILURE OF PETITIONER TO EXERCISE
EXTRAORDINARY DILIGENCE.

III
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD BY
THE TRIAL COURT OF ATTORNEYS FEES AND LITIGATION EXPENSES IN FAVOR
OF HEREIN RESPONDENT.[9]

On the first and second issues, petitioner contends that at the time of the voyage the carriers
voyage-charter with the shipper converted it into a private carrier. Thus, the presumption of negligence
against common carriers could not apply. Petitioner further avers that the stipulation in the voyage-charter
 3

holding it free from liability is valid and binds the respondent. In any event, petitioner insists that it had
exercised extraordinary diligence and that the proximate cause of the loss of the cargo was a fortuitous
event.

With regard to the third issue, petitioner points out that the award of attorneys fees and litigation
expenses appeared only in the dispositive portion of the RTC Decision with nary a justification. Petitioner
maintains that the Court of Appeals thus erred in affirming the award.

For its part, respondent dismisses as factual issues the inquiry on (1) whether the loss of the
cargo was due to force majeure or due to petitioners failure to exercise extraordinary diligence; and (2)
whether respondent is entitled to recover attorneys fees and expenses of litigation.

Respondent further counters that the Court of Appeals was correct when it held that petitioner
was a common carrier despite the charter of the whole vessel, since the charter was limited to the ship
only.

Prefatorily, we stress that the finding of fact by the trial court, when affirmed by the Court of
Appeals, is not reviewable by this Court in a petition for review on certiorari. However, the
conclusions derived from such factual finding are not necessarily pure issues of fact when they are
inextricably intertwined with the determination of a legal issue. In such instances, the conclusions made
may be raised in a petition for review before this Court. [10]

The threshold issues in this case are: (1) Given the circumstances of this case, is petitioner a
common or a private carrier? and (2) In either case, did petitioner exercise the required diligence i.e., the
extraordinary diligence of a common carrier or the ordinary diligence of a private carrier?

Article 1732 of the Civil Code defines a common carrier as follows:

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.

Petitioner is a corporation engaged in the business of transporting cargo by water and for compensation,
offering its services indiscriminately to the public. Thus, without doubt, it is a common carrier. However,
petitioner entered into a voyage-charter with the Northern Mindanao Transport Company, Inc. Now, had
the voyage-charter converted petitioner into a private carrier?

We think not. The voyage-charter agreement between petitioner and Northern Mindanao Transport
Company, Inc. did not in any way convert the common carrier into a private carrier. We have already
resolved this issue with finality in Planters Products, Inc. v. Court of Appeals[11] where we ruled that:

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole or portion of a vessel by one or more persons,
provided the charter is limited to the ship only, as in the case of a time-charter or voyage-
charter. It is only when the charter includes both the vessel and its crew, as in a bareboat
or demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or
voyage charter retains possession and control of the ship, although her holds may, for
the moment, be the property of the charterer.[12]

Conformably, petitioner remains a common carrier notwithstanding the existence of the charter
agreement with the Northern Mindanao Transport Company, Inc. since the said charter is limited to the
ship only and does not involve both the vessel and its crew. As elucidated in Planters Products, its charter
is only a voyage-charter, not a bareboat charter.

As a common carrier, petitioner is required to observe extraordinary diligence in the vigilance

over the goods it transports.[13] When the goods placed in its care are lost, petitioner is presumed to have
been at fault or to have acted negligently. Petitioner therefore has the burden of proving that it observed
extraordinary diligence in order to avoid responsibility for the lost cargo. [14]
[15]
In Compania Maritima v. Court of Appeals, we said:

it is incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent with its liability.
...
 4

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for safe carriage and delivery. 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.[16]

Article 1734 enumerates the instances when a carrier might be exempt from liability for the loss of
the goods. These are:

(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
[17]
(5) Order or act of competent public authority.

Petitioner claims that the loss of the goods was due to a fortuitous event under paragraph 1. Yet,
its claim is not substantiated. On the contrary, we find supported by evidence on record the conclusion of
the trial court and the Court of Appeals that the loss of the entire shipment of cement was due to the
gross negligence of petitioner.

Records show that in the evening of June 24, 1984, the sea and weather conditions in the vicinity
of Negros Occidental were calm. The records reveal that petitioner took a shortcut route, instead of the
usual route, which exposed the voyage to unexpected hazard. Petitioner has only itself to blame for its
misjudgment.

Petitioner heavily relies on Home Insurance Co. v. American Steamship Agencies,

Inc.[18] and Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals.[19] The said cases
involved a private carrier, not a common carrier. Moreover, the issue in both cases is not the effect of a
voyage-charter on a common carrier, but the validity of a stipulation absolving the private carrier from
liability in case of loss of the cargo attributable to the negligence of the private carrier.

Lastly, on the third issue, we find consistent with law and prevailing jurisprudence the Court of
Appeals award of attorneys fees and expenses of litigation equivalent to ten percent (10%) of the total
claim. The contract between the parties in this case contained a stipulation that in case of suit, attorneys
fees and expenses of litigation shall be limited to only ten percent (10%) of the total monetary award.
Given the circumstances of this case, we deem the said amount just and equitable.

WHEREFORE, the petition is DENIED. The assailed Decision dated October 15, 2002 and the
Resolution dated February 27, 2003, of the Court of Appeals in CA-G.R. CV No. 40999, are AFFIRMED.

Costs against petitioner.

SO ORDERED.
[1]
Rollo, pp. 73-83. Penned by Associate Justice Mercedes Gozo-Dadole, with Associate Justices Salvador J. Valdez, Jr., and Sergio L. Pestao concurring.
[2]
Id. at 85.
[3]
Records, pp. 505-528.
[4]
Id. at 11.
[5]
Id. at 97.
[6]
Rollo, p. 73.
[7]
Id. at 83.
[8]
Id. at 85.
[9]
Id. at 47.
[10]
Philippine American General Insurance Company v. PKS Shipping Company, G.R. No. 149038, 9 April 2003, 401 SCRA 222, 227.
[11]
G.R. No. 101503, 15 September 1993, 226 SCRA 476.
[12]
Id. at 486.
[13]
Civil Code, Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.. . .
[14]
Civil Code, Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in article 1733.
[15]
No. L-31379, 29 August 1988, 164 SCRA 685.
[16]
Id. at 691-692.
[17]
Civil Code, Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
[18]
No. L-25599, 4 April 1968, 23 SCRA 24.
[19]
G.R. No. 102316, 30 June 1997, 274 SCRA 642.
 1

THIRD DIVISION

G.R. No. 98275 November 13, 1992

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI,
CARLOS OCAMPO, INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M.
AGAPITO and NICOLAS CRUZ, respondents.

MELO, J.:

The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred
involving petitioner's Isuzu ten-wheeler truck then driven by an employee of Lino Castro is the thrust
of the petition for review on certiorari now before Us considering that neither the driver nor Lino
Castro appears to be connected with petitioner.

On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in
this manner:

1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the
plaintiffs as follows:

a) To the plaintiff Carlos Ocampo — P121,650.00;

b) To the plaintiff Moises Ocampo — P298,500.00

c) To the plaintiff Nicolas Cruz — P154,740.00

d) To the plaintiff Inocencio Turla, Sr. — 48,000.00

2. Dismissing the case against Lino Castro

3. Dismissing the third-party complaint against STRONGHOLD

4. Dismissing all the counterclaim of the defendants and third-party defendants.

5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter
is adjudged to pay to the plaintiffs. (p. 46, Rollo)

Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with
Justices De Pano, Jr. and Imperial concurring, on practically the same grounds arrived at by the
court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the adverse were futile (p.
37, Rollo). Hence, the instant petition.

The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck,
was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt
of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to
property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the
Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as
much as the truck was registered in its name during the incident in question, following the doctrine
laid down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102
Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to reimburse
petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as
expressly stipulated in the contract of lease between petitioner and Rock Component Philippines,
Inc. Moreover, the trial court applied Article 2194 of the new Civil Code on solidary accountability of
join tortfeasors insofar as the liability of the driver, herein petitioner and Rock Component Philippines
was concerned (pp. 6-7, Decision; pp. 44-45, Rollo).

To the question of whether petitioner can be held responsible to the victim albeit the truck was
leased to Rock Component Philippines when the incident occurred, the appellate court answered in
the affirmative on the basis of the jurisprudential dogmas which, as aforesaid, were relied upon by
 2

the trial court although respondent court was quick to add the caveat embodied in the lease
covenant between petitioner and Rock Component Philippines relative to the latter's duty to
reimburse any amount which may be adjudged against petitioner (pp. 32-33, Rollo).

Petitioner asseverates that it should not have been haled to court and ordered to respond for the
damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the
complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the
negligent driver who was under the control an supervision of Lino Castro at the time of the accident,
apart from the fact that the Isuzu truck was in the physical possession of Rock Component
Philippines by virtue of the lease agreement.

Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines,
petitioner continue to persist with the idea that the pronouncements of this Court in Duavit vs. Court
of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131 [1939]) dovetail with the
factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the so-
called hiatus on the basis for the award of damages as decreed by the lower and appellate courts,
that Article 2180 of the new Civil Code on vicarious liability will divest petitioner of any responsibility
absent as there is any employer-employee relationship between petitioner and the driver.

Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not
constitute a sufficient foundation for reversal of the impugned judgment of respondent court.
Petitioner is of the impression that the Perez and Erezo cases are inapplicable due to the variance of
the generative facts in said cases as against those obtaining in the controversy at bar. A contrario,
the lesson imparted by Justice Labrador in Erezo is still good law, thus:

. . . 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., G.R. No. L-8561,
November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10],
4606.) The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or
presumed that the registered owner is the actual owner thereof, for it would be
difficult with 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 actual the owner is. How would the public or third persons know against
whom to enforce their rights in case of subsequent transfer 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 responsible to the public or to the third persons for
injuries caused the latter while the vehicle is being driven on the highways or streets.
The members of the Court are in agreement that the defendant-appellant should be
held liable to plaintiff-appellee for the injuries occasioned to the latter because of the
negligence of the driver, even if the defendant-appellant was no longer an 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-appellant's) liability?

There is a presumption that the owner of the guilty vehicle is the defendant-appellant
as he is the registered owner in the Motor Vehicle Office. Should he not be allowed
to prove the truth, that he had sold it to another and thus shift the responsibility for
the injury to the real and the actual owner? The defendants hold the affirmative of
this proposition; the trial court hold the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that the
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 of
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
 3

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 from the current year, furnish
the Motor Vehicle Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturer's serial number and
motor number. (Section 5[c], Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil.
888), but to permit the use and operation of the vehicle upon any public highway
(section 5[a], Act No. 3992, as amended). the main aim of motor vehicle registration
is to identify the owner so that if any accident happens, or that any damage or injury
is caused by the 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 obtained, in the
interest of the determinations of persons responsible for damages or injuries caused
on public highways.

One of the principle 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 my 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 their servants. (King vs. Breham
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 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 then 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
 4

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.

If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had
been alienated or sold to another, there certainly can be no serious exception against utilizing the
same rationale to the antecedents of this case where the subject vehicle was merely leased by
petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle.

Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs.
Bayot (supra) is legally unpalatable for the purpose of the present discourse. The vehicles adverted
to in the two cases shared a common thread, so to speak, in that the jeep and the truck were driven
in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the
inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from
the garage of defendant Dauvit without the consent or authority of the latter, Justice Gutierrez, Jr.
in Duavit remarked;

. . . Herein petitioner does not deny ownership of the vehicle involved in the mishap
but completely denies having employed the driver Sabiniano or even having
authorized the latter to drive his jeep. The jeep was virtually stolen from the
petitioner's garage. To hold, therefore, the petitioner liable for the accident caused by
the negligence of Sabiniano who was neither his driver nor employee would be
absurd as it would be like holding liable the owner of a stolen vehicle for an accident
caused by the person who stole such vehicle. In this regard, we cannot ignore the
many cases of vehicles forcibly taken from their owners at gunpoint or stolen from
garages and parking areas and the instances of service station attendants or
mechanics of auto repair shops using, without the owner's consent, vehicles
entrusted to them for servicing or repair.(at p. 496.)

In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for
anything because of circumstances which indicated that the truck was driven without the consent or
knowledge of the owner thereof.

Consequently, there is no need for Us to discuss the matter of imputed negligence because
petitioner merely presumed, erroneously, however, that judgment was rendered against it on the
basis of such doctrine embodied under Article 2180 of the new Civil Code.

WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without
special pronouncement as to costs.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr., Romero and Melo, JJ. concur.
 1

FIRST DIVISION

G.R. No. 92501 March 6, 1992

PHILIPPINE AIR LINES, petitioner,

vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.

GRIÑO-AQUINO, J.:

This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals
affirming the decision of the Regional Trial Court of Pasay City which awarded
P72,766.02 as damages and attorney's fees to private respondent Isidro Co for the loss
of his checked-in baggage as a passenger of petitioner airline.

The findings of the trial court, which were adopted by the appellate court, are:

"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his
wife and son, arrived at the Manila International Airport aboard defendant
airline's PAL Flight No. 107 from San Francisco, California, U.S.A. Soon
after his embarking (sic), plaintiff proceeded to the baggage retrieval area
to claim his checks in his possession. Plaintiff found eight of his luggage,
but despite diligent search, he failed to locate ninth luggage, with claim
check number 729113 which is the one in question in this case.

"Plaintiff then immediately notified defendant company through its

employee, Willy Guevarra, who was then in charge of the PAL claim
counter at the airport. Willy Guevarra, who testified during the trial court on
April 11, 1986, filled up the printed form known as a Property Irregularity
Report (Exh. "A"), acknowledging one of the plaintiff's luggages to be
missing (Exh. "A-1"), and signed after asking plaintiff himself to sign the
same document (Exh. "A-2"). In accordance with this procedure in cases
of this nature, Willy Guevarra asked plaintiff to surrender to him the nine
claim checks corresponding to the nine luggages, i.e., including the one
that was missing.

The incontestable evidence further shows that plaintiff lost luggage was a
Samsonite suitcase measuring about 62 inches in length, worth about
US$200.00 and containing various personal effects purchased by plaintiff
and his wife during their stay in the United States and similar other items
sent by their friends abroad to be given as presents to relatives in the
Philippines. Plaintiff's invoices evidencing their purchases show their
missing personal effects to be worth US$1,243.01, in addition to the
presents entrusted to them by their friends which plaintiffs testified to be
worth about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17"; tsn, p.
4, July 11, 1985; pp. 5-14, March 7, 1986).

Plaintiff on several occasions unrelentingly called at defendant's office in

order to pursue his complaint about his missing luggage but no avail.
Thus, on April 15, 1985, plaintiff through his lawyer wrote a demand letter
to defendant company though Rebecca V. Santos, its manager, Central
Baggage Services (Exhs. "B" & "B-1"). On April 17, 1985, Rebecca Santos
replied to the demand letter (Exh. "B") acknowledging "that to date we
 2

have been unable to locate your client's (plaintiff's) baggage despite our
careful search" and requesting plaintiff's counsel to "please extend to him
our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however,
defendants never found plaintiff's missing luggage or paid its
corresponding value. Consequently, on May 3, 1985, plaintiff filed his
present complaint against said defendants. (pp. 38-40, Rollo.)

Co sued the airline for damages. The Regional Trial Court of Pasay City found the
defendant airline (now petitioner) liable, and rendered judgment on June 3, 1986, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing defendant

Philippine Airlines, Inc. to pay plaintiff Isidro Co:

1) P42,766.02 by way of actual damages;

2) P20,000.00 by way of exemplary damages;

3) P10,000.00 as attorney's fees;

all in addition to the costs of the suit.

"Defendants' counterclaim is hereby dismissed for lack of merit."

(p. 40, Rollo.)

On appeal, the Court of Appeals affirmed in toto the trial court's award.

In his petition for review of the Court of Appeal's decision, petitioner alleges that the
appellate court erred:

1. in affirming the conclusion of the trial court that the petitioner's retrieval
baggage report was a fabrication;

2. in not applying the limit of liability under the Warsaw Convention which
limits the liability of an air carrier of loss, delay or damage to checked-in
baggage to US$20.00 based on weight; and

3. in awarding private respondent Isidro Co actual and exemplary

damages, attorney's fees, and costs.

The first and third assignments of error raise purely factual issues which are not
reviewable by this Court (Sec. 2, Rule 45, Rules of Court). The Court reviews only
questions of law which must be distinctly set forth in the petition. (Hodges vs. People,
68 Phil. 178.) The probative value of petitioner's retrieval report was passed upon by the
Regional Trial Court of Pasay City, whose finding was affirmed by the Court of Appeals
as follows:

In this respect, it is further argued that appellee should produce his claim
tag if he had not surrendered it because there was no baggage received.
It appeared, however, that appellee surrendered all the nine claim checks
corresponding to the nine luggages, including the one that was missing, to
the PAL officer after accomplishing the Property, Irregularity Report.
Therefore, it could not be possible for appellee to produce the same in
court. It is now for appellant airlines to produce the veracity of their
Baggage Retrieval Report by corroborating evidence other than
 3

testimonies of their employees. Such document is within the control of

appellant and necessarily requires other corroborative evidence. Since
there is no compelling reason to reverse the factual findings of the lower
court, this Court resolves not to disturb the same. (p. 41, Rollo.)

Whether or not the lost luggage was ever retrieved by the passenger, and whether or
not the actual and exemplary damages awarded by the court to him are reasonable, are
factual issues which we may not pass upon in the absence of special circumstances
requiring a review of the evidence.

In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC
164 SCRA 268), the Warsaw Convention limiting the carrier's liability was applied
because of a simple loss of baggage without any improper conduct on the part of the
officials or employees of the airline, or other special injury sustained by the passengers.
The petitioner therein did not declare a higher value for his luggage, much less did he
pay an additional transportation charge.

Petitioner contends that under the Warsaw Convention, its liability, if any, cannot
exceed US $20.00 based on weight as private respondent Co did not declare the
contents of his baggage nor pay traditional charges before the flight (p. 3, tsn, July 18,
1985).

We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher
Lloyd (132 SCRA 529), this Court ruled:

The liability of the common carrier for the loss, destruction or deterioration
of goods transported from a foreign country to the Philippines is governed
primarily by the New Civil Code. In all matters not regulated by said Code,
the rights and obligations of common carriers shall be governed by the
Code of Commerce and by Special Laws.

The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and
1753 which provide:

Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5
of the preceding article if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence
as required in article 1733.

Art. 1753. The law of the country to which the goods are to be transported
shall govern the liability of the common carrier for their loss, destruction or
deterioration.

Since the passenger's destination in this case was the Philippines, Philippine law
governs the liability of the carrier for the loss of the passenger's luggage.

In this case, the petitioner failed to overcome, not only the presumption, but more
importantly, the private respondent's evidence, proving that the carrier's negligence was
the proximate cause of the loss of his baggage. Furthermore, petitioner acted in bad
faith in faking a retrieval receipt to bail itself out of having to pay Co's claim.
 4

The Court of Appeals therefore did not err in disregarding the limits of liability under the
Warsaw Convention.

The award of exemplary damages and attorney's fees to the private respondent was
justified. In the cases of Imperial Insurance, Inc. vs. Simon, 122 Phil. 189 and Bert
Osmeña and Associates vs. CA, 120 SCRA 396, the appellant was awarded attorney's
fees because of appellee's failure to satisfy the former's just and valid demandable
claim which forced the appellant to litigate. Likewise, in the case of Phil. Surety Ins. Co.,
Inc. vs. Royal Oil Products, 102 Phil. 326, this Court justified the grant of exemplary
damages and attorney's fees to the petitioner's failure, even refusal, to pay the private
respondent's valid claim.

WHEREFORE, the petition for review is DENIED for lack of merit. Costs against the
petitioner.

SO ORDERED.

Narvasa, C.J. and Medialdea, JJ., concur.

Cruz, J., took no part.

 1

SECOND DIVISION

G.R. No. 94149 May 5, 1992

AMERICAN HOME ASSURANCE, COMPANY, petitioner,

vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL
MARINE CORPORATION (Manila), respondents.

PARAS, J.:

This is a petition for review on certiorari which seeks to annul and set aside the (a)
decision 1 dated May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled
"American Home Assurance Company v. Hon. Domingo D. Panis, Judge of the Regional Trial
Court of Manila, Branch 41 and National Marine Corporation and/or National Marine Corporation
(Manila)", dismissing petitioner's petition for certiorari, and (b) resolution 2 dated June 29, 1990
of the Court of Appeals denying petitioner's motion for reconsideration.

The undisputed facts of the case are follows:

Both petitioner American Home Assurance Co. and the respondent National Marine Corporation
are foreign corporations licensed to do business in the Philippines, the former through its
branch. The American Home Assurance Company (Philippines), Inc. and the latter through its
branch. The National Marine Corporation (Manila) (Rollo, p. 20, Annex L, p.1).

That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000
ADMT) of bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned
and operated by herein respondent National Marine Corporation with Registration No. PID-224.
The said shipment was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment
with herein petitioner American Home Assurance Co. as evidenced by Bill of Lading No. HLMN-
01.

On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the
Marina Port Services, Inc., for eventual delivery to the consignee-assured. However, upon
delivery of the shipment to Mayleen Paper, Inc., it was found that 122 bales had either been
damaged or lost. The loss was calculated to be 4,360 kilograms with an estimated value of
P61,263.41.

Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).

As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper,
Inc. sought recovery from the former. Upon demand and submission of proper documentation,
American Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the
recovery of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by
filing a complaint for recovery of sum of money (Petition, p. 4).

Respondent, National Marine Corporation, filed a motion to dismiss dated August 7, 1989
stating that American Home Assurance Company had no cause of action based on Article 848
of the Code of Commerce which provides "that claims for averages shall not be admitted if they
do not exceed 5% of the interest which the claimant may have in the vessel or in the cargo if it
be gross average and 1% of the goods damaged if particular average, deducting in both cases
 2

the expenses of appraisal, unless there is an agreement to the contrary." It contended that
based on the allegations of the complaint, the loss sustained in the case was P35,506.75 which
is only .18% of P17,420,000.00, the total value of the cargo.

On the other hand, petitioner countered that Article 848 does not apply as it refers to averages
and that a particular average presupposes that the loss or damages is due to an inherent defect
of the goods, an accident of the sea, or a force majeure or the negligence of the crew of the
carrier, while claims for damages due to the negligence of the common carrier are governed by
the Civil Code provisions on Common Carriers.

In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:

Before the Court for resolution is a motion for reconsideration filed by defendant
through counsel dated October 6, 1989.

The record shows that last August 8, 1989, defendant through counsel filed a
motion to dismiss plaintiff's complaint.

Resolving the said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now under
consideration, defendant prays for the reconsideration of the order of September
18, 1989 and in lieu thereof, another order be entered dismissing plaintiff's
complaint.

There appears to be good reasons for the court to take a second look at the
issues raised by the defendant.

xxx xxx xxx

It is not disputed defendants that the loss suffered by the shipment is only .18%
or less that 1% of the interest of the consignee on the cargo Invoking the
provision of the Article 848 of the Code of Commerce which reads:

Claims for average shall not be admitted if they do not exceed five
percent of the interest which the claimant may have in the vessels
or cargo if it is gross average, and one percent of the goods
damaged if particular average, deducting in both cases the
expenses of appraisal, unless there is an agreement to the
contrary. (Emphasis supplied)

defendant claims that plaintiff is barred from suing for recovery.

Decisive in this case in whether the loss suffered by the cargo in question is a
"particular average."

Particular average, is a loss happening to the ship, freight, or

cargo which is not be (sic) shared by contributing among all those
interested, but must be borne by the owner of the subject to which
it occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172,
citing Bargett v. Insurance Co. 3 Bosw. [N.Y.] 395).

as distinguished from general average which

is a contribution by the several interests engaged in the maritime

venture to make good the loss of one of them for the voluntary
sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary
expenses necessarily incurred for the common benefit and safety
of all (Ibid., citing California Canneries Co. v. Canton Ins. Office 25
Cal. App. 303, 143 p. 549-553).
 3

From the foregoing definition, it is clear that the damage on the cargo in question,
is in the nature of the "particular average." Since the loss is less than 1% to the
value of the cargo and there appears to be no allegations as to any agreement
defendants and the consignee of the goods to the contrary, by express provision
of the law, plaintiff is barred from suing for recovery.

WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action.

(Rollo, p. 27; Annex A, pp. 3-4).

The petitioner then filed a motion for reconsideration of the order of dismissal but same was
denied by the court in its order dated January 26, 1990 (supra).

Instead of filing an appeal from the order of the court a quo dismissing the complaint for
recovery of a sum of money, American Home Assurance Company filed a petition
for certiorari with the Court of Appeals to set aside the two orders or respondent judge in said
court (Rollo, p. 25).

But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as
constituting plain errors of law and not grave abuse of discretion correctible by certiorari (a
Special Civil Action). If at all, respondent court ruled that there are errors of judgment subject to
correction by certiorari as a mode of appeal but the appeal is to the Supreme Court under
Section 17 of the Judiciary Act of 1948 as amended by Republic Act No. 5440. Otherwise
stated, respondent Court opined that the proper remedy is a petition for review on certiorari with
the Supreme Court on pure questions of law (Rollo, p. 30).

Hence, this petition.

In a resolution dated December 10, 1990, this Court gave due course to the petition and
required both parties to file their respective memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari was the proper remedy in the case
before the Court of Appeals.

The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of
Rule 41, Section 2 of the Rules of Court, subject petition raised questions which if at all,
constituting grave abuse of discretion correctible by certiorari.

Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as ruled by
this Court, an order of dismissal whether right or wrong is a final order, hence, a proper subject
of appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact
remains that respondent Court of Appeals obviously in the broader interests of justice,
nevertheless proceeded to decide the petition for certiorari and ruled on specific points raised
therein in a manner akin to what would have been done on assignments of error in a regular
appeal, the petition therein was therefore disposed of on the merits and not on a dismissal due
to erroneous choice of remedies or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence,
a review of the decision of the Court of Appeals on the merits against the petitioner in this case
is in order.

On the main controversy, the pivotal issue to be resolved is the application of the law on
averages (Articles 806, 809 and 848 of the Code of Commerce).

Petitioner avers that respondent court failed to consider that respondent National Marine
Corporation being a common carrier, in conducting its business is regulated by the Civil Code
primarily and suppletorily by the Code of Commerce; and that respondent court refused to
consider the Bill of Lading as the law governing the parties.

Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws
as provided for in Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of
 4

Commerce should be applied suppletorily as they provide for the extent of the common carriers'
liability.

This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593
[1988]; citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was
held that "the law of the country to which the goods are to be transported persons the liability of
the common carrier in case of their loss, destruction or deterioration." (Article 1753, Civil Code).
Thus, for cargoes transported to the Philippines as in the case at bar, 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 special
laws (Article 1766, Civil Code).

Corollary thereto, the Court held further that 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 passengers
transported by them according to all circumstances of each case. Thus, under Article 1735 of
the same Code, in all cases other than those mentioned in Article 1734 thereof, the common
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary diligence required by law (Ibid., p. 595).

But more importantly, the Court ruled that common carriers cannot limit their liability for injury or
loss of goods where such injury or loss was caused by its own negligence. Otherwise stated,
the law on averages under the Code of Commerce cannot be applied in determining liability
where there is negligence (Ibid., p. 606).

Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is
but reasonable to conclude that the issue of negligence must first be addressed before the
proper provisions of the Code of Commerce on the extent of liability may be applied.

The records show that upon delivery of the shipment in question of Mayleen's warehouse in
Manila, 122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-
called "percentage method" at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68).
Instead of presenting proof of the exercise of extraordinary diligence as required by law,
National Marine Corporation (NMC) filed its Motion to Dismiss dated August 7, 1989,
hypothetically admitting the truth of the facts alleged in the complaint to the effect that the loss
or damage to the 122 bales was due to the negligence or fault of NMC (Rollo, p. 179). As ruled
by this Court, the filing of a motion to dismiss on the ground of lack of cause of action carries
with it the admission of the material facts pleaded in the complaint (Sunbeam Convenience
Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such being the case, it is evident that the Code of
Commerce provisions on averages cannot apply.

On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible
for loss, destruction or deterioration of the goods, unless due to any of the causes enumerated
therein. It is obvious that the case at bar does not fall under any of the exceptions. Thus,
American Home Assurance Company is entitled to reimbursement of what it paid to Mayleen
Paper, Inc. as insurer.

Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the findings
and conclusions of the court a quo are not supported by law and jurisprudence.

PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional
Trial Court of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent
National Marine Corporation is hereby ordered to reimburse the subrogee, petitioner American
Home Assurance Company, the amount of P31,506.75.

SO ORDERED.
 1

SECOND DIVISION

G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents-appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents- appellees.

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

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L-
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
 2

at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the
order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl
sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the
vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay,
Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550
bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of
which 535 bales as damaged were landed and sold on the authority of the
General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86
which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as
holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A,
K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the
aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of
Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss
was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the
duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as
insurer the total amount of P364,915.86 to the consignees or their successors-in-
interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint
to recover said amount from the defendants-NDC and MCP as owner and ship
agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp.
7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965
(Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the
motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965,
MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp.
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).
 3

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF

COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE
KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY
FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA
NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE
TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR

REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

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.

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
 4

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
 5

losses and damages incurred after an expert appraisal. But more in point to the instant case is
Article 827 of the same Code, which provides that if the collision is imputable to both vessels,
each one shall suffer its own damages and both shall be solidarily responsible for the losses
and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the
fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in
recognition of the universally accepted doctrine that the shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the conduct of the
voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply
only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods
by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act
in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to
and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that
"nothing in this Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application." By such incorporation, it is
obvious that said law not only recognizes the existence of the Code of Commerce, but more
importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance
and Surety Corporation, has no cause of action against it because the latter did not prove that
its alleged subrogers have either the ownership or special property right or beneficial interest in
the cargo in question; neither was it proved that the bills of lading were transferred or assigned
to the alleged subrogers; thus, they could not possibly have transferred any right of action to
said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of
the duly endorsed bills of lading covering the shipments in question and an examination of the
invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to
this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount
of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that
said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-
appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the
manager and operator of the vessel Dona Nati not a ship agent. As the general managing
agent, according to MCP, it can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the name
of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage
done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281
[1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts
of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article
586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256,
262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent,
is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the
general doctrine of jurisprudence under the Civil Code but more specially as regards contractual
obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the
owner and agent (Naviero) should be declared jointly and severally liable, since the obligation
which is the subject of the action had its origin in a tortious act and did not arise from contract
(Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent,
 6

even though he may not be the owner of the vessel, is liable to the shippers and owners of the
cargo transported by it, for losses and damages occasioned to such cargo, without prejudice,
however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP
argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of
lading and corroborated no less by invoices offered as evidence ' during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51
Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was
caused by its own negligence." Negligence of the captains of the colliding vessel being the
cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the
vessel, the trial court and the Court of Appeals acted correctly in not applying the law on
averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not
be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary
to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots
were at fault for not changing their excessive speed despite the thick fog obstructing their
visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued
allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona
Nati on April 18,1964 was merely tentative to give allowances for such contingencies that said
vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-
shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision,
the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13,
18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they
could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the
instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the
date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-
paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.
 1

SECOND DIVISION

[G.R. No. 119528. March 26, 1997]

PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and

GRAND INTERNATIONAL AIRWAYS, INC., respondents.

DECISION
TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of
Court seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction
over private respondent's Application for the issuance of a Certificate of Public
Convenience and Necessity, and to annul and set aside a temporary operating permit
issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir,
for brevity) allowing the same to engage in scheduled domestic air transportation
services, particularly the Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its
petition is the fact that GrandAir does not possess a legislative franchise authorizing it to
engage in air transportation service within the Philippines or elsewhere. Such franchise
is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or
Necessity by the respondent Board, as mandated under Section 11, Article XII of the
Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no
longer a requirement for the issuance of a Certificate of Public Convenience and
Necessity or a Temporary Operating Permit, following the Court's pronouncements in
the case of Albano vs. Reyes,[1] as restated by the Court of Appeals in Avia Filipinas
International vs. Civil Aeronautics Board[2] and Silangan Airways, Inc. vs. Grand
International Airways, Inc., and the Hon. Civil Aeronautics Board.[3]
On November 24, 1994, private respondent GrandAir applied for a Certificate of
Public Convenience and Necessity with the Board, which application was docketed as
CAB Case No. EP-12711.[4] Accordingly, the Chief Hearing Officer of the CAB issued a
Notice of Hearing setting the application for initial hearing on December 16, 1994, and
directing GrandAir to serve a copy of the application and corresponding notice to all
scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its
Compliance, and requested for the issuance of a Temporary Operating Permit.
Petitioner, itself the holder of a legislative franchise to operate air transport services,
filed an Opposition to the application for a Certificate of Public Convenience and
Necessity on December 16, 1995 on the following grounds:

"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has
first obtained a franchise to operate from Congress.

B. The petitioner's application is deficient in form and substance in that:

1. The application does not indicate a route structure including a computation of

trunkline, secondary and rural available seat kilometers (ASK) which shall always be
maintained at a monthly level at least 5% and 20% of the ASK offered into and out of
the proposed base of operations for rural and secondary, respectively.

2. It does not contain a project/feasibility study, projected profit and loss statements,
projected balance sheet, insurance coverage, list of personnel, list of spare parts
inventory, tariff structure, documents supportive of financial capacity, route flight
schedule, contracts on facilities (hangars, maintenance, lot) etc.
 2

C. Approval of petitioner's application would violate the equal protection clause of the
constitution.

D. There is no urgent need and demand for the services applied for.

E. To grant petitioner's application would only result in ruinous competition contrary to

Section 4(d) of R.A. 776."[5]

At the initial hearing for the application, petitioner raised the issue of lack of
jurisdiction of the Board to hear the application because GrandAir did not possess a
legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying
petitioner's Opposition. Pertinent portions of the Order read:

"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the
latter has first obtained a franchise to operate from Congress.

The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia
Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of
R.A. 776, the Board possesses this specific power and duty.

In view thereof, the opposition of PAL on this ground is hereby denied.

SO ORDERED."

Meantime, on December 22, 1994, petitioner this time, opposed private

respondent's application for a temporary permit maintaining that:

"1. The applicant does not possess the required fitness and capability of operating the
services applied for under RA 776; and,

2. Applicant has failed to prove that there is clear and urgent public need for the
services applied for."[6]

On December 23, 1994, the Board promulgated Resolution No. 119(92) approving
the issuance of a Temporary Operating Permit in favor of Grand Air [7] for a period of
three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved for the
reconsideration of the issuance of the Temporary Operating Permit on January 11,
1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. [8] In
the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's
application.

"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act
No. 776 as follows:

'(c) The Board shall have the following specific powers and duties:

(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend
revise, alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-
complaint, or upon its own initiative, any temporary operating permit or Certificate of
Public Convenience and Necessity; Provided, however; that in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of
the Philippines."
 3

WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the
Supreme Court held that the CAB can even on its own initiative, grant a TOP even
before the presentation of evidence;

WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on
October 30, 1991, held that in accordance with its mandate, the CAB can issue not only
a TOP but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified
applicant therefor in the absence of a legislative franchise, citing therein as basis the
decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:

a) Franchises by Congress are not required before each and every public utility may
operate when the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public utilities;

b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility does not
necessarily imply that only Congress has the power to grant such authorization since
our statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities.

WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in
Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged
and that routes/links presently serviced by only one (1) operator shall be open for entry
to additional operators.

RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine

Airlines on January 05, 1995 on the Grant by this Board of a Temporary Operating
Permit (TOP) to Grand International Airways, Inc. alleging among others that the CAB
has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing
and considering that the grounds relied upon by the movant are not indubitable."

On March 21, 1995, upon motion by private respondent, the temporary permit was
extended for a period of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of GrandAirs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary operating
permit in the meantime, since GrandAir has not been granted and does not possess a
legislative franchise to engage in scheduled domestic air transportation. A legislative
franchise is necessary before anyone may engage in air transport services, and a
franchise may only be granted by Congress. This is the meaning given by the petitioner
upon a reading of Section 11, Article XII,[9] and Section 1, Article VI,[10] of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of
Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:

This has reference to your request for opinion on the necessity of a legislative franchise
before the Civil Aeronautics Board (CAB) may issue a Certificate of Public Convenience
 4

and Necessity and/or permit to engage in air commerce or air transportation to an

individual or entity.

You state that during the hearing on the application of Cebu Air for a congressional
franchise, the House Committee on Corporations and Franchises contended that under
the present Constitution, the CAB may not issue the abovestated certificate or permit,
unless the individual or entity concerned possesses a legislative franchise. You believe
otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is
explicitly empowered to issue operating permits or certificates of public convenience
and necessity and that this statutory provision is not inconsistent with the current
charter.

We concur with the view expressed by the House Committee on Corporations and
Franchises. In an opinion rendered in favor of your predecessor-in-office, this
Department observed that,-

xxx it is useful to note the distinction between the franchise to operate

and a permit to commence operation. The former is sovereign and
legislative in nature; it can be conferred only by the lawmaking
authority (17 W and P, pp. 691-697). The latter is administrative and
regulatory in character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an administrative
agency, such as the Public Service Commission [now Board of
Transportation], in the case of land transportation, and the Civil
Aeronautics Board, in case of air services. While a legislative franchise
is a pre-requisite to a grant of a certificate of public convenience and
necessity to an airline company, such franchise alone cannot
constitute the authority to commence operations, inasmuch as there
are still matters relevant to such operations which are not determined
in the franchise, like rates, schedules and routes, and which matters
are resolved in the process of issuance of permit by the administrative.
(Secretary of Justice opn No. 45, s. 1981)

Indeed, authorities are agreed that a certificate of public convenience and necessity is
an authorization issued by the appropriate governmental agency for the operation of
public services for which a franchise is required by law (Almario, Transportation and
Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4,
1979 Ed., pp. 380-381).

Based on the foregoing, it is clear that a franchise is the legislative authorization to

engage in a business activity or enterprise of a public nature, whereas a certificate of
public convenience and necessity is a regulatory measure which constitutes the
franchises authority to commence operations. It is thus logical that the grant of the
former should precede the latter.

Please be guided accordingly.

(SGD.) SEDFREY A. ORDOEZ

Secretary of Justice"

Respondent GrandAir, on the other hand, relies on its interpretation of the

provisions of Republic Act 776, which follows the pronouncements of the Court of
Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and Silangan
Airways, Inc. vs. Grand International Airways (supra).
 5

In both cases, the issue resolved was whether or not the Civil Aeronautics Board
can issue the Certificate of Public Convenience and Necessity or Temporary Operating
Permit to a prospective domestic air transport operator who does not possess a
legislative franchise to operate as such. Relying on the Court's pronouncement in
Albano vs. Reyes (supra), the Court of Appeals upheld the authority of the Board to
issue such authority, even in the absence of a legislative franchise, which authority is
derived from Section 10 of Republic Act 776, as amended by P.D. 1462. [11]
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a
Temporary Operating Permit. This rule has been established in the case of Philippine
Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968. [12] The Board
is expressly authorized by Republic Act 776 to issue a temporary operating permit or
Certificate of Public Convenience and Necessity, and nothing contained in the said law
negates the power to issue said permit before the completion of the applicant's
evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's
authority to grant a temporary permit "upon its own initiative" strongly suggests the
power to exercise said authority, even before the presentation of said evidence has
begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of
a permit, the absence of the same does not affect the jurisdiction of the Board to hear
the application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a
prerogative of the legislature, since Congress is that branch of government vested with
plenary powers of legislation.

"The franchise is a legislative grant, whether made directly by the legislature itself, or by
any one of its properly constituted instrumentalities. The grant, when made, binds the
public, and is, directly or indirectly, the act of the state." [13]

The issue in this petition is whether or not Congress, in enacting Republic Act 776,
has delegated the authority to authorize the operation of domestic air transport services
to the respondent Board, such that Congressional mandate for the approval of such
authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant licenses
for, or to authorize the operation of certain public utilities. With the growing complexity of
modern life, the multiplication of the subjects of governmental regulation, and the
increased difficulty of administering the laws, there is a constantly growing tendency
towards the delegation of greater powers by the legislature, and towards the approval of
the practice by the courts.[14] It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent, the power
to grant franchises has frequently been delegated, even to agencies other than those of
a legislative nature.[15] In pursuance of this, it has been held that privileges conferred by
grant by local authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature. [16]
The trend of modern legislation is to vest the Public Service Commissioner with the
power to regulate and control the operation of public services under reasonable rules
and regulations, and as a general rule, courts will not interfere with the exercise of that
discretion when it is just and reasonable and founded upon a legal right. [17]
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a
reading of the pertinent issuances governing the Philippine Ports Authority, [18] proves
that the PPA is empowered to undertake by itself the operation and management of the
Manila International Container Terminal, or to authorize its operation and management
by another by contract or other means, at its option. The latter power having been
delegated to the PPA, a franchise from Congress to authorize an entity other than the
PPA to operate and manage the MICP becomes unnecessary.
 6

Given the foregoing postulates, we find that the Civil Aeronautics Board has the
authority to issue a Certificate of Public Convenience and Necessity, or Temporary
Operating Permit to a domestic air transport operator, who, though not possessing a
legislative franchise, meets all the other requirements prescribed by the law. Such
requirements were enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative
franchise is an indispensable requirement for an entity to operate as a domestic air
transport operator. Although Section 11 of Article XII recognizes Congress' control over
any franchise, certificate or authority to operate a public utility, it does not mean
Congress has exclusive authority to issue the same. Franchises issued by Congress
are not required before each and every public utility may operate. [19] In many instances,
Congress has seen it fit to delegate this function to government agencies, specialized
particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate
the authority to regulate the issuance of a license to operate domestic air transport
services:

SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided
herein, the Board shall have the power to regulate the economic aspect of air
transportation, and shall have general supervision and regulation of, the jurisdiction and
control over air carriers, general sales agents, cargo sales agents, and air freight
forwarders as well as their property rights, equipment, facilities and franchise, insofar as
may be necessary for the purpose of carrying out the provision of this Act.

In support of the Board's authority as stated above, it is given the following specific
powers and duties:

(C) The Board shall have the following specific powers and duties:

(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend,
revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or
complaint or upon its own initiative any Temporary Operating Permit or Certificate of
Public Convenience and Necessity: Provided however, That in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of
the Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue
"Certificates of Public Convenience and Necessity", this, according to petitioner, means
that a legislative franchise is an absolute requirement. It cites a number of authorities
supporting the view that a Certificate of Public Convenience and Necessity is issued to
a public service for which a franchise is required by law, as distinguished from a
"Certificate of Public Convenience" which is an authorization issued for the operation of
public services for which no franchise, either municipal or legislative, is required by
law.[20]
This submission relies on the premise that the authority to issue a certificate of
public convenience and necessity is a regulatory measure separate and distinct from
the authority to grant a franchise for the operation of the public utility subject of this
particular case, which is exclusively lodged by petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which
courts and legal writers have drafted. Some statutes use the terms "convenience and
necessity" while others use only the words "public convenience." The terms
"convenience and necessity", if used together in a statute, are usually held not to be
separable, but are construed together. Both words modify each other and must be
 7

construed together. The word 'necessity' is so connected, not as an additional

requirement but to modify and qualify what might otherwise be taken as the strict
significance of the word necessity. Public convenience and necessity exists when the
proposed facility will meet a reasonable want of the public and supply a need which the
existing facilities do not adequately afford. It does not mean or require an actual
physical necessity or an indispensable thing.[21]

"The terms 'convenience' and 'necessity' are to be construed together, although they
are not synonymous, and effect must be given both. The convenience of the public must
not be circumscribed by according to the word 'necessity' its strict meaning or an
essential requisites."[22]

The use of the word "necessity", in conjunction with "public convenience" in a

certificate of authorization to a public service entity to operate, does not in any way
modify the nature of such certification, or the requirements for the issuance of the same.
It is the law which determines the requisites for the issuance of such certification, and
not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the
operation of domestic transport services, has delegated to the said body the authority to
determine the capability and competence of a prospective domestic air transport
operator to engage in such venture. This is not an instance of transforming the
respondent Board into a mini-legislative body, with unbridled authority to choose who
should be given authority to operate domestic air transport services.

"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a
"roving commission" that will give the delegate unlimited legislative authority. It must not
be a delegation "running riot" and "not canalized with banks that keep it from
overflowing." Otherwise, the delegation is in legal effect an abdication of legislative
authority, a total surrender by the legislature of its prerogatives in favor of the
delegate."[23]

Congress, in this instance, has set specific limitations on how such authority should
be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or
policies:

"SECTION 4. Declaration of policies. In the exercise and performance of its powers and
duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics
Administrator shall consider the following, among other things, as being in the public
interest, and in accordance with the public convenience and necessity:

(a) The development and utilization of the air potential of the Philippines;

(b) The encouragement and development of an air transportation system properly

adapted to the present and future of foreign and domestic commerce of the Philippines,
of the Postal Service and of the National Defense;

(c) The regulation of air transportation in such manner as to recognize and preserve the
inherent advantages of, assure the highest degree of safety in, and foster sound
economic condition in, such transportation, and to improve the relations between, and
coordinate transportation by, air carriers;

(d) The promotion of adequate, economical and efficient service by air carriers at
reasonable charges, without unjust discriminations, undue preferences or advantages,
or unfair or destructivecompetitive practices;
 8

(e) Competition between air carriers to the extent necessary to assure the sound
development of an air transportation system properly adapted to the need of the foreign
and domestic commerce of the Philippines, of the Postal Service, and of the National
Defense;

(f) To promote safety of flight in air commerce in the Philippines; and,

(g) The encouragement and development of civil aeronautics.

More importantly, the said law has enumerated the requirements to determine the
competency of a prospective operator to engage in the public service of air
transportation.

SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution

and existing treaty or treaties, a permit authorizing a person to engage in domestic air
commerce and/or air transportation shall be issued only to citizens of the Philippines. [24]

SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole
or any part of the service covered by the application, if it finds: (1) that the applicant is
fit, willing and able to perform such service properly in conformity with the provisions of
this Act and the rules, regulations, and requirements issued thereunder; and (2) that
such service is required by the public convenience and necessity; otherwise the
application shall be denied.

Furthermore, the procedure for the processing of the application of a Certificate of

Public Convenience and Necessity had been established to ensure the weeding out of
those entities that are not deserving of public service. [25]
In sum, respondent Board should now be allowed to continue hearing the
application of GrandAir for the issuance of a Certificate of Public Convenience and
Necessity, there being no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to
DISMISS the instant petition for lack of merit. The respondent Civil Aeronautics Board is
hereby DIRECTED to CONTINUE hearing the application of respondent Grand
International Airways, Inc. for the issuance of a Certificate of Public Convenience and
Necessity.
SO ORDERED.
Regalado (Chairman), and Puno, JJ., concur.
Romero, J., no part. Related to counsel.
Mendoza, J., no part. Relative in management of party.
 1

FIRST DIVISION
G.R. No. L-46558 | July 31, 1981.
PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT OF APPEALS and JESUS V.
SAMSON, Respondents.

DECISION
GUERRERO, J.:

This is a petition for review on Certiorari of the decision of the Court of Appeals 1 dated
April 18, 1977, affirming with modification the decision of the Court of First Instance of Albay
in Civil Case No. 1279, entitled “Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc.,
defendant,” for damages.
The dispositive portion of the trial court’s decision reads:
“WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of
the plaintiff and against the defendant ordering the defendant to pay the plaintiff, the
following sums: P1988,000.00 as unearned income or damages; P50,000.00 for moral
damages; P20,000.00 as attorney’s fees and P5,000.00 as expenses of litigation, or a total
of P273,000.00. Costs against the defendant.”
The appellate court modified the above decision, to wit:
“However, Plaintiff-Appellee, who has been deprived of his job since 1954, is entitled
to the legal rate of interest on the P198,000.00 unearned income from the filing of
the complaint (Sec. 8, Rule 51, Rules of Court).
WHEREFORE, with the modification indicated above, the judgment appealed from is
affirmed, with costs against defendant-appellant.”
The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein,
averred that on January 8, 1951, he flew as co-pilot on a regular flight from Manila to
Legaspi with stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin
Bustamante as commanding pilot of a C-47 plane belonging to defendant Philippine Air
Lines, Inc., now the herein petitioner; that on attempting to land the plane at Daet airport,
Captain Delfin Bustamante due to his very slow reaction and poor judgment overshot the
airfield and as a result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert an
accident, the airplane crashlanded beyond the runway; that the jolt caused the head of the
plaintiff to hit and break through the thick front windshield of the airplane causing him
severe brain concussion, wounds and abrasions on the forehead with intense pain and
suffering (par. 6, complaint).:onad
The complaint further alleged that instead of giving plaintiff expert and proper medical
treatment called for by the nature and severity of his injuries, defendant simply referred him
to a company physician, a general medical practitioner, who limited the treatment to the
exterior injuries without examining the severe brain concussion of plaintiff (par. 7,
complaint); that several days after the accident, defendant Philippine Air Lines called back
the plaintiff to active duty as co-pilot, and inspite of the latter’s repeated request for expert
medical assistance, defendant had not given him any (par. 8, complaint); that as a
consequence of the brain injury sustained by plaintiff from the crash, he had been having
periodic dizzy spells and had been suffering from general debility and nervousness (par. 9,
complaint); that defendant airline company instead of submitting the plaintiff to expert
medical treatment, discharged the latter from its employ on December 21, 1953 on grounds
of physical disability, thereby causing plaintiff not only to lose his job but to become
physically unfit to continue as aviator due to defendant’s negligence in not giving him the
proper medical attention (pars. 10-11, complaint). Plaintiff prayed for damages in the
amount of P180,000.00 representing his unearned income, P50,000.00 as moral damages,
P20,000.00 as attorney’s fees and P5,000.00 as expenses, or a total of P255,000.00.
 2

In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the
complaint, alleging among others, that the accident was due solely and exclusively to
inevitable unforeseen circumstances whereby plaintiff sustained only superficial wounds
and minor injuries which were promptly treated by defendant’s medical personnel (par. 5,
answer); that plaintiff did not sustain brain injury or cerebral concussion from the accident
since he passed the annual physical and medical examination given thereafter on April 24,
1951; that the headaches and dizziness experienced by plaintiff were due to emotional
disturbance over his inability to pass the required up-grading or promotional course given by
defendant company (par. 6, answer), and that, as confirmed by an expert neuro-surgeon,
plaintiff was suffering-from neurosis and in view of this unfitness and disqualification from
continuing as a pilot, defendant had to terminate plaintiff’s employment (pars. 7, 9, answer).
Further, defendant alleged that by the very nature of its business as a common carrier, it is
bound to employ only pilots who are proficient and in good mental, emotional and physical
condition; that the pilot, Captain Delfin Bustamante, was a competent and proficient pilot,
and although he was already afflicted with a tumor of the nasopharynx even before the
accident of January 8, 1951, the Civil Aeronautics Administration, in passing upon the
fitness of pilots, gave Capt. Bustamante a waiver of physical standards to enable him to
retain his first class airman certificate since the affliction had not in the least affected his
proficiency (pars. 16-17, answer). By way of counterclaim, defendant prayed for
P10,000.00 as expenses for the litigation.
On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is
essentially a Workmen’s Compensation claim, stating a cause of action not cognizable
within the general jurisdiction of the court. The Motion to Dismiss was denied in the order of
April 14, 1958. After the reception of evidence, the trial court rendered on January 15, 1973
the decision, the dispositive portion of which has been earlier cited.
The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as
being contrary to law and unsupported by the evidence. It raised as errors of the trial court
(a) the holding that the damages allegedly suffered by plaintiff are attributable to the
accident of January 8, 1951 which was due to the negligence of defendant in having
allowed Capt. Delfin Bustamante to continue flying despite his alleged slow reaction and
poor judgment; (b) the finding that defendant was negligent in not having given plaintiff
proper and adequate expert medical treatment and assistance for the injuries allegedly
sustained in the accident of January 8, 1951; and (c) in ordering defendant to pay actual or
compensatory damages, moral damages and attorney’s fees to the plaintiff.
On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the
lower court but modified the award of damages by imposing legal rate of interest on the
P198,000.00 unearned income from the filing of the complaint, citing Sec. 8, Rule 51 of the
Rules of Court.
Its motion for reconsideration of the above judgment having been denied, Philippine Air
Lines, Inc. filed this instant petition for Certiorari on the ground that the decision is not in
accord with law or with the applicable jurisprudence, aside from its being replete with
findings in the nature of speculation, surmises and conjectures not borne out by the
evidence on record thereby resulting to misapprehension of facts and amounting to a grave
abuse of discretion (p. 7, Petition).
Petitioner raises the fundamental question in the case at bar as follows: Is there a causal
connection between the injuries suffered by private respondent during the accident on 8
January 1951 and the subsequent “periodic dizzy spells, headache and general debility” of
which private respondent complained every now and then, on the one hand, and such
“periodic dizzy spells, headache and general debility” allegedly caused by the accident and
private respondent’s eventual discharge from employment, on the other? PAL submits that
respondent court’s award of damages to private respondent is anchored on findings in the
nature of speculations, surmises and conjectures and not borne out by the evidence on
record, thereby resulting in a misapprehension of facts and amounting to a grave abuse of
discretion.
Petitioner’s submission is without merit.
As found by the respondent court, the following are the essential facts of the case:
 3

“It appears that plaintiff, a licensee aviator, was employed by defendant a few years
prior to January 8, 1951 as a regular co-pilot on a guaranteed basic salary of
P750.00 a month. He was assigned to and/or paired with pilot Delfin Bustamante.
Sometime in December 1950, he complained to defendant through its authorized
official about the slow reaction and poor judgment of pilot Delfin Bustamante.
Notwithstanding said complaint, defendant allowed the pilot to continue flying.
On January 8, 1951, the two manned the regular afternoon flight of defendant’s
plane from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili,
Camarines Sur. Upon making a landing at Daet, the pilot, with his slow reaction and
poor judgment, overshot the airfield and, as a result of and notwithstanding diligent
efforts of plaintiff to avert an accident, the airplane crash-landed beyond the runway
into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front
windshield of the plane thereby causing his brain concussions and wounds on the
forehead, with concomittant intense pain.
Plaintiff was not given proper medical attention and treatment demanded by the
nature and severity of his injuries. Defendant merely referred him to its clinic
attended by general practitioners on his external injuries. His brain injury was never
examined, much less treated. On top of that negligence, defendant recalled plaintiff
to active duty as a co-pilot, completely ignoring his plea for expert medical
assistance.
Suffering periodic dizzy spells, headache and general debility, plaintiff every now
and then complained to defendant. To make matters worst for plaintiff, defendant
discharged him from his employment on December 21, 1953. In consequence,
plaintiff has been beset with additional worries, basically financial. He is now a
liability instead of a provider, of his family.
On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to
dismiss the complaint after filing an answer. Then, the judgment and this appeal.”
Continuing, the respondent Court of Appeals further held:
“There is no question about the employment of plaintiff by defendant, his age and
salary, the overshooting by pilot Bustamante of the airfield and crashlanding in a
mangrove, his hitting his head on the front windshield of the plane, his intermittent
dizzy spells, headache and general debility for which he was discharged from his
employment on December 21, 1953. As the lower court aptly stated:
‘From the evidence adduced by the parties, the Court finds the following facts
to be uncontroverted: That the plaintiff Jesus V. Samson, on January 8, 1951
and a few years prior thereto, December 21, 1953, was a duly licensed pilot
employed as a regular co-pilot of the defendant with assignment in its
domestic air service in the Philippines; that on January 8, 1951, the
defendant’s airplane met an accident in crashlanding at the Daet Airport,
Camarines Norte by overshooting the runway and reaching the mangroves at
the edge of the landing strip; that the jolt caused plaintiff’s head to hit the front
windshield of the airplane causing him to suffer wounds and abrasion on the
forehead; that the defendant, instead of giving the plaintiff expert and proper
medical treatment called for by the nature and severity of the injuries of the
plaintiff, simply referred him to the clinic of the defendant’s physicians who
are only general medical practitioners and not brain specialists; that the
defendant’s physicians limited their treatment to the exterior injuries on the
forehead of the plaintiff and made no examination of the severe concussion of
the brain of the plaintiff; that the Medical Director and Flight Surgeon of the
defendant were not able to definitely determine the cause of the complaint of
the plaintiff as to the periodic attack of dizziness, spells and headache; that
due to this laxity of the defendant’s physician and the continuous suffering of
the ailment of the plaintiff complained of, he demanded for expert medical
assistance for his brain injury and to send him to the United States, which
demand was turned down and in effect denied by the defendant; that instead
the defendant referred the plaintiff to a neurologist, Dr. Victor Reyes; that
 4

from the time that said accident occurred on January 21, 1953, he was
ordered grounded on several occasions because of his complaint of dizzy
spells and headache; that instead of submitting the plaintiff to expert medical
treatment as demanded by him and denied by the defendant, he was
discharged from its employment on December 21, 1953 on the ground of
physical disability, and that the plaintiff, at the time when the defendant’s
plane met the accident, up to the time he was discharged, was regularly
employed as a co-pilot and receiving a basic salary of P750.00 a month plus
extra pay for flying time, and bonuses amounting to P300.00 a month.’
Even defendant-appellant itself admits as not controverted the following facts which
generally admit what have been stated above as not controverted.
“In the case at bar, the following facts are not the subject of controversy:
‘(1) First, that from July 1950 to 21 December 1953, plaintiff was employed
with defendant company as a first officer or co-pilot and served in that
capacity in defendant’s domestic services.
(2) Second, that on January 1951, plaintiff did fly on defendant’s PI-C 94, as
first officer or co-pilot, with the late Capt. Delfin Bustamante in command as
pilot; that while making a landing at the Daet airport on that date, PI-C 94 did
meet an accident as stated above.
(3) Third, that at or about the time of the discharge from defendant company,
plaintiff had complained of “spells of dizziness,” “headaches” and
“nervousness”, by reason of which he was grounded from flight duty. In short,
that at that time, or approximately from November 1953 up to the date of his
discharge on 21 December 1953, plaintiff was actually physically unfit to
discharge his duties as pilot.
(4) Fourth, that plaintiff’s unfitness for flight duty was properly established
after a thorough medical examination by competent medical experts.’cralaw
(pp. 11-12, appellant’s brief)
hence, there can hardly be an issue, factual, legal or medical.”
Taking exception from “the rest of the essential facts of the case as found by the
respondent court” PAL claims said facts are not fully borne out by the evidence on record
and insists that the injuries suffered by private respondent during the accident on January 8,
1951 were superficial in nature; that the “periodic spells, headache, and general debility”
complaint of every now and then by private respondent subsequent to the Jan. 8, 1951
incident were due to emotional disturbances and that no negligence can be attributed to
Capt. Delfin Bustamante much less to PAL for the occurrence on January 8, 1951, hence
PAL cannot be held liable for damages.
Petitioner claims absence of any causal connection between private respondent’s
superficial injuries and his alleged subsequent “periodic spells, headache and general
debility,” pointing out that these subsequent ailments were found by competent physician,
including an expert neuro-surgeon, to be due to emotional disturbances insights the
conclusions of Dr. Trajano V. Bernardo that respondent’s complaints were “psychosomatic
symptoms” on the basis of declarations made by respondent himself, which conclusions are
supported by similar diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that
respondent Samson was suffering from neurosis as well as the report of Dr. Victor Reyes, a
neurological specialist, indicating that the symptoms were probably, most probably due to
psychogenic factors and have no organic basis.
In claiming that there is no factual basis for the finding of the respondent court that the
crash-landing caused respondent’s “brain concussion . ., with concomittant intense pain, for
on the contrary, testimonial evidence establish the superficiality of the injuries sustained by
respondent during the accident of January 8, 1951,” petitioner quotes portions of the
testimony of Dr. Manuel S. Sayas, who declared that he removed the band-aid on the
forehead of respondent and that he found out after removal that the latter had two
contussed superficial wounds over the supra orbiter regions or just above the eyes
measuring one centimeter long and one millimeter deep. He examined and found his blood
 5

pressure normal, no discharges from the nose and ears. Dr. Trajano V. Bernardo also
testified that when he examined respondent Samson three days after the accident, the
wound was already healed and found nothing wrong with his ears, nose and throat so that
he was declared fit for duty after the sixth day.
Petitioner goes further. It contends that there is no causal connection between respondent’s
superficial injuries sustained during the accident on January 8, 1951 and plaintiff’s
discharge from employment with PAL on December 21, 1953. According to PAL, it was the
repeated recurrence of respondent’s neurasthenic symptoms (dizzy spells, headache,
nervousness) which prompted PAL’s Flight Surgeon, Dr. Bernardo, to recommend that
plaintiff be grounded permanently as respondent was “psychologically unfit to resume his
duties as pilot.” PAL concludes that respondent’s eventual discharge from employment with
PAL was effected for absolutely valid reasons, and only after he was thoroughly examined
and found unfit to carry out his responsibilities and duties as a pilot.:onad
We agree with the respondent court in finding that the dizzy spells, headache and general
debility of private respondent Samson was an after-effect of the crash-landing and We find
that such holding is supported by substantial evidence, which We quote from the court’s
decision, to wit:
“Defendant would imply that plaintiff suffered only superficial wounds which were
treated and not brain injury. It would, by the opinion of its company doctors, Dr.
Bernardo and Dr. Reyes, attribute the dizzy spells and headache to organic or as
phychosomatic, neurasthenic or psychogenic, which we find outlandishly
exaggerated.
That plaintiff’s condition as psychosomatic rather than organic in nature is allegedly
confirmed by the fact that on six (6) separate occasions after the accident he
passed the required CAA physical examination for airman’s certificate. (Exhs. 78,
79, 80, 81, 83 and 92). We noticed, however, that there were other similar physical
examinations conducted by the CAA on the person of plaintiff the report on which
were not presented in evidence. Obviously, only those which suited defendants
cause were hand-picked and offered in evidence.
We hesitate to accept the opinion of the defendant’s two physicians, considering that
Dr. Bernardo admittedly referred to Dr. Reyes because he could not determine the
cause of the dizzy spells and headache and the latter admitted that ‘it is extremely
hard to be certain of the cause of his dizzy spells,’ and suggested a possibility that it
‘was due to postraumatic syndrome, evidently due to the injuries suffered by the
plaintiff in hitting the forehead against the windshield of the plane during the
accident.’ Judgment are not based on possibilities.
The admitted difficulty of defendant’s doctors in determining the cause of the dizzy
spells and headache cannot be a sound basis for finding against the plaintiff and in
favor of defendant. Whatever it might be, the fact is that such dizzy spells, headache
and general debility was an after-effect of the crash-landing. Be it brain injury or
psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it
was caused by the crash-landing. As an effect of the cause, not fabricated or
concocted, plaintiff has to be indemnified. The fact is that such effect caused his
discharge.
We are prone to believe the testimony of the plaintiff’s doctors.
Dr. Morales, a surgeon, found that blood was coming from plaintiff’s ears and nose.
He testified that plaintiff was suffering from cerebral concussion as a result of
traumatic injury to the brain caused by his head hitting on the windshield of the plane
during the crash-landing (Exhibit “G”).
Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals
abroad, found abnormality reflected by the electroencephalogram examination in the
frontal area on both sides of plaintiff’s head (Exhibits “K”, “K-1”).
The opinion of these two specialist renders unnecessary that of plaintiff’s wife who is
a physician in her own right and because of her relation to the plaintiff, her testimony
and opinion may not be discussed here, although her testimony is crystallized by the
 6

opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr.
Sandico.
Even the doctors presented by defendant admit vital facts about plaintiff’s brain
injury. Dr. Bernardo admits that due to the incident, the plaintiff continuously
complained of his fainting spells, dizziness and headache everytime he flew as a co-
pilot and everytime he went to defendant’s clinic no less than 25 times (Exhibits “15”
to “36”), that he complained of the same to Dr. Reyes; that he promised to help send
plaintiff to the United States for expert medical assistance provided that whatever
finding thereat should not be attributed to the crash-landing incident to which plaintiff
did not agree and that plaintiff was completely ignored by the defendant in his plea
for expert medical assistance. They admitted that they could not determine definitely
the cause of the fainting spells, dizziness and headache, which justifies the demand
for expert medical assistance.”
We also find the imputation of gross negligence by respondent court to PAL for having
allowed Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8,
1951 to be correct, and We affirm the same, duly supported as it is by substantial evidence,
clearly established and cited in the decision of said court which states as follows:
“The pilot was sick. He admittedly had tumor of the nasopharynx (nose). He is now
in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the
spot will affect the sinus, the breathing, the eyes which are very near it. No one will
certify the fitness to fly a plane of one suffering from the disease.
“. . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx
for which reason he was grounded since November 1947 is admitted in the letter
(Exh. 69-A) of Dr. Bernardo to the Medical Director of the CAA requesting waiver of
physical standards. The request for waiver of physical standards is itself a positive
proof that the physical condition of Capt. Bustamante is short of the standard set by
the CAA. The Deputy Administrator of the CAA granted the request relying on the
representation and recommendation made by Dr. Bernardo (See Exh. 69). We
noted, however, that the request (Exh. 69-A) says that ‘it is believed that his
continuing to fly as a co-pilot does not involve any hazard.’cralaw (Italics supplied).
Flying as a First Officer entails a very different responsibility than flying as a mere
co-pilot. Defendant requested the CAA to allow Capt. Bustamante to fly merely as a
co-pilot and it is safe to conclude that the CAA approved the request thus allowing
Bustamante to fly only as a co-pilot. For having allowed Bustamante to fly as a First
Officer on January 8, 1951, defendant is guilty of gross negligence and therefore
should be made liable for the resulting accident.
As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He
used to complain of pain in the face more particularly in the nose which caused him to have
sleepless nights. Plaintiff’s observation of the pilot was reported to the Chief Pilot who did
nothing about it. Captain Carbonel of the defendant corroborated plaintiff of this matter. The
complaint against the slow reaction of the pilot at least proved the observation. The
observation could be disregarded. The fact that the complaint was not in writing does not
detract anything from the seriousness thereof, considering that a miscalculation would not
only cause the death of the crew but also of the passengers.
One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff
warned him that they were not in the vicinity of Daet but above the town of Ligao. The plane
hit outside the airstrip. In another instance, the pilot would hit the Mayon Volcano had not
plaintiff warned him. These more than prove what plaintiff had complained of. Disregard
thereof by defendant is condemnable.
To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness
which hampered his flying ability, appellant contends that for at least one or more years
following the accident of January 8, 1951, Capt. Bustamante continued to fly for defendant
company as a pilot, and did so with great skill and proficiency, and without any further
accident or mishap, citing tsn. pp. 756-765, January 20, 1965. We have painstakingly
perused the records, particularly the transcript of stenographic notes cited, but found
nothing therein to substantiate appellant’s contention. Instead, We discovered that the
 7

citation covers the testimony of Dr. Bernardo on the physical condition of Bustamante and
nothing about his skills or proficiency to fly nor on the mishaps or accidents, matters which
are beyond Dr. Bernardo’s competence anyway.
Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the
plane, the evidence shows that the overshooting of the runway and crash-landing at the
mangrove was caused by the pilot for which acts the defendant must answer for damages
caused thereby. And for this negligence of defendant’s employee, it is liable (Joaquin vs.
Aniceto, 12 S 308). At least, the law presumes the employer negligent imposing upon it the
burden of proving that it exercised the diligence of a good father of a family in the
supervision of its employees.
Defendant would want to tie plaintiff to the report he signed about the crash-landing. The
report was prepared by his pilot and because the latter pleaded that he had a family too and
would have nowhere to go if he lost his job, plaintiff’s compassion would not upturn the truth
about the crash-landing. We are for the truth not logic of any argumentation.
At any rate, it is incorrect to say that the Accident Report (Exh. 12 & 12-A), signed by
plaintiff, exculpated Capt. Bustamante from any fault. We observed that the Report does not
categorically state that Capt. Bustamante was not at fault. It merely relates in chronological
sequence what Capt. Bustamante and plaintiff did from the take-off from Manila to the
landing in Daet which resulted in an accident. On the contrary, we may infer the negligence
of Bustamante from the following portion of the Report, to wit:
“. . I felt his brakes strong but as we neared the intersection of the NE-SW runway,
the brakes were not as strong and I glanced at the system pressure which indicated
900 lbs. per sq. m.”
It was during the above precise instance that Capt. Bustamante lost his bearing and
disposition. Had he maintained the pressure on the brakes the plane would not have
overshot the runway. Verily, Bustamante displayed slow reaction and poor judgment. (CA
decision, pp. 8-12).
This Court is not impressed by, much less can We accept petitioner’s invocation to calibrate
once again the evidence testified to in detail and plucked from the voluminous transcript to
support petitioner’s own conclusion. It is not the task of this Court to discharge the functions
of a trier of facts much less to enter into a calibration of the evidence, notwithstanding
petitioner’s wail that the judgment of the respondent court is based entirely on speculations,
surmises and conjectures. We are convinced that respondent court’s judgment is supported
by strong, clear and substantial evidence.:onad
Petitioner is a common carrier 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, as defined in Art. 1732, New Civil Code. The law is clear in requiring a
common carrier to exercise the highest degree of care in the discharge of its duty and
business of carriage and transportation under Arts. 1733, 1755 and 1756 of the New Civil
Code. These Articles provide:
Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles
1734, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the passenger 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.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.
 8

The duty to exercise the utmost diligence on the part of common carriers is for the safety of
passengers as well as for the members of the crew or the complement operating the carrier,
the airplane in the case at bar. And this must be so for any omission, lapse or neglect
thereof will certainly result to the damage, prejudice, nay injuries and even death to all
aboard the plane, passengers and crew members alike.
Now to the damages. The Court of Appeals affirmed the award of damages made by the
trial court, stating that “the damages awarded plaintiff by the lower court are in accordance
with the facts, law and jurisprudence.” The court further observed that “defendant-appellant
is still fortunate, considering that the unearned income was reckoned with only up to 1968
and not up to the present as plaintiff-appellee is still living. Whatever mathematical error
defendant-appellant could show by abstract argumentation, the same must be
compensated by such deficiency of the damages awarded to plaintiff-appellee.”
As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned
income or compensatory damages; P50,000.00 for moral damages, P20,000.00 as
attorney’s fees and P5,000.00 as expenses of litigation, or a total of P273,000.00.
The trial court arrived at the sum of P198,000.00 as unearned income or damages by
considering that respondent Samson “could have continued to work as airline pilot for fifteen
more years, he being only 38 years at the time the services were terminated by the
defendant (PAL) and he would have earned P120,000.00 from 1954 to 1963 or a period of
ten (10) years at the rate of one thousand per month (P750.00 basic salary plus P300.00
extra pay for extra flying time and bonuses; and considering further that in 1964 the basic
pay of defendant’s pilot was increased to P12,000.00 annually, the plaintiff could have
earned from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another
P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300 a
month, or a grand total of P198,000.00 for the entire period. This claim of the plaintiff for
loss or impairment of earning capacity is based on the provision of Article 2205 of the New
Civil Code of the Philippines which provides that “damages may be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal injury.” This
provision of law has been construed and interpreted in the case of Aureliano Ropato, et al.
vs. La Mallorca General Partnership, 56 O.G., 7812, which rules that law allows the
recovery of damages for loss or impairment of earning capacity in cases of temporary or
permanent personal injury.” (Decision, CFI, pp. 98-99, Record on Appeal)
The respondent appellate court modified the above award by ordering payment of legal
interest on the P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule
51 of the Rules of Court.
Petitioner assails the award of the total sum of P198,000.00 as unearned income up to
1968 as being tenuous because firstly, the trial court’s finding affirmed by the respondent
court is allegedly based on pure speculation and conjecture and secondly, the award of
P300.00 a month as extra pay for extra flying time from 1954 to 1968 is likewise
speculative. PAL likewise rejects the award of moral damages in the amount of P50,000.00
on the ground that private respondent’s action before the trial court does not fall under any
of the cases enumerated in the law (Art. 2219 of the New Civil Code) for which moral
damages are recoverable and that although private respondent’s action gives the
appearance that it is covered under quasi-delict as provided in Art. 21 of the New Civil
Code, the definition of quasi-delict in Art. 2176 of the New Civil Code expressly excludes
cases where there is a pre-existing contractual relation between the parties, as in the case
under consideration, where an employer-employee relationship existed between PAL and
private respondent. It is further argued that private respondent’s action cannot be deemed
to be covered by Art. 21, inasmuch as there is no evidence on record to show that PAL
“wilfully cause(d) loss or injury to (private respondent) in a manner that is contrary to
morals, good customs or public policy . .” Nor can private respondent’s action be
considered “analogous” to either of the foregoing, for the reasons are obvious that it is
not.” (Memorandum of petitioner, pp. 418-421, Records)
Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the
plane to Daet on January 8, 1951 whose slow reaction and poor judgment was the cause of
the crash-landing of the plane which resulted in private respondent Samson hitting his head
against the windshield and causing him injuries for which reason PAL terminated his
 9

services and employment as pilot after refusing to provide him with the necessary medical
treatment of respondent’s periodic spells, headache and general debility produced from said
injuries, We must necessarily affirm likewise the award of damages or compensation under
the provisions of Art. 1711 and Art. 1712 of the New Civil Code which provide:
Art. 1711. Owners of enterprises and other employers are obliged to pay compensation for
the death or injuries to their laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely due to a fortuitous cause, if
the death or personal injury arose out of and in the course of the employment. The
employer is also liable for compensation if the employee contracts any illness or disease
caused by such employment or as the result of the nature of the employment. If the mishap
was due to the employee’s own notorious negligence, or voluntary act, or drunkenness, the
employer shall not be liable for compensation. When the employee’s lack of due care
contributed to his death or injury, the compensation shall be equitably reduced.
Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. If a fellow-worker’s intentional or
malicious act is the only cause of the death or injury, the employer shall not be answerable,
unless it should be shown that the latter did not exercise due diligence in the selection or
supervision of the plaintiffs fellow-worker.
The grant of compensatory damages to the private respondent made by the trial court and
affirmed by the appellate court by computing his basic salary per annum at P750.00 a
month as basic salary and P300.00 a month for extra pay for extra flying time including
bonus given in December every year is justified. The correct computation however should
be P750 plus P300 x 12 months = P12,600 per annum x 10 years = P126,000.00 (not
P120,000.00 as computed by the court a quo). The further grant of increase in the basic pay
of the pilots to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another
P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300.00 a
month totals P78,000.00. Adding P126,000.00 (1964 to 1968 compensation) makes a
grand total of P204,000.00 (not P198,000.00 as originally computed).
As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We
have noted and considered the holding of the appellate court in the matter of bad faith on
the part of PAL, stated hereunder, this wise:
“None of the essential facts material to the determination of the case have been
seriously assailed: the overshooting of runway and crash-landing into the
mangroves; the hitting of plaintiff’s head to the front windshield of the plane; the
oozing of blood out of his ears, nose and mouth; the intermittent dizzy spells,
headaches and general debility thereafter for which he was discharged from his
employment; the condition of not to attribute the cause of the ailment to the crash-
landing imposed in bad faith for a demanded special medical service abroad; and
the resultant brain injury which defendant’s doctors could not understand nor
diagnose.”
xxx
“The act of defendant-appellant in unjustly refusing plaintiff-appellee’s demand for
special medical service abroad for the reason that plaintiff-appellee’s deteriorating
physical condition was not due to the accident violates the provisions of Article 19 of
the Civil Code on human relations “to act with justice, give everyone his due, and
observe honesty and good faith.” (CA Resolution, pp. 151-152, Records)
We reject the theory of petitioner that private respondent is not entitled to moral damages.
Under the facts found by the trial court and affirmed by the appellate court and under the
law and jurisprudence cited and applied, the grant of moral damages in the amount of
P50,000.00 is proper and justified.
The fact that private respondent suffered physical injuries in the head when the plane crash-
landed due to the negligence of Capt. Bustamante is undeniable. The negligence of the
latter is clearly a quasi-delict and therefore Article 2219, (2) New Civil Code is applicable,
justifying the recovery of moral damages.
 10

Even from the standpoint of the petitioner that there is an employer-employee relationship
between it and private respondent arising from the contract of employment, private
respondent is still entitled to moral damages in view of the finding of bad faith or malice by
the appellate court, which finding We hereby affirm, applying the provisions of Art. 2220,
New Civil Code which provides that willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.
The justification in the award of moral damages under Art. 19 of the New Civil Code on
Human Relations which requires that every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith, as applied by respondent court is also well-taken and We hereby give Our
affirmance thereto.
With respect to the award of attorney’s fees in the sum of P20,000.00 the same is likewise
correct. As pointed out in the decision of the Court of Appeals, “the plaintiff is entitled to
attorney’s fees because he was forced to litigate in order to enforce his valid claim
(Ganaban vs. Bayle, 30 S 365; De la Cruz vs. De la Cruz, 22 S 33; and many others);
defendant acted in bad faith in refusing plaintiff’s valid claim (Filipino Pipe Foundry
Corporation vs. Central Bank, 23 S 1044); and plaintiff was dismissed and was forced to go
to court to vindicate his right (Nadura vs. Benguet Consolidated, Inc., 5 S 879).”
We also agree with the modification made by the appellate court in ordering payment of
legal interest from the date judicial demand was made by Pilot Samson against PAL with
the filing of the complaint in the lower court. We affirm the ruling of the respondent court
which reads:
“Lastly, the defendant-appellant claims that the legal rate of interest on the unearned
compensation should be computed from the date of the judgment in the lower court,
not from the filing of the complaint, citing a case where the issue raised in the
Supreme Court was limited to when the judgment was rendered in the lower court or
in the appellate court, which does not mean that it should not be computed from the
filing of the complaint.
Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be
computed. Thereunder interest begins to accrue upon demand, extrajudicial or
judicial. A complaint is a judicial demand (Cabarroguis vs. Vicente, 107 Phil. 340).
Under Article 2212 of the Civil Code, interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be silent upon this point.”
(CA Resolution, pp. 153-154, Records).
The correct amount of compensatory damages upon which legal interest shall accrue from
the filing of the complaint is P204,000.00 as herein computed and not P198,000.00.
WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby
affirmed with slight modification in that the correct amount of compensatory damages is
P204,000.00. With costs against petitioner.
SO ORDERED.