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I.

CONCEPT OF COMMON CARRIER

***DEFINITION

De Guzman v. CA
Facts:
Respondent Ernesto Cendana was a junk dealer. He buys scrap materials and brings those that he gathered to Manila
for resale using 2 six-wheeler trucks. On the return trip to Pangasinan, respondent would load his vehicle with cargo
which various merchants wanted delivered, charging fee lower than the commercial rates. Sometime in November 1970,
petitioner Pedro de Guzman contracted with respondent for the delivery of 750 cartons of Liberty Milk. On December
1, 1970, respondent loaded the cargo. Only 150 boxes were delivered to petitioner because the truck carrying the boxes
was hijacked along the way. Petitioner commenced an action claiming the value of the lost merchandise. Petitioner
argues that respondent, being a common carrier, is bound to exercise extraordinary diligence, which it failed to do.
Private respondent denied that he was a common carrier, and so he could not be held liable for force majeure. The trial
court ruled against the respondent, but such was reversed by the Court of Appeals.
Issues:
(1) Whether or not private respondent is a common carrier
(2) Whether private respondent is liable for the loss of the goods
Held:
(1) Article 1732 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. 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 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. A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code provisions governing common carriers.
(2) 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:
a. Flood, storm, earthquake, lightning, or other natural disaster or calamity;
b. Act of the public enemy in war, whether international or civil;
c. Act or omission of the shipper or owner of the goods;
d. The character of the goods or defects in the packing or in the containers; and
e. Order or act of competent public authority."
The hijacking of the carrier's truck - does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. 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. 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." 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.

Republic of the Philippines


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

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than
regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company
(Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled
milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks:
150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other
truck which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since
the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by
armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and
holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way
of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth,
be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private respondent's principal
occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers
a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of
care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration
of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common
carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as required in
Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case —
the hijacking of the carrier's truck — does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions
of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part
of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the
instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with
the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the
vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional
specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in
relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of
his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with
or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle, ship,
airplane or other equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish
such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact
acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.
The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina,
Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away
with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined
for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted
with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5) hold-uppers were armed with firearms.
The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found
by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous
standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for
the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's
control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated
3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
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.

Transportation Case Digest: Planters Products Inc v. CA (1993)


G.R. No. 101503 September 15, 1993
Lessons Applicable: Charter Party (Transportation)

FACTS:
 June 16 1974: Mitsubishi International Corporation (Mitsubishi) of New York, U.S.A., 9,329.7069
M/T of Urea 46% fertilizer bought by Planters Products, Inc. (PPI) on aboard the cargo vessel
M/V "Sun Plum" owned by private 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
 May 17 1974: a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform
General Charter was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan
 Before loading the fertilizer aboard the vessel, 4 of her holds were all presumably inspected by
the charterer's representative and found fit
 The hatches remained closed and tightly sealed throughout the entire voyage
 July 3, 1974: PPI 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
conditions of the charter-partly
o hatches remained open throughout the duration of the discharge
o 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 50 meters from the wharf
o 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.
o 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.
o Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain
spillages of the ferilizer
o It took 11 days for PPI to unload the cargo
 Cargo Superintendents Company Inc. (CSCI), private marine and cargo surveyor, was hired by
PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior
to and after discharge
o 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
 Certificate of Shortage/Damaged Cargo prepared by PPI
o short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been
polluted with sand, rust and dirt
 PPI sent a claim letter 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
o SSA: what they received was just a request for shortlanded certificate and not a formal
claim, and that they "had nothing to do with the discharge of the shipment
 RTC: failure to destroy the presumption of negligence against them, SSA are liable
 CA: REVERSED - failed to prove the basis of its cause of action
ISSUE: W/N a time charter between a shipowner and a charterer transforms 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

HELD: NO. petition is DISMISSED


 When PPI 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
 carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of
negligence. 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.
 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
o This is a risk the shipper or the owner of the goods has to face. Clearly, KKKK 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.
o 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.

THIRD DIVISION
[G.R. No. 106052. October 22, 1999]
PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS AND FERTIPHIL CORPORATION, INC.,
respondents.
DECISION
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking to annul the
Decisioni[1] of the Court of Appeals, dated June 19, 1992, in CA-G.R. No. 2776, which denied the petition to set aside
the Orderii[2] dated April 8, 1992 of the Regional Trial Court of Makati, Branch 146, in Civil Case No. 17835.

The antecedent facts are as follows:


 On June 3, 1985, for the purpose of rehabilitating Philippine Planters, Inc., the then President Ferdinand E. Marcos issued
Letter of Instruction (LOI) No. 1465 which imposed a charge of P10.00 per bag of fertilizer on all domestic sales of
fertilizer in the Philippines.
 Respondent Fertiphil Corporation, a domestic entity engaged in the fertilizer business, questioned the constitutionality of
LOI NO. 1465 and brought an action to recover its accumulated payment thereunder in the amount of P6,698,144.00, the
case docketed as Civil Case No. 17835 before Branch 147 of the Regional Trial Court of Makati.
 On November 20, 1991, the court of origin declared Letter of Instruction No. 1465 unconstitutional and ordered the
petitioner to pay the private respondent the amount it paid pursuant thereto; disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the defendant
Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000.00 as attorneys fees;
3) the costs of suit.
SO ORDERED.iii[3]

 On February 20, 1992, simultaneously with the filing of petitioners notice of appeal, the private respondent presented a
motion to execute the said decision pending appeal, but the motion was opposed by the petitioner on the ground that there
was no good reason to warrant execution pending appeal.
 On April 8, 1992, the lower court granted the motion for execution pending appeal and directed the issuance of the
corresponding writ of execution upon the posting by private respondent of a bond in the amount of P6,698,000.00;
ratiocinating thus:
 Thus, it is clear from the foregoing discussion that the tax imposition under LOI No. 1465 is null and void and cannot be
justified even under the police power of the state. As a matter of fact, because it is an invalid tax imposition, the same
was discontinued upon the advent of a free and democratic regime after the EDSA revolution. Hence, the Court finds
that the appeal of the defendant is not only dilatory but also frivolous.
 Anyway, in the remote event of reversal by the appellate court, there is the bond to answer for the return of these assets
which may be executed pending appeal. It has been held that the filing of a bond by the prevailing party constitutes good
reason for the issuance of a writ of execution pending appeal. x x x
WHEREFORE, in view of the foregoing, the court hereby grants plaintiffs motion for execution pending appeal. Let a writ of
execution issue upon the filing of a bond in the amount of P6,698,000.00 subject to the approval of the Court.
SO ORDERED.iv[4]

On April 13, 1997, upon the posting of the requisite bond, Fertiphil caused the closure of petitioners warehouse in Sta. Ana,
Metro Manila. Stored in that warehouse were 70,000 bags of fertilizer (estimated by Fertiphil to be 47,000 bags only). Also
levied upon were twenty-four (24) Suzuki motorcycles, five (5) Suzuki jeeps and two (2) UV FMA 220-D motor vehicles. On
April 20, 1992, the properties thus levied upon were sold at public auction, with Fertiphil as the highest bidder.
 On April 14, 1992, petitioner filed with the Court a quo an Urgent Omnibus Motion, asked for the approval of its
supersedeas bond in the amount of P10,477,902.45, and prayed that pending approval of the said supersedeas bond, the
lower court:
 x x x immediately issue an Order (1) DIRECTING plaintiff (Fertiphil) and/or the Sheriff of this Honorable Court, as well
as all the persons acting under their supervision and/or instruction to immediately cease and desist from performing any
act or all acts in furtherance of the execution of the Decision dated November 1991, and (2) DIRECTING the immediate
release of defendant PPIs abovementioned bank accounts and funds from garnishment.v[5]
 Petitioner further prayed that the order of execution pending appeal as well as the writ issued by virtue thereof be set
aside and dissolved; and its omnibus motion be heard on the following day, April 15, 1992. Acting thereupon on the
same day, the lower court issued an order giving the private respondent ten (10) days to submit its opposition to the
motion of petitioner, and also giving petitioner ten (10) days from receipt of the opposition to reply thereto, if so desired.
 Five (5) days later, or on April 20, 1993, to be precise, petitioner brought a petition for certiorari before the Court of
Appeals on the alleged ground that the lower court unreasonably failed to act on its Urgent Omnibus Motion dated April
14, 1992.
 On April 21, 1992, the Court of Appeals issued a Temporary Restraining Order effective until May 11, 1992, enjoining
the private respondent and all persons acting under their supervision and/or instruction from executing any further the
decision in Civil Case No. 17835. After the lapse of said period, on May 5, 1992, petitioner presented an Urgent Motion
for the issuance of a writ of preliminary injunction to prevent private respondent from executing any further the decision
of the trial court.
 On May 21, 1992, petitioner asked the Court of Appeals to admit its supplemental petition for certiorari imputing abuse
of discretion, amounting to lack or excess of jurisdiction, on the part of the lower court in granting private respondents
motion for execution pending appeal.
 On June 19, 1992, the Court of Appeals came out with its decision to the following effect:
 WHEREFORE, the petition and supplemental petition are hereby DENIED. The prayer for the issuance of a preliminary
injunction is likewise denied. Costs against petitioner.
 SO ORDERED.vi[6]
 Dissatisfied therewith, petitioner found its way to this Court via the present Petition, contending:
 I
THAT THE SUPPLEMENTAL PETITION COULD NO LONGER QUESTION THE SPECIAL EXECUTION SINCE
THIS WAS NOT RAISED IN THE ORIGINAL PETITION;
 II
THAT PPI ADMITTED THE CORRECTNESS OF THE SPECIAL EXECUTION WHEN IT FILED THE
SUPERSEDEAS BOND;
 III
THAT THE FOLLOWING WERE GOOD REASONS TO JUSTIFY ADVANCE EXECUTION: i) FRIVOLOUSNESS OF
THE APPEAL BECAUSE LOI No. 1465 IS UNCONSTITUTIONAL; AND ii) FILING OF THE BOND OF P6,698,144;
 IV
THAT THE TRIAL COURT DID NOT GRAVELY ABUSE ITS DISCRETION WHEN IT GAVE FERTIPHIL 10
DAYS TO OPPOSE PPIS SUBMISSION OF SUPERSEDEAS BOND.
 V
THAT THE COLLECTION UNDER LOI No.1465 WAS FOR THE BENEFIT OF PPI AND RECEIVED BY IT
WITHOUT CONSIDERATION; and
 VI
THAT THE IMPOSITION UNDER LOI 1465 WAS IMPROPER EXERCISE OF TAXATION. vii[7]
 The petition is impressed with merit.
 It is true that the Supplemental Petition could have been raised in the original petition filed with the Court of Appeals.
However, the Court discerns no legal infirmity, and perceives no ground to deny due course to the said Supplemental
Petition imputing abuse of discretion on the part of the trial court in issuing the order of execution pending appeal, as this
was precisely the bottom line of the two petitions before the Court of Appeals. It bears stressing that the rules of procedure
are not to be applied in a very rigid and technical manner, as rules of procedure are used only to help secure substantial
justice.viii[8] They cannot be blindly adhered to if they would serve no other purpose than to put into oblivion the very
lis mota of the controversy under scrutiny.
 Section 2, Rule 39, of the Rules of Court which was the applicable provision when the trial court allowed the execution
pending appeal, provided:
 Sec. 2. Execution pending appeal.- On motion of the prevailing party with notice to the adverse party, the court may, in
its discretion, order execution to issue, even before the expiration of the time to appeal, upon good reasons to be stated
in the special order. If a record on appeal is filed thereafter the motion and the special order shall be included therein.
 The prevailing doctrine then - which is the same as provided in paragraph 2, Section 2 of Rule 39 of the 1997 Rules of
Civil Procedure - is that discretionary execution is permissible when good reasons exist for immediately executing the
judgment before finality or pending appeal or even before the expiration of the time to appeal. Good reasons consist of
compelling circumstances justifying the immediate execution lest the judgment becomes illusory, or the prevailing party
may after the lapse of time become unable to enjoy it.ix[9]
 In the present case, the supposed good reasons relied upon by the trial court, and upheld in by the respondent Court in
granting execution pending appeal are that: 1) The appeal is frivolous because LOI No. 1465 is unconstitutional; and 2)
Fertiphil posted a bond.
 Although ascertainment of the special reasons for execution pending appeal lies within the sound discretion of the trial
court, and the appellate Court should not normally disturb such finding, intervention by the appellate court may be proper,
if it is shown that there has been an abuse of discretion.x[10] That the appeal was merely dilatory because the assailed
letter of instruction is unconstitutional, does not constitute good reason to justify execution pending appeal. Well-settled
is the rule that it is not for the trial court to determine the merit of a decision it rendered as this is the role of the appellate
Court.xi[11] Hence, it is not within the competence of the trial court, in resolving the motion for execution pending
appeal, to rule that the appeal is patently dilatory and rely on the same as the basis for finding good reason to grant the
motion.xii[12]
 So also, mere issuance of a bond to answer for damages is no longer considered a good reason for execution pending
appeal. To consider the mere posting of a bond as a good reason would precisely make immediate execution of judgment
pending appeal routinary, the rule rather than the exception.xiii[13]
 The rule on execution pending appeal must be strictly construed being an exception to the general rule.xiv[14] Applying
the rule on statutory construction, it should be interpreted only so far as the language thereof fairly warrants, and all
doubts should be resolved in favor of the general rule rather than the exceptions.xv[15] In light of the foregoing, this
Court is unable to agree with the Court of Appeals that the petitioner admitted the correctness of the special or
discretionary execution when it posted the supersedeas bond. Besides, in its Urgent Omnibus Motion before the trial
court, petitioner prayed that the Order of the lower court dated April 8, 1992, directing execution pending appeal, be set
aside.
 Then too, it can be gleaned that there is no good reason to grant execution pending appeal, under the premises. To repeat,
the ground for granting execution pending appeal must be a good reason. Thus, when the Court has already granted a
stay of execution upon the adverse partys filing of a supersedeas bond, the circumstances justifying execution despite the
supersedeas bond, must be paramount; they should outweigh the security offered by the supersedeas bond.xvi[16] In the
present case, however, the Court discerns no reason paramount enough to warrant the execution pending appeal. To rule
otherwise would be to make the remedy of execution pending appeal a tool of oppression and inequity instead of being
an instrument of solicitude and justice.xvii[17]
 Anent the fourth error assigned, the Court upholds the ruling that the respondent court is not under obligation to act
immediately on the supersedeas bond submitted by the petitioners. Under Section 3, Rule 39 of the Revised Rules of
Court,xviii[18] the judgment debtor is not entitled to a suspension as a matter of right. Indeed, it was in the exercise of its
sound judgment that the trial court required the filing of a written opposition from Fertiphil and a possible reply from the
petitioner.
 The constitutional issues posed are not the proper subjects of the instant petition seeking to set aside the assailed decision
of the Court of Appeals, considering that the said Court did not, and could not, in its challenged decision, rule on the
constitutionality of LOI No. 1465. The remedy of certiorari under Rule 65 of the Revised Rules of Court is limited to
acts of any tribunal, board, or office exercising judicial function without or in excess of jurisdiction or with grave abuse
of discretionxix[19] and is not available for the correction of errors of judgment which may be raised only on appeal.xx[20]
In the case before the Court, while the respondent court referred to the findings of the trial court that LOI No. 1465 is
unconstitutional, it did not hold that such finding is correct or incorrect. The Court of Appeals properly deferred ruling
on the correctness of the judgment sought to be executed, as the merits of the case itself were duly submitted to the
jurisdiction of the said Court in the proper case, by way of a regular appeal. Time honored is the rule that jurisdiction
once acquired is not lost upon the instance of the parties but continues until the case is terminated.xxi[21] Therefore, the
Court of Appeals which first acquired jurisdiction over the constitutionality of LOI No. 1465 by way of regular appeal,
excludes all others, including this court from passing upon the validity of subject letter of instruction.
 In this disposition, the Court limits itself to the wisdom of the exercise of discretion by the trial court in ordering the
execution of its judgment pending appeal. It is imperative that this Court allows the main appeal pending before the Court
of Appeals to take its normal course.xxii[22]
 Premises studiedly considered, the Court is of the ineluctable conclusion, and so holds, that the Court of Appeals erred
in granting the motion to execute pending appeal the judgment of the trial court in Civil Case No. 17835.
 WHEREFORE, the Petition is GRANTED; the decision of the Court of Appeals, dated June 19, 1992, in CA-G.R. No.
27769 and the Order dated November 20, 1991, of the Regional Trial Court of Makati, Branch 147, in Civil Case No.
27769 are SET ASIDE. Fertiphil is hereby ordered to return all the properties of Philippine Planters, Inc., taken and sold
at the public auction to satisfy the judgment of the trial court in Civil Case No. 17385, or if return thereof is not feasible
to pay Philippine Planters, Inc. the value of the said properties, as of the date of the sale thereof. No pronouncement as
to costs.
 SO ORDERED.

***CHARACTERISTICS OF A COMMON CARRIER

F.C. Fisher v. Yangco Steamship Co.


G.R. No. L-8095 March 31, 1915
Carson, J.
FACTS:

Fisher is a stockholder in the Yangco Steamship Company. The directors of the company adopted a resolution which was thereafter
ratified and affirmed by the shareholders of the company, expressly declaring and providing that the classes of merchandise to be
carried by the company in its business as a common carrier do not include dynamite, powder or o t h e r e x p l o s i v e s , a n d
e x p r e s s l y p r o h i b i t i n g t h e o f f i c e r s , a g e n t s a n d s e r v a n t s o f t h e company from offering to carry,
accepting for carriage said dynamite, powder or other explosives.

Then Acting Collector of Customs demanded and required of the company the acceptance a n d c a r r i a g e o f s u c h
explosives. He has refused and suspended the issuance of the necessary clearance documents
o f t h e v e s s e l s o f t h e c o m p a n y u n l e s s a n d u n t i l t h e company consents to accept such explosives for
carriage. Fisher was advised that s h o u l d t h e c o m p a n y d e c l i n e t o a c c e p t s u c h e x p l o s i v e s f o r
c a r r i a g e , t h e r e s p o n d e n t Attorney-General of the Philippine Islands and the respondent prosecuting attorney of the city
of Manila intend to institute proceedings under the penal provisions of sections 4, 5,and 6 of Act No. 98 of the Philippine
Commission against the company, its managers, agents and servants.

Notwithstanding the demands of Fisher, the manager, agents and servants of the company decline and refuse the carriage of such
explosives.
ISSUE:
WON the acts complained of had the effect of making or giving an unreasonable or unnecessary preference or advantage to any
person, locality or particular kind of traffic, orof subjecting any person, locality, or particular kind of traffic to any undue or
unreasonable prejudice or discrimination
HELD:
No.

There may be some vessels engaged in business as common carriers of merchandise, which for lack of
suitable deck space or storage rooms might be justified in declining to carry kerosene oil, gasoline, and similar
products, even when offered for carriage securely packed in cases; and few vessels are equipped to transport those products in bulk.
But in any case of a refusal to carry such products which would subject any person, locality or the traffic in such products would
be necessary to hear evidence before making an affirmative f i n d i n g t h a t s u c h p r e j u d i c e o r d i s c r i m i n a t i o n w a s
o r w a s n o t u n n e c e s s a r y , u n d u e o r unreasonable. The making of such a finding would involve a consideration of the
suitability of the vessel for the transportation of such products; the reasonable possibility of danger or disaster resulting from
their transportation in the form and under the conditions in which they are offered for carriage; the general nature of
the business done by the carrier and, in a word, all the attendant circumstances which might affect the question of
the reasonable necessity for the refusal by the carrier to undertake the transportation of this class of merchandise

G.R. No. L-8095 March 31, 1915


F.C. FISHER, plaintiff,
vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the Philippine Islands,
IGNACIO VILLAMOR, as Attorney-General of the Philippine Islands, and W.H. BISHOP, as prosecuting attorney of
the city of Manila, respondents.
 The real question involved in these proceedings is whether the refusal of the owners and officers of a steam vessel, duly
licensed to engage in the coastwise trade of the Philippine Islands and engaged in that trade as a common carrier, to
accept for carriage "dynamite, powder or other explosives" from any and all shippers who may offer such explosives for
carriage can be held to be a lawful act without regard to any question as to the conditions under which such explosives
are offered to carriage, or as to the suitableness of the vessel for the transportation of such explosives, or as to the
possibility that the refusal to accept such articles of commerce in a particular case may have the effect of subjecting any
person or locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or discrimination.
 Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship Company, the owner
of a large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine Islands; that on or
about June 10, 1912, the directors of the company adopted a resolution which was thereafter ratified and affirmed by the
shareholders of the company, "expressly declaring and providing that the classes of merchandise to be carried by the
company in its business as a common carrier do not include dynamite, powder or other explosives, and expressly
prohibiting the officers, agents and servants of the company from offering to carry, accepting for carriage said dynamite,
powder or other explosives;" that thereafter the respondent Acting Collector of Customs demanded and required of the
company the acceptance and carriage of such explosives; that he has refused and suspended the issuance of the necessary
clearance documents of the vessels of the company unless and until the company consents to accept such explosives for
carriage; that plaintiff is advised and believes that should the company decline to accept such explosives for carriage, the
respondent Attorney-General of the Philippine Islands and the respondent prosecuting attorney of the city of Manila
intend to institute proceedings under the penal provisions of sections 4, 5, and 6 of Act No. 98 of the Philippine
Commission against the company, its managers, agents and servants, to enforce the requirements of the Acting Collector
of Customs as to the acceptance of such explosives for carriage; that notwithstanding the demands of the plaintiff
stockholder, the manager, agents and servants of the company decline and refuse to cease the carriage of such explosives,
on the ground that by reason of the severity of the penalties with which they are threatened upon failure to carry such
explosives, they cannot subject themselves to "the ruinous consequences which would inevitably result" from failure on
their part to obey the demands and requirements of the Acting Collector of Customs as to the acceptance for carriage of
explosives; that plaintiff believes that the Acting Collector of Customs erroneously construes the provisions of Act No.
98 in holding that they require the company to accept such explosives for carriage notwithstanding the above mentioned
resolution of the directors and stockholders of the company, and that if the Act does in fact require the company to carry
such explosives it is to that extent unconstitutional and void; that notwithstanding this belief of complainant as to the true
meaning of the Act, the questions involved cannot be raised by the refusal of the company or its agents to comply with
the demands of the Acting Collector of Customs, without the risk of irreparable loss and damage resulting from his refusal
to facilitate the documentation of the company's vessels, and without assuming the company to test the questions involved
by refusing to accept such explosives for carriage.
 The prayer of the complaint is as follows:
 Wherefore your petitioner prays to this honorable court as follows:
 First. That to the due hearing of the above entitled action be issued a writ of prohibition perpetually restraining the
respondent Yangco Steamship Company, its appraisers, agents, servants or other representatives from accepting to carry
and from carrying, in steamers of said company dynamite, powder or other explosive substance, in accordance with the
resolution of the board of directors and of the shareholders of said company.
 Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S. Stanley as Acting Collector of
Customs of the Philippine Islands, his successors, deputies, servants or other representatives, from obligating the said
Yangco Steamship Company, by any means whatever, to carry dynamite, powder or other explosive substance.
 Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio Villamor as Attorney-General of
the Philippine Islands, and W.H. Bishop as prosecuting attorney of the city of Manila, their deputies representatives or
employees, from accusing the said Yangco Steamship Company, its officers, agents or servants, of the violation of Act
No. 98 by reason of the failure or omission of the said company to accept for carriage out to carry dynamite powder or
other explosive.
 Fourth. That the petitioner be granted such other remedy as may be meet and proper.
 To this complaint the respondents demurred, and we are of opinion that the demurrer must be sustained, on the ground
that the complaint does not set forth facts sufficient to constitute a cause of action.
 It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company from accepting for
carriage on any of its vessels, dynamite, powder or other explosives, under any conditions whatsoever; to prohibit the
Collector of Customs and the prosecuting officers of the government from all attempts to compel the company to accept
such explosives for carriage on any of its vessels under any conditions whatsoever; and to prohibit these officials from
any attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the company or its officers so to do;
and this without regard to the conditions as to safety and so forth under which such explosives are offered for carriage,
and without regard also to any question as to the suitableness for the transportation of such explosives of the particular
vessel upon which the shipper offers them for carriage; and further without regard to any question as to whether such
conduct on the part of the steamship company and its officers involves in any instance an undue, unnecessary or
unreasonable discrimination to the prejudice of any person, locality or particular kind of traffic.
 There are no allegations in the complaint that for some special and sufficient reasons all or indeed any of the company's
vessels are unsuitable for the business of transporting explosives; or that shippers have declined or will in future decline
to comply with such reasonable regulations and to take such reasonable precautions as may be necessary and proper to
secure the safety of the vessels of the company in transporting such explosives. Indeed the contention of petitioner is that
a common carrier in the Philippine Islands may decline to accept for carriage any shipment of merchandise of a class
which it expressly or impliedly declines to accept from all shippers alike, because as he contends "the duty of a common
carrier to carry for all who offer arises from the public profession he has made, and limited by it."
 In support of this contention counsel cites for a number of English and American authorities, discussing and applying the
doctrine of the common law with reference to common carriers. But it is unnecessary now to decide whether, in the
absence of statute, the principles on which the American and English cases were decided would be applicable in this
jurisdiction. The duties and liabilities of common carriers in this jurisdiction are defined and fully set forth in Act No. 98
of the Philippine Commission, and until and unless that statute be declared invalid or unconstitutional, we are bound by
its provisions.
 Sections 2, 3 and 4 of the Act are as follows:
 SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of passengers or property as above set
forth to make or give any unnecessary or unreasonable preference or advantage to any particular person, company, firm,
corporation or locality, or any particular kind of traffic in any respect whatsoever, or to subject any particular person,
company, firm, corporation or locality, or any particular kind of traffic, to undue or unreasonable prejudice or
discrimination whatsoever, and such unjust preference or discrimination is also hereby prohibited and declared to be
unlawful.
 SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid shall, under any pretense
whatsoever, fail or refuse to receive for carriage, and as promptly as it is able to do so without discrimination, to carry
any person or property offering for carriage, and in the order in which such persons or property are offered for carriage,
nor shall any such common carrier enter into any arrangement, contract or agreement with any other person or corporation
whereby the latter is given an exclusive or preferential or monopolize the carriage any class or kind of property to the
exclusion or partial exclusion of any other person or persons, and the entering into any such arrangement, contract or
agreement, under any form or pretense whatsoever, is hereby prohibited and declared to be unlawful.
 SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in the transportation of
passengers or property as hereinbefore set forth is hereby declared to be punishable by a fine not exceeding five thousand
dollars money of the United States, or by imprisonment not exceeding two years, or both, within the discretion of the
court.
 The validity of this Act has been questioned on various grounds, and it is vigorously contended that in so far as it imposes
any obligation on a common carrier to accept for carriage merchandise of a class which he makes no public profession
to carry, or which he has expressly or impliedly announced his intention to decline to accept for carriage from all shippers
alike, it is ultra vires, unconstitutional and void.
 We may dismiss without extended discussion any argument or contention as to the invalidity of the statute based on
alleged absurdities inherent in its provisions or on alleged unreasonable or impossible requirements which may be read
into it by a strained construction of its terms.
 We agree with counsel for petitioner that the provision of the Act which prescribes that, "No common carrier ... shall,
under any pretense whatsoever, fail or refuse to receive for carriage ... to carry any person or property offering for
carriage," is not to be construed in its literal sense and without regard to the context, so as to impose an imperative duty
on all common carriers to accept for carriage, and to carry all and any kind of freight which may be offered for carriage
without regard to the facilities which they may have at their disposal. The legislator could not have intended and did not
intend to prescribe that a common carrier running passenger automobiles for hire must transport coal in his machines;
nor that the owner of a tank steamer, expressly constructed in small watertight compartments for the carriage of crude oil
must accept common carrier must accept and carry contraband articles, such as opium, morphine, cocaine, or the like,
the mere possession of which is declared to be a criminal offense; nor that common carriers must accept eggs offered for
transportation in paper parcels or any merchandise whatever do defectively packed as to entail upon the company
unreasonable and unnecessary care or risks.
 Read in connection with its context this, as well as all the other mandatory and prohibitory provisions of the statute, was
clearly intended merely to forbid failures or refusals to receive persons or property for carriage involving any
"unnecessary or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality,
or any particular kind of traffic in any respect whatsoever," or which would "subject any particular person, company,
firm, corporation or locality, or any particular kind of traffic to any undue or unreasonable prejudice or discrimination
whatsoever."
 The question, then, of construing and applying the statute, in cases of alleged violations of its provisions, always involves
a consideration as to whether the acts complained of had the effect of making or giving an "unreasonable or unnecessary
preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality, or
particular kind of traffic to any undue or unreasonable prejudice or discrimination. It is very clear therefore that the
language of the statute itself refutes any contention as to its invalidity based on the alleged unreasonableness of its
mandatory or prohibitory provisions.
 So also we may dismiss without much discussion the contentions as to the invalidity of the statute, which are based on
the alleged excessive severity of the penalties prescribed for violation of its provisions. Upon general principles it is
peculiarly and exclusively within the province of the legislator to prescribe the pains and penalties which may be imposed
upon persons convicted of violations of the laws in force within his territorial jurisdiction. With the exercise of his
discretion in this regard where it is alleged that excessive fines or cruel and unusual punishments have been prescribed,
and even in such cases the courts will not presume to interfere in the absence of the clearest and most convincing argument
and proof in support of such contentions. (Weems vs. United States, 217 U.S., 349; U.S. vs. Pico, 18 Phil. Rep., 386.)
We need hardly add that there is no ground upon which to rest a contention that the penalties prescribed in the statute
under consideration are either excessive or cruel and unusual, in the sense in which these terms are used in the organic
legislation in force in the Philippine Islands.
 But it is contended that on account of the penalties prescribed the statute should be held invalid upon the principles
announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard (183 U.S., 79, 102); Mercantile Trust Co.
vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs. Mayer (416 Fed., 150). We
are satisfied however that the reasoning of those cases is not applicable to the statute under consideration. The principles
announced in those decisions are fairly indicated in the following citations found in petitioner's brief:
 But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute, so burdens any challenge
thereof in the courts that the party affected is necessarily constrained to submit rather than take the chances of the penalties
imposed, then it becomes a serious question whether the party is not deprived of the equal protection of the laws. (Cotting
vs. Goddard, 183 U. S., 79, 102.)
 It may therefore be said that when the penalties for disobedience are by fines so enormous and imprisonment so severe
as to intimidate the company and its officers from resorting to the courts to test the validity of the legislation, the result
is the same as if the law in terms prohibited the company from seeking judicial construction of laws which deeply affect
its rights.
 It is urged that there is no principle upon which to base the claim that a person is entitled to disobey a statute at least
once, for the purpose of testing its validity, without subjecting himself to the penalties for disobedience provided by the
statute in case it is valid. This is not an accurate statement of the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the jurisdiction of the legislature is complete in any event. In
the case, however, of the establishment of certain rates without any hearing, the validity of such rates necessarily depends
upon whether they are high enough to permit at least some return upon the investment (how much it is not now necessary
to state), and an inquiry as to that fact is a proper subject of judicial investigation. If it turns out that the rates are too low
for that purpose, then they are illegal. Now, to impose upon a party interested the burden of obtaining a judicial decision
of such a question (no prior hearing having been given) only upon the condition that, if unsuccessful, he must suffer
imprisonment and pay fines, as provided in these acts, is, in effect, to close up all approaches to the courts, and thus
prevent any hearing upon the question whether the rates as provided by the acts are not too low, and therefore invalid.
The distinction is obvious between a case where the validity of the act depends upon the existence of a fact which can be
determined only after investigation of a very complicated and technical character, and the ordinary case of a statute upon
a subject requiring no such investigation, and over which the jurisdiction of the legislature is complete in any event.
 We hold, therefore, that the provisions of the acts relating to the enforcement of the rates, either for freight or passengers,
by imposing such enormous fines and possible imprisonment as a result of an unsuccessful effort to test the validity of
the laws themselves, are unconstitutional on their face, without regard to the question of the insufficiency of those rates.
(Ex parte Young, 209 U.S., 123 147, 148.)
 An examination of the general provisions of our statute, of the circumstances under which it was enacted, the mischief
which it sought to remedy and of the nature of the penalties prescribed for violations of its terms convinces us that, unlike
the statutes under consideration in the above cited cases, its enactment involved no attempt to prevent common carriers
"from resorting to the courts to test the validity of the legislation;" no "effort to prevent any inquiry" as to its validity. It
imposes no arbitrary obligation upon the company to do or to refrain from doing anything. It makes no attempt to compel
such carriers to do business at a fixed or arbitrarily designated rate, at the risk of separate criminal prosecutions for every
demand of a higher or a different rate. Its penalties can be imposed only upon proof of "unreasonable," "unnecessary"
and "unjust" discriminations, and range from a maximum which is certainly not excessive for willful, deliberate and
contumacious violations of its provisions by a great and powerful corporation, to a minimum which may be a merely
nominal fine. With so wide a range of discretion for a contention on the part of any common carrier that it or its officers
are "intimidated from resorting to the courts to test the validity" of the provisions of the statute prohibiting such
"unreasonable," "unnecessary" and "unjust" discriminations, or to test in any particular case whether a given course of
conduct does in fact involve such discrimination. We will presume, for the purpose of declaring the statute invalid, that
there is so real a danger that the Courts of First Instance and this court on appeal will abuse the discretion thus conferred
upon us, as to intimidate any common carrier, acting in good faith, from resorting to the courts to test the validity of the
statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable restraints of trade, and
unreasonable conduct in various forms of human activity are so familiar and have been so frequently sustained in the
courts, as to render extended discussion unnecessary to refute any contention as to the invalidity of the statute under
consideration, merely it imposes upon the carrier the obligation of adopting one of various courses of conduct open to it,
at the risk of incurring a prescribed penalty in the event that the course of conduct actually adopted by it should be held
to have involved an unreasonable, unnecessary or unjust discrimination. Applying the test announced in Ex parte Young,
supra, it will be seen that the validity of the Act does not depend upon "the existence of a fact which can be determined
only after investigation of a very complicated and technical character," and that "the jurisdiction of the legislature" over
the subject with which the statute deals "is complete in any event." There can be no real question as to the plenary power
of the legislature to prohibit and to penalize the making of undue, unreasonable and unjust discriminations by common
carriers to the prejudice of any person, locality or particular kind of traffic. (See Munn vs. Illinois, 94 U.S., 113, and other
cases hereinafter cited in support of this proposition.)
 Counsel for petitioner contends also that the statute, if construed so as to deny the right of the steamship company to elect
at will whether or not it will engage in a particular business, such as that of carrying explosives, is unconstitutional
"because it is a confiscation of property, a taking of the carrier's property without due process of law," and because it
deprives him of his liberty by compelling him to engage in business against his will. The argument continues as follows:
 To require of a carrier, as a condition to his continuing in said business, that he must carry anything and every thing is to
render useless the facilities he may have for the carriage of certain lines of freight. It would be almost as complete a
confiscation of such facilities as if the same were destroyed. Their value as a means of livelihood would be utterly taken
away. The law is a prohibition to him to continue in business; the alternative is to get out or to go into some other business
— the same alternative as was offered in the case of the Chicago & N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which
was there commented on as follows:
 "Whatever of force there may be in such arguments, as applied to mere personal property capable of removal and use
elsewhere, or in other business, it is wholly without force as against railroad corporations, so large a proportion of whose
investment is in the soil and fixtures appertaining thereto, which cannot be removed. For a government, whether that
government be a single sovereign or one of the majority, to say to an individual who has invested his means in so laudable
an enterprise as the construction of a railroad, one which tends so much to the wealth and prosperity of the community,
that, if he finds that the rates imposed will cause him to do business at a loss, he may quit business, and abandon that
road, is the very irony of despotism. Apples of Sodom were fruit of joy in comparison. Reading, as I do, in the preamble
of the Federal Constitution, that it was ordained to "establish justice," I can never believe that it is within the property of
an individual invested in and used for a purpose in which even the Argus eyes of the police power can see nothing
injurious to public morals, public health, or the general welfare. I read also in the first section of the bill of rights of this
state that "all men are by nature free and equal, and have certain inalienable rights, among which are those of enjoying
and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety and
happiness;" and I know that, while that remains as the supreme law of the state, no legislature can directly or indirectly
lay its withering or destroying hand on a single dollar invested in the legitimate business of transportation." (Chicago &
N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)
 It is manifest, however, that this contention is directed against a construction of the statute, which, as we have said, is not
warranted by its terms. As we have already indicated, the statute does not "require of a carrier, as a condition to his
continuing in said business, that he must carry anything and everything," and thereby "render useless the facilities he
may have for the carriage of certain lines of freight." It merely forbids failures or refusals to receive persons or property
for carriage which have the effect of giving an "unreasonable or unnecessary preference or advantage" to any person,
locality or particular kind of traffic, or of subjecting any person, locality or particular kind of traffic to any undue or
unreasonable prejudice or discrimination.
 Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair, reasonable and valid exercise
of government," and that "it is necessary and proper that such discrimination be prohibited and prevented," but he
contends that "on the other hand there is no reasonable warrant nor valid excuse for depriving a person of his liberty by
requiring him to engage in business against his will. If he has a rolling boat, unsuitable and unprofitable for passenger
trade, he may devote it to lumber carrying. To prohibit him from using it unless it is fitted out with doctors and stewards
and staterooms to carry passengers would be an invalid confiscation of this property. A carrier may limit his business to
the branches thereof that suit his convenience. If his wagon be old, or the route dangerous, he may avoid liability for loss
of passengers' lives and limbs by carrying freight only. If his vehicles require expensive pneumatic tires, unsuitable for
freight transportation, ha may nevertheless carry passengers. The only limitation upon his action that it is competent for
the governing authority to impose is to require him to treat all alike. His limitations must apply to all, and they must be
established limitations. He cannot refuse to carry a case of red jusi on the ground that he has carried for others only jusi
that he was green, or blue, or black. But he can refuse to carry red jusi, if he has publicly professed such a limitation upon
his business and held himself out as unwilling to carry the same for anyone."
 To this it is sufficient answer to say that there is nothing in the statute which would deprive any person of his liberty "by
requiring him to engage in business against his will." The prohibitions of the statute against undue, unnecessary or
unreasonable regulations which the legislator has seen fit to prescribe for the conduct of the business in which the carrier
is engaged of his own free will and accord. In so far as the self-imposed limitations by the carrier upon the business
conducted by him, in the various examples given by counsel, do not involve an unreasonable or unnecessary
discrimination the statute would not control his action in any wise whatever. It operates only in cases involving such
unreasonable or unnecessary preferences or discriminations. Thus in the hypothetical case suggested by the petitioner, a
carrier engaged in the carriage of green, blue or black jusi, and duly equipped therefor would manifestly be guilty of
"giving an unnecessary and unreasonable preference to a particular kind of traffic" and of subjecting to "an undue and
reasonable prejudice a particular kind of traffic," should he decline to carry red jusi, to the prejudice of a particular shipper
or of those engaged in the manufacture of that kind of jusi, basing his refusal on the ground of "mere whim or caprice"
or of mere personal convenience. So a public carrier of passengers would not be permitted under this statute to absolve
himself from liability for a refusal to carry a Chinaman, a Spaniard, an American, a Filipino, or a mestizo by proof that
from "mere whim or caprice or personal scruple," or to suit his own convenience, or in the hope of increasing his business
and thus making larger profits, he had publicly announced his intention not to carry one or other of these classes of
passengers.
 The nature of the business of a common carrier as a public employment is such that it is clearly within the power of the
state to impose such just and reasonable regulations thereon in the interest of the public as the legislator may deem proper.
Of course such regulations must not have the effect of depriving an owner of his property without due process of law,
nor of confiscating or appropriating private property without just compensation, nor of limiting or prescribing irrevocably
vested rights or privileges lawfully acquired under a charter or franchise. But aside from such constitutional limitations,
the determination of the nature and extent of the regulations which should be prescribed rests in the hands of the legislator.
 Common carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their
business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey Steam Nav. Co. vs.
Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond
question that it is well settled that the power of the state to exercise legislative control over railroad companies and other
carriers "in all respects necessary to protect the public against danger, injustice and oppression" may be exercised through
boards of commissioners. (New York etc. R. Co. vs. Bristol, 151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff,
153 U.S., 689.)
 Regulations limiting of passengers the number of passengers that may be carried in a particular vehicle or steam vessel,
or forbidding the loading of a vessel beyond a certain point, or prescribing the number and qualifications of the personnel
in the employ of a common carrier, or forbidding unjust discrimination as to rates, all tend to limit and restrict his liberty
and to control to some degree the free exercise of his discretion in the conduct of his business. But since the Granger
cases were decided by the Supreme Court of the United States no one questions the power of the legislator to prescribe
such reasonable regulations upon property clothed with a public interest as he may deem expedient or necessary to protect
the public against danger, injustice or oppression. (Munn vs. Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94
U.S., 155; Budd vs. New York, 143 U.S., 517; Cotting vs. Goddard, 183 U.S., 79.) The right to enter the public
employment as a common carrier and to offer one's services to the public for hire does not carry with it the right to
conduct that business as one pleases, without regard to the interest of the public and free from such reasonable and just
regulations as may be prescribed for the protection of the public from the reckless or careless indifference of the carrier
as to the public welfare and for the prevention of unjust and unreasonable discrimination of any kind whatsoever in the
performance of the carrier's duties as a servant of the public.
 Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the public interest
that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S., 517, 533.) When private
property is "affected with a public interest it ceases to be juris privati only." Property becomes clothed with a public
interest when used in a manner to make it of public consequence and affect the community at large. "When, therefore,
one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that
use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created.
He may withdraw his grant by discontinuing the use, but so long as he maintains the use he must submit to control."
(Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S., 174; Budd vs. New York, 143 U.S., 517;
Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)
 Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under
pretense of regulating fares and freight the state can not require a railroad corporation to carry persons or property without
reward. Nor can it do that which in law amounts to a taking of private property for public use without just compensation,
or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern R. Co. vs.
Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations established and palpably unreasonable
as to make their enforcement equivalent to the taking of property for public use without such compensation as under all
the circumstances is just both to the owner and to the public, that is, judicial interference should never occur unless the
case presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under the guise of
regulations as to compel the court to say that the regulation in question will have the effect to deny just compensation for
private property taken for the public use. (Chicago etc. R. Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S.,
466, 524; Henderson Bridge Co. vs. Henderson City, 173 U.S., 592, 614.)
 Under the common law of England it was early recognized that common carriers owe to the public the duty of carrying
indifferently for all who may employ them, and in the order in which application is made, and without discrimination as
to terms. True, they were allowed to restrict their business so as to exclude particular classes of goods, but as to the kinds
of property which the carrier was in the habit of carrying in the prosecution of his business he was bound to serve all
customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc. Ry. Co. vs. Quezon City Coal
Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that these common law rules are themselves regulations
controlling, limiting and prescribing the conditions under which common carriers were permitted to conduct their
business. (Munn vs. Illinois, 94 U. S., 113, 133.)
 It was found, in the course of time, that the correction of abuses which had grown up with the enormously increasing
business of common carriers necessitated the adoption of statutory regulations controlling the business of common
carriers, and imposing severe and drastic penalties for violations of their terms. In England, the Railway Clauses
Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of those Acts
much additional legislation has been adopted tending to limit and control the conduct of their business by common
carriers. In the United States, the business of common carriers has been subjected to a great variety of statutory
regulations. Among others Congress enacted "The Interstate Commerce Act" (1887) and its amendments, and the Elkins
Act as amended (1906); and most if not all of the States of the Union have adopted similar legislation regulating the
business of common carriers within their respective jurisdictions. Unending litigation has arisen under these statutes and
their amendments, but nowhere has the right of the state to prescribe just and reasonable regulations controlling and
limiting the conduct of the business of common carriers in the public interest and for the general welfare been successfully
challenged, though of course there has been wide divergence of opinion as to the reasonableness, the validity and legality
of many of the regulations actually adopted.
 The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or unreasonable discriminations
by common carriers may be maintained upon the same reasoning which justified the enactment by the Parliament of
England and the Congress of the United States of the above mentioned statutes prohibiting and penalizing the granting
of certain preferences and discriminations in those countries. As we have said before, we find nothing confiscatory or
unreasonable in the conditions imposed in the Philippine statute upon the business of common carriers. Correctly
construed they do not force him to engage in any business his will or to make use of his facilities in a manner or for a
purpose for which they are not reasonably adapted. It is only when he offers his facilities as a common carrier to the
public for hire, that the statute steps in and prescribes that he must treat all alike, that he may not pick and choose which
customer he will serve, and, specifically, that he shall not make any undue or unreasonable preferences or discriminations
whatsoever to the prejudice not only of any person or locality but also of any particular kind of traffic.
 The legislator having enacted a regulation prohibiting common carriers from giving unnecessary or unreasonable
preferences or advantages to any particular kind of traffic or subjecting any particular kind of traffic to any undue or
unreasonable prejudice or discrimination whatsoever, it is clear that whatever may have been the rule at the common law,
common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the
prejudice of the traffic in those goods, unless it appears that for some sufficient reason the discrimination against the
traffic in such goods is reasonable and necessary. Mere whim or prejudice will not suffice. The grounds for the
discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all circumstances of the case.
 The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of the defendant steamship
company to accept for carriage on any of its vessels "dynamite, gunpowder or other explosives" would in no instance
involve a violation of the provisions of this statute. There can be little doubt, however, that cases may and will arise
wherein the refusal of a vessel "engaged in the coastwise trade of the Philippine Islands as a common carrier" to accept
such explosives for carriage would subject some person, company, firm or corporation, or locality, or particular kind of
traffic to a certain prejudice or discrimination. Indeed it cannot be doubted that the refusal of a "steamship company, the
owner of a large number of vessels" engaged in that trade to receive for carriage any such explosives on any of its vessels
would subject the traffic in such explosives to a manifest prejudice and discrimination. The only question to be
determined therefore is whether such prejudice or discrimination might in any case prove to be undue, unnecessary or
unreasonable.
 This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged in the complaint are not
sufficient to sustain a finding in favor of the contentions of the petitioner. It is not alleged in the complaint that "dynamite,
gunpowder and other explosives" can in no event be transported with reasonable safety on board steam vessels engaged
in the business of common carriers. It is not alleged that all, or indeed any of the defendant steamship company's vessels
are unsuited for the carriage of such explosives. It is not alleged that the nature of the business in which the steamship
company is engaged is such as to preclude a finding that a refusal to accept such explosives on any of its vessels would
subject the traffic in such explosives to an undue and unreasonable prejudice and discrimination.
 Plaintiff's contention in this regard is as follows:
 In the present case, the respondent company has expressly and publicly renounced the carriage of explosives, and
expressly excluded the same terms from the business it conducts. This in itself were sufficient, even though such
exclusion of explosives were based on no other ground than the mere whim, caprice or personal scruple of the carrier. It
is unnecessary, however, to indulge in academic discussion of a moot question, for the decision not a carry explosives
rests on substantial grounds which are self-evident.
 We think however that the answer to the question whether such a refusal to carry explosives involves an unnecessary or
unreasonable preference or advantage to any person, locality or particular kind of traffic or subjects any person, locality
or particular to traffic to an undue or unreasonable prejudice and discrimination is by no means "self-evident," and that
it is a question of fact to be determined by the particular circumstances of each case.
 The words "dynamite, powder or other explosives" are broad enough to include matches, and other articles of like nature,
and may fairly be held to include also kerosene oil, gasoline and similar products of a highly inflammable and explosive
character. Many of these articles of merchandise are in the nature of necessities in any country open to modern progress
and advancement. We are not fully advised as to the methods of transportation by which they are made commercially
available throughout the world, but certain it is that dynamite, gunpowder, matches, kerosene oil and gasoline are
transported on many vessels sailing the high seas. Indeed it is a matter of common knowledge that common carriers
throughout the world transport enormous quantities of these explosives, on both land and sea, and there can be little doubt
that a general refusal of the common carriers in any country to accept such explosives for carriage would involve many
persons, firms and enterprises in utter ruin, and would disastrously affect the interests of the public and the general
welfare of the community.
 It would be going to far to say that a refusal by a steam vessel engaged in the business of transporting general merchandise
as a common carrier to accept for carriage a shipment of matches, solely on the ground of the dangers incident to the
explosive quality of this class of merchandise, would not subject the traffic in matches to an unnecessary, undue or
unreasonable prejudice and discrimination without proof that for some special reason the particular vessel is not fitted to
carry articles of that nature. There may be and doubtless are some vessels engaged in business as common carriers of
merchandise, which for lack of suitable deck space or storage rooms might be justified in declining to carry kerosene oil,
gasoline, and similar products, even when offered for carriage securely packed in cases; and few vessels are equipped to
transport those products in bulk. But in any case of a refusal to carry such products which would subject any person,
locality or the traffic in such products would be necessary to hear evidence before making an affirmative finding that
such prejudice or discrimination was or was not unnecessary, undue or unreasonable. The making of such a finding would
involve a consideration of the suitability of the vessel for the transportation of such products ; the reasonable possibility
of danger or disaster resulting from their transportation in the form and under the conditions in which they are offered
for carriage; the general nature of the business done by the carrier and, in a word, all the attendant circumstances which
might affect the question of the reasonable necessity for the refusal by the carrier to undertake the transportation of this
class of merchandise.
 But it is contended that whatever the rule may be as to other explosives, the exceptional power and violence of dynamite
and gunpowder in explosion will always furnish the owner of a vessel with a reasonable excuse for his failure or refusal
to accept them for carriage or to carry them on board his boat. We think however that even as to dynamite and gunpowder
we would not be justified in making such a holding unaided by evidence sustaining the proposition that these articles can
never be carried with reasonable safety on any vessel engaged in the business of a common carrier. It is said that dynamite
is so erratic an uncontrollable in its action that it is impossible to assert that it can be handled with safety in any given
case. On the other hand it is contended that while this may be true of some kinds of dynamite, it is a fact that dynamite
can be and is manufactured so as to eliminate any real danger from explosion during transportation. These are of course
questions of fact upon which we are not qualified to pass judgment without the assistance of expert witnesses who have
made special studies as to the chemical composition and reactions of the different kinds of dynamite, or attained a
thorough knowledge of its properties as a result of wide experience in its manufacture and transportation.
 As we construe the Philippine statute, the mere fact that violent and destructive explosions can be obtained by the use of
dynamite under certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly licensed as a
common carrier of merchandise, to accept it for carriage, if it can be proven that in the condition in which it is offered
for carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel or those on board his vessel
will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the nature of his business as a
common carrier engaged in the coastwise trade in the Philippine Islands, and his duty as a servant of the public engaged
in a public employment. So also, if by the exercise of due diligence and the taking of unreasonable precautions the danger
of explosions can be practically eliminated, the carrier would not be justified in subjecting the traffic in this commodity
to prejudice or discrimination by proof that there would be a possibility of danger from explosion when no such
precautions are taken.
 The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of the
people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use throughout the
Philippines, they must be transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common carrier of merchandise in the
coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage would constitute a violation
of the prohibitions against discriminations penalized under the statute, unless it can be shown by affirmative evidence
that there is so real and substantial a danger of disaster necessarily involved in the carriage of any or all of these articles
of merchandise as to render such refusal a due or a necessary or a reasonable exercise of prudence and discretion on the
part of the shipowner.
 The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer must be sustained on
the ground that the facts alleged do not constitute a cause of action.
 A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As to all of these
questions we expressly reserve our opinion, believing as we do that in sustaining the demurrer on the grounds indicated
in this opinion we are able to dispose of the real issue involved in the proceedings without entering upon the discussion
of the nice questions which it might have been necessary to pass upon had it appeared that the facts alleged in the
complaint constitute a cause of action.
 We think, however, that we should not finally dispose of the case without indicating that since the institution of these
proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board of Public Utility Commissioners and for
other purposes) may have materially modified the right to institute and maintain such proceedings in this jurisdiction.
But the demurrer having been formallly submitted for judgment before the enactment of these statutes, counsel have not
been heard in this connection. We therefore refrain from any comment upon any questions which might be raised as to
whether or not there may be another adequate and appropriate remedy for the alleged wrong set forth in the complaint.
Our disposition of the question raised by the demurrer renders that unnecessary at this time, though it may not be improper
to observe that a careful examination of those acts confirms us in the holding upon which we base our ruling on this
demurrer, that is to say "That whatever may have been the rule at the common law, common carriers in this jurisdiction
cannot lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic in those goods,
unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be substantial ones, such as
will justify the courts in holding the discrimination to have been reasonable and necessary under all the circumstances of
the case."
 Unless an amended complaint be filed in the meantime, let judgment be entered ten days hereafter sustaining the demurrer
and dismissing the complaint with costs against the complainant, and twenty days thereafter let the record be filed in the
archives of original actions in this court. So ordered.
 Arellano, C.J., and Trent, J., concur.
Torres and Johnson, JJ., concur in the result.

 Separate Opinions
 MORELAND, J., concurring.
 I may briefly say, although the nature of the action is stated at length in the foregoing opinion, that it is an action by a
shareholder of the Yangco Steamship Co. against the company itself and certain officials of the Insular Government for
an injunction against the company prohibiting it from carrying dynamite on its ships and preventing the defendant
officials from compelling the company to do so under Act No. 98.
 A demurrer was filed to the complaint raising the question not only of its sufficiency in general, but putting in issue also
the right of the plaintiff to maintain the action under the allegations of his complaint.
 It should be noted that all of the boats of the defendant company, under the allegations of the complaint, are boats which
carry passengers as well as freight, and that the holding of the opinion which I am discussing compels passenger ships
to carry dynamite and all other high explosives when offered for shipment. (See paragraph 3 of the complaint.)
 I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged in his complaint a single
one of the grounds, apart from that of being a stockholder, necessary for him to allege to maintain a shareholder's action.
 In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a stockholder to bring an action which
should regularly be bought by the company of which he is a stockholder:
 We understand that doctrine to be that, to enable a stockholder in a corporation to sustain in a court of equity in his own
name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the
appropriate plaintiff, there must exist as the foundation of the suit:
 Some action or threatened action of the managing board of directors or trustees of the corporation, which is beyond the
authority conferred on them by their character or other source of organization;
 Or such a fraudulent transaction, completed or contemplated by the acting managers, in connection with some other party,
or among themselves, or with other shareholders as will in serious injury to the corporation, or to the interest of the other
shareholders;
 Or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the
corporation itself, or of the rights of the other shareholders;
 Or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of the
corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a
court of equity.
 It was also said: "In this country the cases outside of the Federal Courts are not numerous, and while they admit the right
of a stockholder to sue in cases where the corporation is the proper party to bring the suit, they limit this right to cases
where the directors are guilty of a fraud or a breach of trust, or are proceeding ultra vires."
 Further on in the same case we find: "Conceding appellant's construction of the company's charter to be correct, there is
nothing which forbids the corporation from dealing with the city in the manner it has done. That city conferred on the
company valuable rights by special ordinance; namely, the use of the streets for the laying of its pipes, and the privilege
of furnishing water to the whole population.
 It may be the exercise of the highest wisdom, to let the city use the water in the manner complained of. The directors are
better able to act understandingly on this subject than a stockholder residing in New York. The great body of the
stockholders residing in Oakland or other places in California may take this view of it, and be content to abide by the
action of their directors."
 This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The complaint is devoid of
allegations necessary to sustain a complaint by a shareholder.
 The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not sustained by that case. The
decision there requires precisely the same allegations in the complaint as does the case of Hawes vs. Oakland. Not one
of those allegations appears in the complaint in the case at bar except the allegation that the plaintiff is a stockholder.
 Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains allegations which
affirmatively show the plaintiff is not entitled to maintain the action. I do not stop to enumerate them all. I call attention
to one only, namely the allegation that the company, by its authorized officials, has acted in strict conformity with the
plaintiff's wishes and has refused to accept dynamite for carriage. This allegation shows that the plaintiff has been able
to obtain his remedy and accomplish his purpose within the corporation itself, and it is sufficient, therefore, under the
case of Hawes vs. Oakland and that of Ex parte Young, to require that the demurrer be sustained.
 I am opposed to a decision of this case on the merits.
 In the first place, there has been no adequate discussion of the merits by the parties. Substantially all of the brief of the
government was devoted to what may be called the technical defects of the complaint, such as I have referred to above.
Indeed, it is doubtful if any portion of the brief can be said to be directly a discussion of the merits.
 In the second place, there is no real pending in this court. It is clear from the complaint that the case is a collusive one
(not in any improper sense) between the plaintiff and the defendant company. There is no reason found in the complaint
why the company should not have brought the action itself, every member of the board of directors and every stockholder,
according to the allegations of the complaint, being in absolute accord with the contentions of the plaintiff on the
proposition that the company should not carry dynamite, and having passed unanimously resolutions to that effect.
Moreover, there has been no violation of Act No. 98. No shipper, or any other person, has offered dynamite to the
defendant company for shipment, and, accordingly, the defendant company has not refused t o accept dynamite for
carriage. Nor have the defendant government officials begun proceedings, or threatened to bring proceedings, against the
defendant company in any given case. According to the allegations of the complaint, the parties are straw parties and the
case a straw case.
 In the third place, Act No. 98, under which this proceeding is brought and under which, it is alleged, the defendant public
officers are threatening to enforce, has been repealed, in so far as it affects public service corporations, by Act No. 2307,
as amended by Act No. 2362. More than that; not only has the law been repealed, but proceedings of this character have
been placed, in the first instance, under the exclusive jurisdiction of the Board of Public Utilities. I am unable to see why
this court should, under the facts of this case, undertake to render a decision on the merits when the Act under which it
is brought has been repealed and the jurisdiction to render a decision on the subject matter involved has been turned over
to another body. As I have said before, it was unnecessary to a decision of this case to touch the merits in any way; and
I am opposed to an attempt to lay down a doctrine on a subject which is within the exclusive jurisdiction of another body
created by law expressly for the purpose of removing such cases as this from the jurisdiction of the courts.
 I am of the opinion that the complaint should be dismissed, but upon grounds apart from the merits. If the merits of the
case were alone to govern, I should be distinctly in favor of the plaintiff's contention so far as it relates to the carriage of
dynamite on ships carrying passengers; and, while I am opposed to a decision on the merits of this case, nevertheless, the
merits having been brought into the case by the opinion of some of my brethren, I desire to refer briefly to the
jurisprudence of the subject.
 So far as my researches go, the proposition that passenger boats must carry dynamite and other high explosives is without
support in the decisions of any English speaking country. I have been unable to find a case anywhere which lays down
such a doctrine. Indeed, I have been unable to find a case which holds that freight boats must carry dynamite or other
high explosives. Every case that I have been able to find states a contrary doctrine; and neither in courts nor in text books
is there even a hint supporting the contention of my brethren. The opinion cites no authorities to support it; and I am
constrained to believe that, in any opinion so elaborately written, cases to support its thesis would have been cited if any
such existed.
 On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the duty of carrying
indifferently for all who may employ them, and in the order in which the application is made, and without discrimination
as to terms. They may, however, restrict their business so as to exclude particular classes of goods, and they are not bound
to receive dangerous articles, such as nitro-glycerine, dynamite, gunpowder, oil of vitriol, matches, etc."
 In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was said: "Nor are the
exemptions contained in the contract of the shipping order void for lack of consideration. The defendant was not obliged
to received and transport the powder at all. A common carrier is not bound to receive ... dangerous articles, as nitro-
glycerine, dynamite, gunpowder, aqua fortis, oil of vitriol, matches, etc."
 This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36 L.R.A., 648 and has appended
to it a note. It is well known that the L.R.A. cites in its notes all of the cases reasonably obtainable relative to the subject
matter of the case which it annotates. The note in L.R.A. with reference to the California case cites a considerable number
of authorities holding that a carrier of goods is not obliged to receive dynamite or other dangerous explosives for carriage.
It does not cite or refer to a case which holds the contrary.
 The reporter of the L.R.A, at the beginning of the note with reference to the California case, says: "The law upon this
question is to be drawn from inference or from dicta rather than from decided cases. California Powder Works vs. Atlantic
& Pacific R. R. Co. seems to be the first case to have squarely decided that the carrier is not bound to transport dangerous
articles, although there has been what may be regarded as a general understanding that such is the fact."
 In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for carriage dynamite or
other dangerous explosives: "He may, for instance, lawfully refuse to receive them (the goods) if they are improperly
packed or if they are otherwise in an unfit condition for carriage. Or he may show that the goods offered were of a
dangerous character, which might subject him or his vehicle, or strangers or his passengers, or his other freight, to the
risk of injury."
 In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine, dynamite, gunpowder,
oil of vitriol and the like."
 In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be refused which are tendered
in an unfit condition for transportation, or which are dangerous, or which are reasonably believed to be dangerous."
 In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page 576: "Both the dualin
and the exploders are thus alleged to be explosive and dangerous articles. Each of them was sent without giving notice
of its character to the plaintiffs, and they were ignorant in respect to it. The rule of law on this subject is in conformity
with the dictates of common sense and justice, and is well established. One who has in his possession a dangerous article,
which he desires to send to another, am send it by a common carrier if he will take it; but it is his duty to give him notice
of its character, so that he may either refuse to take it, or be enabled, if he takes it, to make suitable provision against the
danger."
 This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192); Brass vs. Maitland (6 El. & Bl.
470; Farrant vs. Barnes (11 C.B. [N.S.], 553).
 In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval the following from Story
on Bailments: "If he (the carrier) refuses to take charge of the goods because his coach is full or because they are of a
nature which will at the time expose them to extraordinary danger or to popular rage, or because he has no convenient
means of carrying such goods with security, etc., these will furnish reasonable grounds for his refusal, and will, if true,
be a sufficient legal defense to a suit for the non-carriage of the goods."
 In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to convey the goods of any
person offering to pay his hire, unless his carriage be already full, or the risk sought to be imposed upon him
extraordinary, or unless the goods be of a sort which he cannot convey or is not in the habit of conveying."
 In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the dangerous character of the
article and omitting to give notice of it to the carrier so that he might exercise his discretion as to whether he would take
it or not was guilty of a clear breach of duty."
 To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing., 217); Lane vs. Cotton
(1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward (5 T. R., 143); Dwight vs. Brewster (1 Pick.,
50); Jencks vs. Coleman (2 Summ., 221); Story on Bail., 322, 323; Patton vs. Magrath (31 Am. Dec., 552).
 In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of goods because his coach
is full; or because the goods are of a nature which will at the time expose them to extraordinary danger; ... these will
furnish reasonable grounds for his refusal; and will, if true, be a sufficient legal defense to a suit for the non-carriage of
the goods."
 It will be noted that all of these cases holding that a common carrier is not obliged to receive a dangerous substance, such
as dynamite and other high explosives, refer exclusively to carriers of merchandise and not to carriers of passengers. If
the authorities are uniform in holding that companies carrying freight are not obliged to accept dangerous explosives for
carriage, there can be no question as to what the rule would be with reference to a carrier of passengers.
 Far from requiring passenger boats to accept dynamite and other high explosives for carriage, the attitude of the people
of the United States and of various States is shown by their statutes. The laws of the United States and of many of the
States prohibit passengers boats and passenger trains from carrying dangerous explosives. Sections 232, 233, 234, 2345
and 236 of the Criminal Code of the United States (Compiled Stat., 1901), read:
 SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder, or other explosive, between a
place in a foreign country and a place within or subject to the jurisdiction of the United States, or between a place in any
State, Territory, or District of the United States, or place non-contiguous to but subject to the jurisdiction thereof, and a
place in any other State, Territory, or District of the United States, or place non-contiguous to but subject to the
jurisdiction thereof, on any vessel or vehicle of any description operated by a common carrier, which vessel or vehicle is
carrying passengers for hire: . . ..
 SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe transportation of explosives,
which shall be binding all common carriers engaged in interstate or foreign commerce which transport explosives by
land. Said commission, of its own motion, or upon application made by any interested party, may make changes or
modifications in such regulations, made desirable by new information or altered conditions. Such regulations shall be in
accord with the best known practicable means for securing in transit, covering the packing, marking, loading, handling
while in transit, and the precautions necessary to determine whether the material when offered is in proper condition to
transport.
 Such regulations, as well as all changes or modifications thereof, shall take effect after ninety days after their formulation
and publication commission and shall be in effect until reversed, set aside, or modified.
 SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate in bulk "in dry condition, or
other like explosive, between a place in a foreign country and a place within or subject to the jurisdiction of the United
States, or between a place in one State, Territory, or District of the United States, or place non-contiguous to but subject
to the jurisdiction thereof, and a place in any other State, Territory, or District of the United States, or place non-
contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a common
carrier in the transportation of passengers or articles of commerce by land or water.
 SEC. 235. Every package containing explosives or other dangerous articles when presented to a common carrier for
shipment shall have plainly marked on the outside thereof the contents thereof; and it shall be unlawful for any person to
deliver, or cause to be delivered, to any common carrier engaged in interstate or foreign commerce by land or water, for
interstate or foreign transportation, or to carry upon any vessel or vehicle engaged in interstate or foreign transportation,
any explosive, or other dangerous article, under any false or deceptive marking, description, invoice, shipping order, or
other declaration, or without informing the agent of such carrier of the true character thereof, at or before the time such
delivery or carriage is made. Whoever shall knowingly violate, or cause to be violated any provision of this section, or
of the three sections last preceding, or any regulation made by the Interstate Commerce Commission in pursuance thereof,
shall be fined not more than two thousand dollars, or imprisoned not more than eighteen months, or both.
 SEC. 236. When the death or bodily injury of any person is caused by the explosion of any article named in the four
sections last preceding, while the same is being placed upon any vessel or vehicle to be transported in violation thereof,
or while the same is being so transported, or while the same is being removed from such vessel or vehicle, the person
knowingly placing, or aiding or permitting the placing of such articles upon any such vessel or vehicle, to be so
transported, shall be imprisoned not more than ten years.
 Human ingenuity has been continuously exercised for ages to make sea travel safe, that men might sail the seas with as
little risk as possible; that they might rely upon the quality of the ship and the character and experiences of the sailors
who manned her; that they might feel that the dangers of the deep had been reduced to the minimum. Not only this; the
abilities of legislators have been taxed to the same end; to frame that would ensure seaworthy ships, safe appliances, and
reliable officers and crews; to curb the avarice of those who would subordinate the safety of passengers to a desire for
freight; and to so regulate travel by sea that all might safely confide their property and their lives to the ships sailing
under the flag of their country. Can a decision which requires passenger ships to carry dynamite and all high explosives
be made to harmonize with this purpose? What is there in the Philippine Islands to justify the requirement that passenger
ships carry dynamite, while in the United States the carrying of dynamite by passenger ships is a crime? Why should
passengers in the Philippine Islands be subjected to conditions which are abhorent in the United States? Why compel
shipowners in the Philippine Islands to perform acts which, if done in the United States, would send them to the
penitentiary?
 I do not believe that we should require passengers to travel on ships carrying, perhaps, many tons of nitro-glycerine,
dynamite or gunpowder in their holds; nor do I believe that any public official should do anything calculated to add to
the calamity of fire, collision, or shipwreck the horrors of explosion.

 ARAULLO, J., dissenting:
 I do not agree with the decision of the majority of this court in this case, first, because one of the grounds of the demurrer
to the complaint — the first one — is that of lack of legal capacity to sue on the part of the plaintiff and nothing is said
in the decision regarding this very important point. It is one which ought to have received special attention, even before
the other alleged in the demurrer that the complaint does not state facts sufficient to constitute a cause of action, and the
only one that received any consideration in the decision in question. Second, because notwithstanding that in the decision
no consideration was paid to the alleged lack of legal capacity on the part of the plaintiff, he is, reason of the demurrer
being sustained, authorized to present an amended complaint within ten days, an authorization which could not and
should not have on the part of said plaintiff was not lacking.
 DECISION OF MARCH 31, 1915.
 CARSON, J.:
 This case is again before us upon a demurrer interposed by the respondent officials of the Philippine Government to an
amended complaint filed after publication of our decision sustaining the demurrer to the original complaint.
 In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that the original complaint
did not set forth facts sufficient to constitute a cause of action. In that decision we held that the statute (Act No. 98) the
validity of which was attacked by counsel por plaintiff was, when rightly construed, a valid and constitutional enactment,
and ruled:
 That whatever may have been the rule at the common law, common carriers in this jurisdiction cannot lawfully decline
to accept a particular class in those goods, unless it appears that for some sufficient reason the discrimination against the
traffic in such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of the
discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all the circumstances of the case.
 xxx xxx xxx
 The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of the
people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use throughout the
Philippines, they must be transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common carrier of merchandise in the
coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage would constitute a violation
of the prohibitions against discriminations penalized under the statue, unless it can be shown by affirmative evidence that
there is so real and substantial a danger of disaster necessarily involved in the carriage of any or all of these articles of
merchandise as to render such refusal a due or a necessary or a reasonable exercise of prudence and discretion on the part
of the ship owner.
 Resting our judgment on these rulings we held that the allegations of the complaint, which in substance alleged merely
that the respondent officials were coercing the respondent steamship company to carry explosives upon some of their
vessels, under authority of, and in reliance upon the provisions of the Act, did not set forth facts constituting a cause of
action; or in other words, that the allegations of the complaint even if true, would sustain a finding that the respondent
officials were acting "without or in excess of their jurisdiction" and lawful authority in the premises.
 The amended complaint filed on November 14, 1914, is substantially identical with the original complaint, except that it
charges the respondent officials, as of the date of the amended complaint, with the unlawful exercise of the authority or
intent to exercise unlawful authority which should be restrained, and substitutes the names of the officers now holding
the offices of Collector of Customs, Attorney-General and prosecuting attorney for those of the officials holding those
offices at the date of the filing of the original complaint; and except further that it adds the following allegations:
 That each and every one of the vessels of the defendant company is dedicated and devoted to the carriage of passengers
between various ports in the Philippine Islands, and each of said vessels, on all of said voyages between the said ports,
usually and ordinarily does carry a large number of such passengers.
 That dynamite, powder, and other explosives are dangerous commodities that cannot be handled and transported in the
manner and from in which ordinary commodities are handled and transported. That no degree of care, preparation and
special arrangement in the handling and transportation of dynamite, powder and other explosives will wholly eliminate
the risk and danger of grave peril and loss therefrom, and that the highest possible degree of care, preparation of said
commodities is only capable of reducing the degree of said danger and peril. That each and every one of the vessels of
the defendant company is wholly without special means for the handling, carriage, or transportation of dynamite, powder
and other explosives and such special means therefor which would appreciably and materially reduce the danger and
peril therefrom cannot be installed in said vessels without a costs and expense unto said company that is unreasonable
and prohibitive.
 As we read them, the allegations of the original complaint were intended to raise and did in fact raise, upon demurrer, a
single question which, if ruled upon favorably to the contention of plaintiff, would, doubtless, have put an end to this
litigation and to the dispute between the plaintiff stockholder of the steamship company and the officials of the Philippine
Government out of which it has arisen.
 In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of prohibition, relied upon the
authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted that:
 Upon the authority, therefore, of Ex parte Young, supra, the merits of the question pending between petitioner and
respondents in this action is duly presented to this court by the complaint of petitioner and general demurrer of
respondents thereto. That question, in plain terms, is as follows:
 Is the respondent Yangco Steamship Company legally required to accept for carriage and carry "any person or property
offering for carriage?"
 "The petitioner contends that the respondent company is a common carrier of only such articles of freight as they profess
to carry and hold themselves out as carrying;" and in discussing the legal capacity of plaintiff to maintain this action,
counsel in their printed brief asserted that "here we have no address to the court to determine whether a minority or a
majority shall prevail in the corporate affairs; here we ask plainly and unmistakably who shall fix the limits of the
corporate business — the shareholders and directors of the corporation, or certain officials of the government armed with
an unconstitutional statute?
 Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a common carrier in the
Philippine Islands may arbitrarily decline to accept for carriage any shipment or merchandise of a class which it expressly
or impliedly declines to accept from all shippers alike; that "the duty of a common carrier to carry for all who offer arises
from the public profession he has made, and is limited by it;" that under this doctrine the respondent steamship company
might lawfully decline to accept for carriage "dynamite, powder or other explosives," without regard to any question as
to the conditions under which such explosives are offered for carriage, or as to the suitableness of its vessels for the
transportation of such explosives, or as to the possibility that the refusal to accept such articles of commerce in a particular
case might have the effect of subjecting any person, locality or the traffic in such explosives to an undue, unreasonable
or unnecessary prejudice or discrimination: and in line with these contentions counsel boldly asserted that Act No. 98 of
the Philippine Commission is invalid and unconstitutional in so far as it announces a contrary doctrine or lays down a
different rule. The pleader who drew up the original complaint appears to have studiously avoided the inclusion in that
complaint of any allegation which might raise any other question. In doing so he was strictly within his rights, and having
in mind the object sought to be attained, the original complaint is a model of skillful pleading, well calculated to secure
the end in view, that is to say, a judgment on the precise legal issue which the pleader desired to raise as to the construction
and validity of the statute, which would put an end to the controversy, if that issue were decided in his favor.
 Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a writ of prohibition from
this court would have furnished an effective and appropriate remedy for the alleged wrong. The issue presented by the
pleadings on the original complaint, involving a question as to the validity of a statute and affecting, as it did, the shipping
and public interests of the whole Islands, and submitting be complicated question or series of questions of fact, was of
such a nature that this court could not properly deny the right of the plaintiff to invoke its jurisdiction in original
proceedings. We deemed it our duty therefore to resolve the real issue raised by the demurrer, and since we are of opinion
that the contentions of counsel for plaintiff were not well founded, and since a ruling to that effect necessarily resulted in
an order sustaining the demurrer, we did not deem it necessary or profitable to consider questions of practice or procedure
which it might have been necessary to decide under a contrary ruling as to the principal question raised by the pleadings;
nor did we stop to consider whether the "subject matter involved" in the controversy might properly be submitted to the
Board of Public Utility Commissioners, because upon the authority of Ex parte Young (supra) we are satisfied as to the
jurisdiction and competency of this court to deal with the real issues raised by the pleadings on the original complaint,
and because, furthermore, the Act of the Philippine Legislature creating the Board of Public Utility Commissioners could
not deprive this court of jurisdiction already invoked in prohibition proceedings instituted for the purpose of restraining
the respondent official as of the Government from the alleged unlawful exercise of authority under color of an invalid
and without jurisdiction in the premises.
 The amended complaint, however, presents for adjudication in original prohibition proceedings in this court questions of
a wholly different character from those submitted in the original complaint.
 In so far as it reiterates the allegation s of the former complaint to the effect that the respondent officials are unlawfully
coercing the steamship company by virtue and under color of the provisions of an invalid or unconstitutional statute, it
is manifest, of course, that the amended complaint is no less subject to criticism than was the original complaint. If,
therefore, the action can be maintained upon its allegations that those officials are coercing the company to carry
explosives on vessels which, as a matter of fact, are not suitably equipped for that purpose, and which from the nature of
the business in which they are engaged should not be required to carry explosives.
 It will readily be seen, under our former opinion, that these allegations raise no question as to the validity or
constitutionality of any statute; that the real question which plaintiff seeks to submit to this court in original prohibition
proceedings is whether the respondent officials of the Government are correctly exercising the discretion and authority
with which they have been clothed; and that his contention in the amended complaint is not, as it was in the original
complaint, that these officials are acting without authority and in reliance upon an invalid and unconstitutional statute,
but rather that they are exercising their authority improvidently, unwisely or mistakenly.
 Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in prohibition proceedings is
conferred upon the courts when the complaint alleges "the proceedings of any inferior tribunal, corporation, board, or
person, whether exercising functions judicial or ministerial, were without or in excess of the jurisdiction of such tribunal,
corporation, board or person." It is manifest therefore that the allegations of the amended complaint, even if true, will not
sustain the issuance of a writ of prohibition without further amendment unless they be construed to in effect a charge that
the respondent officials are abusing the discretion conferred upon them in the exercise of their authority in such manner
that the acts complained of should be held to be without or in excess of their jurisdiction.
 It may well be doubted whether the doctrine of the case Ex parte Young (supra), relied upon by the plaintiff in his
argument be invoked in support of a right of action predicated upon such premises; so also, since the acts complained of
in the amended complaint are alleged to have been done at a date subsequent to the enactment of the statutes creating the
Board of Public Utility Commissioners, it may well be doubted whether the courts should entertain prohibition
proceedings seeking to restrain alleged abuses of discretion on the part of officers and officials of the Government, and
of public service corporations with regard to the rules under which such corporations are operated, until and unless redress
for the alleged wrong has been sought at the hands of the Board.
 We do not deem it expedient or necessary, however, to consider or decide any of these questions at this time, because we
are of opinion that we should not permit our original jurisdiction to be set in motion upon the allegations of the amended
complaint.
 It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516, Act No. 190). But this
jurisdiction is concurrent with the original jurisdiction of the various Courts of First Instance throughout the Islands,
except in cases where the writ runs to restrain those courts themselves, when of course it is exclusive; and we are satisfied
that it could have been the intention of the legislator to require this court to assume original jurisdiction in all cases
wherein the plaintiff elects to invoke it. Such a practice might result in overwhelming this court with the duty of
entertaining and deciding original proceedings which from their nature could much better be adjudicated in the trial
courts; and in unnecessarily diverting the time and attention of the court from its important appellate functions to the
settlement of controversies of no especial interest to the public at large, in the course of which it might become necessary
to take testimony and to make findings touching complicated and hotly contested issues of fact.
 We are of opinion and so hold that unless special reasons appear therefor, this court should decline to permit its original
jurisdiction to be invoked in prohibition proceedings, and this especially when the adjudication of the issues raised
involves the taking of evidence and the making of findings touching controverted facts, which, as a rule, can be done so
much better in the first instance by a trial court than an appellate court organized as is ours.
 Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the cases in which the appellate
courts in the United States permit their original jurisdiction to be invoked where that jurisdiction is concurrent with that
of some inferior court, says:
 Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The Supreme Court of Appeals of
that State has concurrent original jurisdiction with the circuit courts in cases of prohibition, but by a rule adopted by the
former court it will not take such original jurisdiction unless reasons appear therefor.
 We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the rulings on the original
complaint, involving as they did a question as to the validity of a public statute of vital interest to shippers and shipowners
generally as also to the public at large, presenting for determination no difficult or complicated questions of fact: but we
are satisfied that we should decline to take jurisdiction of the matters relied upon in the amended complaint in support of
plaintiff's prayer for the writ.
 The question of the construction and validity of the statute having been disposed of in our ruling on the demurrer to the
original complaint, it must be apparent that of the allegations of the amended complaint are sufficient to maintain the
plaintiff's action for a writ of prohibition, a question as to which we expressly reserve our opinion, the action should be
brought in one of the Courts of First Instance.
 Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the meantime it is
amended so as to disclose a right upon the part of the plaintiff to invoke the original jurisdiction of this court
without first proceeding in one of the Courts of First Instance. So ordered.

United States vs. Quinahon


Facts:
Pascual Quinajon and Eugenio Quitoriano have been for four years engaged in the transportation of passengers and
merchandise in the port of Currimao, Ilocos Norte. They have been regularly charging 6 centavos for the unloading and loading
of each package of merchandise or cargo off or on the steamers that anchor in the port of Currimao and that the unloading is
understood to be from the steamer to the storage warehouse. Furthermore, the defendants entered into a special contract with
certain merchants for loading and unloading merchandise (pianos and matches) in said port the sum of 6 centavos for each
package, without reference to its size and weight. However, in the months of June, July and September 1912, the accused by
means of their virayes and employees, unloaded 5,986 sacks of rice belonging to the provincial government of Ilocos Norte that
had come from Manila and wilfully demanded and collected from the provincial treasurer 10 centavos (instead of 6 centavos
which they regularly charge for the unloading of the same kind of merchandise) for the unloading of each one of the said sacks
of rice. The accused were charged of violating Act No. 98 of the Civil Commission and the trial court found them guilty of the
crime charged.
Issue:
Whether or not the defendants have violated the provisions of Act No. 98 (An Act to Regulate Commerce in the
Philippine Islands)
Held:
Section 1 of Act No. 98 states that: “No person or corporation engaged as a common carrier of passengers or property
shall directly or indirectly by any special rate, rebate, drawback or other device, charge, demand, collect or receive from any
person or persons, a greater or less compensation for any service rendered or to be rendered in the transportation of passengers
or property on land or water between any points in the Philippine Islands than such common carrier charges, demands, collects
or receives from any other person or persons for doing for him a like or contemporaneous service in the transportation of a like
kind of traffic under substantially similar circumstances and conditions and any such unjust discrimination is hereby prohibited
and declared to be unlawful.”
The purpose of the said law is to compel common carriers to render to all persons exactly the same or analogous service
for exactly the same price, to the end that there may be no unjust advantage or unreasonable discrimination. Similarly, the law
prohibits any common carrier from making or giving any unnecessary or unreasonable preference or advantage to any particular
person, company, firm, corporation or locality. This does not mean that the law prohibits the charging of a different rate for the
carrying of passengers or property when the actual cost of handling and transporting the same is different.
In the present case, there is no pretense that it actually cost more to handle the rice for the province than it did for the
merchants with whom the special contracts were made. A clear discrimination was made against the province which is specifically
prohibited and punished under the law. It is important to note that the law does not prohibit common carriers from making
special rates for the handling and transporting of merchandise, when the same are made for the purpose of increasing their
business and to manage their important interests upon the same principles which are regarded as sound and adopted in other
trades and pursuits. Absolute equality is not required in all cases. It is only unjust, undue and unreasonable discrimination which
the law forbids. The law of equality is in force only where the services performed in the different cases are substantially the same
and the circumstances and conditions are similar.

G.R. No. L-8686 July 30, 1915


THE UNITED STATES, plaintiff-appellee,
vs. PASCUAL QUINAJON and EUGENIO
QUITORIANO, defendants-appellants.
Irineo Javier for appellants. AttorneyGeneral Villamor for appellee.
JOHNSON,J.:
The defendants were charged with a
violation of the provisions of Act No. 98. A
complaint was presented in the court of the justice of the peace on the 11th day of
November, 1912. A preliminary
examination was had and the defendants were held for trial in the Court of First Instance of the province of Ilocos Norte.
On the 17th day of November, 1912, the prosecuting attorney of the Province of Ilocos Norte presented the following complaint:
The undersigned charges Pascual Quinajon and Eugenio Quitoriano,
residents of the municipality of Paoay, Ilocos Norte, P.I., with violating Act No. 98
of the Civil Commission, within the jurisdiction of this court, as follows:
That the aforementioned accused are now and have been engaged for more than four years prior to this date in the transportation
of passengers and merchandise in the port of Currimao — that is, in the loading and unloading of passengers and merchandise
by means of virayes from the shore the steamers that anchor in the said port, and vice versa.
That the said accused have been regularly charging 6 centavos for the unloading and loading of each package of merchandise of
cargo, large or small, heavy or light, off or on the steamers that anchor in the said port of Currimao, and that the unloading is
understood to be from the steamer to the storage warehouses.
That, in the months of June, July, and September, 1912, the said accused, by means of their virayes and employees, did
unload in the port of Currimao aforementioned 5,986 sacks of rice belonging to the provincial government of Ilocos Norte, P.I.,
that had come from Manila, P.I., which sacks were unloaded from the steamers in which they had been shipped and were carried
to the storage
warehouses in which they were deposited; that the said accused did willfully, unlawfully, and criminally demand and
collect from the provincial treasurer for the unloading of each one of the said sacks of rice 10 centavos which, as set forth in the
preceding paragraph, they have been
regularly charging for such services in the unloading of the same kind of merchandise and under virtually the same circumstances
and conditions; that the total sum of the payments so made by the provincial treasurer amounted to P598.60 for the
aforesaid 5,986 sacks of rice, the provincial government of Ilocos Norte, P.I., being thereby damaged in the sum of 359.16,
inasmuch as it should have paid only
239.44, in accordance with the said rate of 6 centavos for each package.
Acts committed in violation of the said Act No. 98 of the Civil Commission.
Upon that complaint the defendants were duly arraigned, tried, found guilty of the crime charged, and sentenced by the
Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs, and to return to the provincial government of the
Province of Ilocos Norte the sum of P359.16.
From that sentence each of the defendants appealed to this court. In this court they allege that the lower court committed the
following errors: The court erred in holding that the accused had been regularly collecting 6 centavos for the loading or the
unloading of each sack rice from steamers in the port of Currimao.
The court erred in holding that the defendants established preferential privileges and made discriminations in favor of certain
shippers, against the provincial government of Ilocos Norte, in the loading or unloading of merchandise on to or from the
steamers in the port of Currimao.
The court erred, further, in sentencing the accused to pay to the provincial government of Ilocos Norte the sum of P359.16.
The first assignment of error presents a question of fact only. The appellants allege that the lower court committed an error in
its conclusions of fact. They allege that the lower court committed an error in deciding that they had regularly charged 6 centavos
for each sack of rice loaded or unloaded at the port of Currimao. The decision of the lower court contains the following
statement of facts:
It is proven that the defendants, acting as representatives of the Union Obrera,
established at the port of Currimao, Ilocos
Norte, and engaged by means of virayes
as common carriers of passengers and in loading and unloading freight from steamers anchoring at said port, to the shore or to
the warehouses, and vice versa, have regularly collected, during the last four years, 6 centavos for each sack of
rice loaded or unloaded by said
association.
It is likewise proven that the same defendants, representing the same
association, collected from the provincial government of Ilocos Norte 10 centavos for each of the 5,986 sacks of rice which they
unloaded from the steamers during the months of June, July, and September, as property belonging to the said government, a
price which differed from the usual, charge of 6 centavos made to others shippers of said commodity.
The provincial fiscal presented as
witnesses in support of the information the
Chinese merchants Cu Chatco, Cu Joco, Sy Yacco, Lim Anco, and Francisco
Castro, who testified that they paid to the defendants for loading and unloading supplies from the steamers at Currimao 6
centavos for each package of any kind of supplies, large or small, heavy or light. The two first named, Cu Chatco and Cu Joco,
testified, furthermore, that formerly they paid transportation charges for the loading and discharge of their supplies from the
steamers according to the weight and size of each package, for which purpose a classification was previously made by weighing
and measuring said packages or merchandise. Cu Joco does not remember how much was paid at that time for each package,
but Cu Chatco states that 10 centavos was paid for the transportation of each sack of rice weighing 60 kilos or more. The two
above-named witnesses, Cu Chatco and Cu Joco, add that as the task of weighing and measuring was very annoying to the Chinese
merchants at Laoag, Ilocos Norte, they suggested to the defendants and entered into an agreement with them, to pay by the lot
the transportation charges covering loaded onto or unloaded from the steamers, at the rate of 6 centavos for each package,
heavy or light, large or small.
We have made a careful examination of the evidence adduced during the trial of the cause, and conclude that said facts are
substantially sustained thereby. The evidence clearly shows that the defendant collected 6 centavos for each package, of
whatever kind of merchandise, large or small, heavy or light, from those merchants
only with whom they had a special
contract. From other merchants, with whom they had not made said special contract, as well as the Province of Ilocos Norte, they
collected a different rate. The evidence shows that they collected from the Province of Ilocos Norte 10 centavos for each sack of
rice which they unloaded from the steamers during the months of June, July, and September. There seems to be no reason for
reversing or modifying the conclusions of the lower court based upon said finding of facts. The effect of collecting a different
amount from different persons for exactly analogous or similar service performed by the defendants will be discussed when we
come to a discussion of the law applicable to the foregoing facts.
The second assignment of error, to wit, that "the lower court committed an error in holding that the defendants established
preferential privileges in favor of certain shippers," presents the question whether or not the defendants and appellants, in view
of the foregoing facts, have violated the provisions of said Act No. 98.
The facts, as they are disclosed by the record and the findings of the lower court, may be stated concretely as follows: (1) The
defendants, as common carriers, charged and collected from some shippers and merchants, a certain price for each package of
merchandise, loaded or
unloaded, according to a certain schedule. (See Exhibit A.) The prices fixed in the schedule depended upon the size and weight of
the package. (2) The defendants entered into a special contract with certain merchants, under and by virtue of the terms of which
they charged and collected, for loading merchandise in said port, the sum of 6 centavos for each package,
without reference to its size or weight.
It is contended that it cost any more to load
or unload the rice for the province than it did for the merchants with whom the special contract was made. There is no proof that
the conditions were different.
There is no proof that the services rendered by the defendants for the different
parties were unlike or even not
contemporaneous. The defendants justify their acts by the fact that they handled all
the merchandise of some merchants,
whether the packages were large or small, at the same price.
Under these facts, the question is squarely presented whether or not the defendants are guilty of a violation of the spirit or the
letter of said Act No. 98. Said Act No. 98 was largely borrowed from the Act of Congress of February 4, 1887. The
language of the two Acts, so far as they relate to the present case, is practically the
same. Said Act of Congress has been construed by the Federal courts of the United States in several decisions. In view of the
United States to said Act of Congress.
The similarity of Act No. 98 and the Act of Congress may be seen in the following quotations:
(Sec. 1, Act No. 98.) (Sec. 2, Act of
Congress, Feb. 4, 1887.)
No person or corporation engaged as a common carrier of passengers or That if
any common carrier subject property shall directly or indirectly by to the provisions of this Act shall, any special rate, rebate,
drawback or directly or indirectly, by any special other device, charge, demand, collect rate, rebate, drawback, or other device,
or receive from any person or persons, charge, demand, collect, or receive from a greater or less compensation for any any person
or persons a greater or service rendered, or to be rendered in less compensation for any service the transportation of passengers
or rendered , or to be
rendered, in the property on land or water between any transportation of passengers or points in the Philippine Islands than
property, subject to the provisions of such common carrier charges, demands, this Act, than it charges, demands, collects or
receives from any other person collects, or receives from any other or persons for doing for him a like or person or persons for
doing contemporaneous service in the for him or them a like and transportation of a like kind of traffic contemporaneous service
in the under substantially similar circumstances transportation of a like kind of and conditions, and any such unjust
traffic under substantially
similar discrimination is hereby prohibited
and circumstances and conditions, such declared to be unlawful. common carrier shall be deemed guilty of unjust discrimination,
which is hereby prohibited and declared to be unlawful.
(Sec. 2, Act No. 98.) (Sec. 3, Act of
Congress, Feb. 4, 1887.)
It shall be unlawful for any common carrier engaged in the That it shall be unlawful for any common transportation of passengers
or carrier subject to the provisions of this Act property as above set forth to make to
make or give any undue or
unreasonable or give any unnecessary or unreasonable preference or advantage to any particular preference or advantage to
any particular person, company, firm, corporation, or person, company, firm, corporation or locality, or any particular description
of locality, or any particular kind of traffic traffic, in any respect whatsoever, or to in any respect whatsoever, or to subject subject
any particular person, company, any particular person, company, firm, firm, corporation, or locality, or any corporation or locality,
or any particular particular description of traffic, to any kind
of traffic, to any undue or undue or unreasonable prejudice or unreasonable prejudice or discrimination disadvantage in any
respect whatsoever. whatsoever, and such unjust preference or discrimination is also hereby prohibited and declared to be
unlawful.
Said Act No. 98 is "An Act to regulate commerce in the Philippine Islands." Its purpose, so far as it is possible, is to compel common
carriers to render to all persons exactly the same or analogous service for exactly the same price, to the end that there may be
no unjust advantage or unreasonable discrimination. It applies to persons or corporation engaged as common carriers of
passengers or
property. A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons
who may choose to employ and renumerate him. A common carrier is a person or corporation who undertakes to carry goods or
persons for hire. The appellants admit that they are common carriers. The only question presented is whether or not, under the
facts, they have violated the Act regulating commerce in the Philippine Islands.
The law provides that no common carrier shall directly or indirectly, by any special rate, rebate, drawback, or other device, charge,
demand collect, or receive from any person or persons, a greater or less compensation for any service rendered in the
transportation of passengers or property, between points in the Philippine Islands, than he charges, demands,
collects, or receives from any other person
or persons, for doing a like or contemporaneous service, under substantially similar conditions or circumstances.
The law prohibits any common carrier from making or giving any unnecessary or unreasonable preference or advantage to any
particular person, company, firm, corporation or locality, or any particular kind of traffic, or to subject any particular person,
company, firm, corporation, or
locality, or any particular kind of traffic, to any undue or unreasonable prejudice or discrimination whatsoever.
It will be noted that the law requires common carriers to carry for all persons, either passengers or property, for exactly
the same charge for a like or contemporaneous service in the
transportation of like kind of traffic under substantially similar circumstances or conditions. The law prohibits common
carriers from subjecting any person, etc., or locality, or any particular kind of traffic, to any undue or unreasonable prejudice or
discrimination whatsoever. The law does not require that the same charge shall be made for the carrying of passengers or
property, unless all the conditions are alike and contemporaneous. It is not believed that the law prohibits the charging of a
different rate for the carrying of passengers
or property when the actual cost of handling and transporting the same is different. it is not believed that the law intended to
require common carriers to carry the same kind of merchandise, even at the same price, under different and unlike conditions
and where the actual cost is different. The actual cost of handling and transporting the same quantity of rice, for example, might
be different, depending upon the form of package or other
conditions. It would cost more to handle and transport rice packed in open boxes or baskets, for example, than it would to
handle and transport the same quantity of rice neatly packed in sacks. It would cost more to handle and transport hemp, when
it is unbaled and loose, than it would when it is baled. It might cost more to handle and transport household goods uncrated than
when they are crated. It is not believed that the law prohibits the charging of a different
price for handling and shipping
merchandise when the shipper exercises greater care in preparing the same for shipment, thereby reducing the actual cost of
handling and transporting. If the shipper puts his merchandise in a condition which costs less to handle and transport, he is
certainly entitled to a better rate. The difference in the charge to different merchants or shippers must be based upon the actual
cost of handling and
transporting. The law does not require common carriers to perform different services for the same price, unless the actual cost
is the same. It is when the price charged is for the purpose of favoring persons or localities or particular kinds of merchandise,
that the law intervenes and prohibits. It is favoritism and discrimination which the law prohibits. The difference in charge must
not be made to favor one merchant, or shipper, or locality, to the disadvantage of another merchant, or
shipper, or locality. If the services are alike and contemporaneous, discrimination in the price charged is prohibited. For the
purposes of the law, it is not sufficient always to say that merchandise is alike, simply because it is of a like kind or
quantity. The quantity, kind, and quality may be exactly the same, and yet not be alike, so far as the cost of transportation is
concerned. Examples have been given above. Many others might be given. A and B are each shippers of bananas between the
same points. A delivers his bananas to the carrier in separate bundles or bunches, without a wrapper or any kind of protection,
while B delivers exactly the same number of bunches of bananas, but they are neatly packed in a few boxes or baskets. It does
not require much argument to convince men conversant with the shipping of merchandise, in such a case, that the actual cost of
handling and shipping would be different and would, therefore, not be
"alike," although contemporaneous, perhaps. Neither is it believed that shipments may be rendered unlike by the fact that the
total shipment is composed of different kinds or classes of merchandise. For example, A is a shipper of rice and hemp and B is a
shipper of rice alone. Both A and B prepare their rice for shipment in exactly the same form of package. It is not believed that
the carrier is permitted, under the law, to carry A's rice for a less price than he carries B's rice, simply because A is also a shipper
of hemp. A difference in the charge for handling and transporting may only be made when the difference is based upon actual
cost. The actual cost may depend upon quantity. A man who
ships freight by the car-load, by reason of the actual cost of handling and shipping, may be entitled, under certain conditions,
to a better rate than the man who ships a single article or package of the same class or kind of merchandise. A train-load of cattle
might be shipped from Dagupan to Manila, for example, at less cost per head than it would cost to ship just a few head, less than
a car-load. The actual cost of each shipment must necessarily depend upon and be settled by its own proof. This rule, however,
does not prohibit the making of general schedules, providing they are made applicable to all. The difference in the charge made
by the common carrier cannot be made for the purpose of favoring any person or locality, to the prejudice or disadvantage of
another person or locality. A common carrier may discriminate between shippers when the amount of goods shipped by one
actually costs less to handle and transport, but he cannot discriminate upon the ground simply that he carries all of the goods of
one shipper, while he does not carry all of the goods of another. The difference in the charge must be the difference in the cost.
It is competent for a common carrier under the law, we believe, to enter into special agreements for handling and transporting
merchandise, whereby advantage may accrue to individuals, when it is made clearly to appear that by such agreements the
common carrier has only its interests and the legitimate increase of its profits in view, and when the consideration given to the
individual is for the interest of the common carrier alone, and when the
common carrier gives all shippers exactly the same rate, under the same conditions.
The appellants justify the different charge upon the ground that they carried pianos and matches, for the merchants with whom
they had the special contracts, at the same price. It is not believed that a merchant who happens to be a shipper of both pianos
and matches, should have any advantage over the merchant who ships pianos alone, unless there is some other actual additional
cost in the one case, which does not exist in the other. A common carrier can not discriminate upon the ground that he carries
all of the goods of one shipper, while he does not of another. In the present case there is no pretense that it actually cost more
to handle the rice for the province than it did for the merchants with whom the special contracts were made. From the evidence
it would seem that there was a clear discrimination made against the province. Discrimination is the thing which is specifically
prohibited and punished under the law.
It is not believed that the law prohibits common carriers from making special rates for the handling and transporting of
merchandise, when the same are made for the purpose of increasing their business, and to manage their important interests
upon the same principles which are regarded as sound, and adopted in other trades and pursuits. It is not believed that the law
requires absolute equality in all cases. Circumstances and conditions may make it injurious to the carrier. Absolute equality, under
certain circumstances and conditions, may give shippers an
advantage over others. It is only unjust, undue, and unreasonable discrimination which the law forbids. The law of equality is in
force only where the services performed in the different cases are substantially the
same, and the circumstances and
conditions are similar. Many considerations may properly enter into the agreement for the carriage or shipment rate, such as the
quantity carried, its nature, its risks, the expense of carriage at different periods of
time, and the like. Numerous circumstances may intervene, which bear
upon the cost and expense of
transportation, and it is but just to the carrier that he be permitted to take these circumstances into consideration, in determining
the rate or amount of his compensation. A question of fact is raised in each case for the courts to decide.
The foregoing conclusions are based upon literally hundreds of decisions of the courts of different states, and the Supreme Court
of the United States, as well as those of England, which have interpreted statutes analogous to the one under consideration.
In the third assignment of error the appellants allege that the lower court committed an error in condemning them to pay or
return to the provincial government the sum of P359.16. It is not exactly clear from the decision of the lower court just how he
arrived at that conclusion. Section
5 of Act No. 98 provides that any person or corporation, who may be damaged by
reason of the doing by a common carrier of any matters and things prohibited, shall be entitled to sue for and recover all damages
so incurred, etc. It would seem that the defendants and appellants had a right to charge the provincial government 6 centavos
for each sack of rice unloaded. They unloaded for the province 5,986 sacks, for which they charged the sum of P598.60. They had
a right to collect 6 centavos, or the sum of P359.16. The appellants therefore collected from the province more than they had a
right to collect, the difference between P598.60 and 359.16, or P239.44. They should be required, therefore, to return to the
province the excess which they collected, or the sum of P239.44. The judgment of the lower court, therefore, should be modified
in this respect. The defendants are hereby ordered to return to the Province of Ilocos Norte the sum P239.44, for which sum a
judgment is hereby ordered to be entered against them, for which execution may issue when this judgment becomes final, in
case the same is not paid.
After a careful analysis of the facts, and the law applicable thereto, the judgment of the lower court, as herein modified, should
be and is hereby affirmed with costs.

CASE DIGEST (Transportation Law): Loadstar Shipping vs. CA


Loadstar Shipping vs. Court of Appeals
(GR 131621, 28 September 1999)

FACTS :

Loadstar Shipping Co. Inc. received on board its M/V “Cherokee” goods, amounting to P6,067,178, which were insured for the
same amount with the respondent Manila Insurance Co. (MIC) against various risks including “total loss by total loss of the vessel.”
The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (PGAI) for P4 million. 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.

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. PGAI was later dropped as a party defendant after it paid the insurance proceeds to Loadstar. Loadstar
submits that the vessel was a private carrier because it was not issued a 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. The trial court rendered
judgment in favor of MIC. Loadstar elevated the matter to the Court of Appeals, which affirmed the RTC’s decision in toto.

ISSUE:

Whether or not Loadstar is a common carrier.

HELD:

Yes.

x x x [W]e 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.,
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 large 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 and National Steel Corp. v. Court of Appeals, both
of which upheld the Home Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for 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 ["A general ship carrying goods for hire, whether
employed in internal, in coasting, or in foreign commerce is a common carrier." (Baer, Senior & Co.’s Successors v. La Compania
Maritima, 6 Phil. 215, 217-218, quoting Liverpool Steamship Co. v. Phoenix Ins. Co., 129 U.S. 397, 437), cited in 3 TEODORICO
C. MARTIN, PHILIPPINE COMMERCIAL LAWS 118 (Rev. Ed. 1989).] 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.

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.
DECISION
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 decisionxxiii[1] of the Court of
Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991xxiv[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 complaint until fully paid, P8,000 as attorneys fees, and the costs
of the suit; and (b) its resolution of 19 November 1997,xxv[3] denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
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 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 LOSS OF 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 of the vessel directly to MIC, said amount to be deducted from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed that the sinking of its vessel was due
to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured.
In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the
Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTARs 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.xxvi[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. LOADSTARS 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.xxvii[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 latters rights as against
the carrier, LOADSTAR.xxviii[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached their destination.
LOADSTARs 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.xxix[7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued a 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.xxx[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 vessels 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. MICs 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 owners 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 Courts ruling in the case of St. Paul Fire &
Marine Insurance Co. v. Macondray & Co., Inc.,xxxi[9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen
Phils., Inc.xxxii[10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been instituted beyond the period stated in the
bills of lading for instituting the same suits based upon claims arising from shortage, damage, or non-delivery of shipment shall be
instituted within sixty days from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due to force majeure,
because the same concurred with LOADSTARs 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.,xxxiii[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 large 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 Appealsxxxiv[12] and National Steel
Corp. v. Court of Appeals,xxxv[13] both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for 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.xxxvi[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,xxxvii[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:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.
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 even though private respondents 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 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.xxxviii[16]
Neither do we agree with LOADSTARs 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.xxxix[17] LOADSTAR was at
fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching
typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition
in the area where it sank was determined to be moderate. Since it was remiss 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
Courts pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc.,xl[18] and National Union Fire Insurance v.
Stolt-Nielsen Phils., Inc.xli[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 carriers 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 carriers 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 owners risk. Such stipulation is obviously null and void for being contrary to public policy.xlii[20] It has been
said:
Three kinds of stipulations have often been made in a bill of lading. The first is 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.xliii[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. MICs 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 good.xliv[22] In this case, the period for filing the action for recovery has not yet elapsed.
Moreover, a stipulation reducing the one-year period is null and void;xlv[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.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

First Philippine Industrial Corp. vs. CA


Facts:
Petitioner is a grantee of a pipeline concession under Republic Act No. 387. Sometime in January 1995, petitioner
applied for mayor’s permit in Batangas. However, the Treasurer required petitioner to pay a local tax based on gross
receipts amounting to P956,076.04. In order not to hamper its operations, petitioner paid the taxes for the first quarter
of 1993 amounting to P239,019.01 under protest. On January 20, 1994, petitioner filed a letter-protest to the City
Treasurer, claiming that it is exempt from local tax since it is engaged in transportation business. The respondent City
Treasurer denied the protest, thus, petitioner filed a complaint before the Regional Trial Court of Batangas for tax
refund. Respondents assert that pipelines are not included in the term “common carrier” which refers solely to ordinary
carriers or motor vehicles. The trial court dismissed the complaint, and such was affirmed by the Court of Appeals.
Issue:
Whether a pipeline business is included in the term “common carrier” so as to entitle the petitioner to the exemption
Held:
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.
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.
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 1967xlvi[1] and renewed by the Energy Regulatory Board in
1992.xlvii[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.xlviii[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."xlix[4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.l[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaintli[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.lii[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.liii[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."liv[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred the case to
the respondent Court of Appeals for consideration and adjudication.lv[10] On November 29, 1995, the respondent court rendered
a decisionlvi[11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied
on July 18, 1996.lvii[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996.lviii[13] Petitioner
moved for a reconsideration which was granted by this Court in a Resolutionlix[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.lx[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
Appealslxi[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
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the 'general public,' i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article 1877 deliberately
refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of 'public service,'
under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or
dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services.' "(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.lxii[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."
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 :
xxx xxx xxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on the Taxing
Powers of Local Government Units." 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 xlxiii[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.lxiv[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of
the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in
CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

***DISTINGUISHED FROM PRIVATE CARRIER

HOME INSURANCE COMPANY vs. AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION
G.R. No. L-25599
April 4, 1968
FACTS: “Consorcio Pesquero del Peru of South America” shipped freight pre-paid at Peru, jute bags of Peruvian fish meal through
SS Crowborough, covered by clean bills of lading. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation,
and insured by Home Insurance Company arrived in Manila and was discharged into the lighters of Luzon Stevedoring Company.
When the cargo was delivered to consignee San Miguel Brewery Inc., there were shortages causing the latter to lay claims against
Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies (shipowner), owner and
operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid SMBI the insurance value of the loss, as full settlement of the
claim. Having been refused reimbursement by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home
Insurance Company, as subrogee to the consignee, filed against them before the CFI of Manila a complaint for recovery of the
payment paid with legal interest, plus attorney’s fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity and quality
that it had received the same from the carrier.
The CFI, after trial, absolved Luzon Stevedoring Corporation, having found the latter to have merely delivered what it received
from the carrier in the same condition and quality, and ordered American Steamship Agencies to pay Home Insurance Company
the amount demanded with legal interest plus attorney’s fees.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us.
ISSUE: Is the stipulation in the charter party of the owner’s non-liability valid so as to absolve the American Steamship Agencies
from liability for loss?
HELD: The judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff.
YES
The bills of lading, covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading shall be governed
by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading prevail over all the agreements.
On the bills are stamped “Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party dated
London, Dec. 13, 1962.”
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused by personal
want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that she be properly
manned, equipped and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the
captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable
except for said paragraph..
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a
private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is
deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in fact and
legal contemplation merely a receipt and a document of title not a contract, for the contract is the charter party. The consignee may
not claim ignorance of said charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated, recovery cannot be had thereunder,
for loss or damage to the cargo, against the shipowners, unless the same is due to personal acts or negligence of said owner or its
manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence has been proved.

G.R. No. L-25599 April 4, 1968


HOME INSURANCE COMPANY, plaintiff-appellee,
vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of Peruvian fish
meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated January 17, 1963. The cargo,
consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance Company for $202,505,
arrived in Manila on March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo was
delivered to consignee San Miguel Brewery Inc., there were shortages amounting to P12,033.85, causing the latter to lay claims
against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies, owner and operator of
SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 — the insurance value of the loss,
as full settlement of the claim. Having been refused reimbursement by both the Luzon Stevedoring Corporation and American
Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against them on March 6, 1964 before the
Court of First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity and quality
that it had received the same from the carrier. It also claimed that plaintiff's claim had prescribed under Article 366 of the Code of
Commerce stating that the claim must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter party referred to in the bills of
lading, the charterer, not the shipowner, was responsible for any loss or damage of the cargo. Furthermore, it claimed to have
exercised due diligence in stowing the goods and that as a mere forwarding agent, it was not responsible for losses or damages to
the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation, having found the latter to
have merely delivered what it received from the carrier in the same condition and quality, and ordered American Steamship
Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable because
Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor of third persons due
to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public policy under Article
1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or negligent under Article
1735 of the Civil Code unless they prove extraordinary diligence, and they cannot by contract exempt themselves from
liability resulting from their negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at the place of destination, the
carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth for determination
this legal issue: Is the stipulation in the charter party of the owner's non-liability valid so as to absolve the American Steamship
Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading shall be governed
by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading prevail over all the agreements.2
On the of the bills are stamped "Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship were not entirely transferred to
the charterer,4 the vessel was chartered to its full and complete capacity (Exh. 3). Furthermore, the, charter had the option to go
north or south or vice-versa,5 loading, stowing and discharging at its risk and expense.6 Accordingly, the charter party contract is
one of affreightment over the whole vessel rather than a demise. As such, the liability of the shipowner for acts or negligence of its
captain and crew, would remain in the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused by personal
want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that she be properly
manned, equipped and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain
or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable except for said
paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the Code of Commerce
making the ship agent civilly liable for indemnities suffered by third persons arising from acts or omissions of the captain in the
care of the goods and Article 1744 of the Civil Code under which a stipulation between the common carrier and the shipper or
owner limiting the liability of the former for loss or destruction of the goods to a degree less than extraordinary diligence is valid
provided it be reasonable, just and not contrary to public policy. The release from liability in this case was held unreasonable and
contrary to the public policy on common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier.8 As a private
carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, 9 and is deemed
valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in fact and
legal contemplation merely a receipt and a document of title not a contract, for the contract is the charter party. 10 The consignee
may not claim ignorance of said charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated, recovery cannot be had thereunder,
for loss or damage to the cargo, against the shipowners, unless the same is due to personal acts or negligence of said owner or its
manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff. No costs. So
ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Dizon J., took no part.
Concepcion, C.J., is on leave.

Epitacio San Pablo v. Pantranco South Express, Inc.


G.R. No. L-61461 August 21, 1987
Gancayco, J.
FACTS:
Pantranco – engaged in the land transportation business with PUB service for passengers and freight and various certificates for
public conveniences to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar; through its counsel, it
wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V “Black Double” “to
be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company
buses and freight trucks that have to cross San Bernardo Strait; request was denied by MARINA. It nevertheless acquired the
vessel MV “Black Double”; it wrote the Chairman of the Board of Transportation that it proposes to operate a ferry service to
carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City
for the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation being
merely a necessary and incidental service to its main service and obligation of transporting its passengers; that being so, it
believed that there was no need for it to obtain a separate certificate for public convenience to operate a ferry service Matnog
to cater exclusively to its passenger buses and freight trucks. BOT granted the request. Cardinal Shipping Corporation and the
heirs of San Pablo filed separate motions for reconsideration.
ISSUES:
1. WON a ferry service is an extension of the highway and thus is a part of the authority originally granted PANTRANCO
2. WON a land transportation company can be authorized to operate a ferry service or coastwise or interisland shipping service
along its authorized route as an incident to its franchise without the need of filing a separate application for the same
HELD:
1. No.
Ferry continuation by means of boats, barges, or rafts, of a highway or the connection of highways located on the opposite banks
of a stream or other body of water. The term necessarily implies transportation for a short distance, almost invariably between
two points, which is unrelated to other transportation ferry service
- service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway
which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea
such as bay or lake which does not involve too great a distance or too long a time to navigate coastwise or interisland service
- service which involves crossing the open sea, motorship, steamboat or motorboat service (engaged in the coastwise trade) –
service between the different islands, involving more or less great distance and over more or less turbulent and dangerous waters
of the open sea, to be coastwise or inter-island service; considered coastwise or inter-island service conveyance of passengers,
trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under
no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat service
has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters -
separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can
not be considered as a continuation of the highway. PANTRANCO should secure a separate CPC for the operation of an interisland
or coastwise shipping. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise
that it is a mere private ferry service.

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


EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents.

GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the
highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service or
coastwise or interisland shipping service along its authorized route as an incident to its franchise without the need of
filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the
land transportation business with PUB service for passengers and freight and various certificates for public
conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March
27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to
lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from
Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross
San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due
course to the request on the basis of the following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo;
MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes
where these are adequately serviced by existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel
acquisitions intended for operations therein are necessarily limited to those intended for replacement
purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the
Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to carry
its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City invoking
the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a ferry service in
connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of
continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is merely a
necessary and incidental service to its main service and obligation of transporting its passengers from Pasay City to
Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public convenience to
operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and freight trucks.4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C.
Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1, 1981 at
10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be
cited to show cause why its CPC should not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of the
ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by ferrying
its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or not a bus
company with an existing CPC between Pasay City and Tacloban City may still be required to secure another certificate
in order to operate a ferry service between two terminals of a small body of water. On October 20, 1981 then Minister
of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators to secure a separate
CPC to operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a certificate of public convenience is expected to
provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co.
vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners,
58 SO 543) It is the right of the public which has accepted the service of a public utility operator to
demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to
its Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of
public convenience to provide adequate and convenient service to its riders. Requiring said bus
company to obtain another certificate to operate such ferry service when it merely forms a part —
and constitutes an improvement — of its existing transportation service would simply be duplicitous
and superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to operate
from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:
Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be
amended to embody the grant of authority to operate a private ferry boat service as one of the
conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the
exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the
public for hire other than its own passengers, it must apply for a separate certificate of public
convenience as a public ferry boat service, separate and distinct from its land transport systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision
and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking the
revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or preliminary
injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE
RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT
ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU
PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND
AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON
— ALLEN, SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT
AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981,
THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT
OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY
OR CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH AND OPEN
SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT
MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S
VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY
OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS
A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND
COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED
CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S
CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE
OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY
(MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-
A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING
AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF AUGUST 10,
1976 AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF
NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS
PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR
OPERATOR RULE'? 11
By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:
a. the decision did not conform to the procedures laid down by law for an amendment of the original
certificate of public convenience, and the authority to operate a private ferry boat service to
PANTRANCO was issued without ascertaining the established essential requisites for such grant,
hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said
route contravenes existing government policies relative to the rationalization of operations of all water
transport utilities;
c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation;
d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens
PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service c•nstitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the respondent Board
which would more than amply justify review of the questioned decision by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority
originally granted PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the highway from one side of the water over
which passes to the other side for transportation of passengers or of travellers with their teams
vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev.
Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially
constructed boat to carry passengers and property across rivers or bodies of water from a place in
one shore to a point conveniently opposite on the other shore and continuation of the highway making
a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85).
It comprises not merely the privilege of transportation but also the use for that purpose of the
respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry
service maybe a public ferry or a private ferry. A public ferry service is one which all the public have
the right to resort to and for which a regular fare is established and the ferryman is a common carrier
be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth
v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though
he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public
at its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire
and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from
Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to
Alien (Samar). It is a private carrier because it will be used exclusively to transport its own buses,
passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its
own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire
or for compensation to the general public. Legally therefore, Pantranco has the right to operate the
ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice
versa for the exclusive use of its own buses, passengers and freight trucks without the need of
applying for a separate certificate of public convenience or provisional authority. Since its operation
is an integral part of its land transport system, its original certificate of public convenience should be
amended to include the operation of such ferryboat for its own exclusive use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the
connection of highways located on the opposite banks of a stream or other body of water. The term
necessarily implies transportation for a short distance, almost invariably between two points, which
is unrelated to other transportation .(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by the state or its
authorized mandatories to continue by means of boats, an interrupted land highway over the
interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been
defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or
stream or some other body of water, with no essential difference from a bridge franchise except as
to the mode of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of
water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer
Co., 192 U.S. 454, 48 L. ed. 518; etc.)
The term ferry is often employed to denote the right or franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted land highway over the interrupting waters
and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165
Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay.
(U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a
franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea,
from one vill to another, or to connect a continuous line of road leading from township or vill to
another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of
waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is
sometimes used to designate very extensive reaches of waters within the projecting capes or points
or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The
distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb
and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms
of the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease
2 Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran
vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by holding
that:
We are not unmindful of the reasons adduced by the Commission in considering the motorboat
service between Calapan and Batangas as ferry; but from our consideration of the law as it stands,
particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the
Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the
Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we have the impression and
we are inclined to believe that the Legislature intended ferry to mean the service either by barges or
rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway
which is interrupted by the body of water, or in some cases to connect two points on opposite shores
of an arm of the sea such as bay or lake which does not involve too great a distance or too long a
time to navigate But where the line or service involves crossing the open sea like the body of water
between the province of Batangas and the island of Mindoro which the oppositors describe thus "the
intervening waters between Calapan and Batangas are wide and dangerous with big waves where
small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said
line or service as more properly belonging to interisland or coastwise trade. According to the finding
of the Commission itself the distance between Calapan is about 24 nautical miles or about 44.5
kilometers. We do not believe that this is the short distance contemplated by the Legislature in
referring to ferries whether within the jurisdiction of a single municipality or ferries between two
municipalities or provinces. If we are to grant that water transportation between Calapan and
Batangas is ferry service, then there would be no reason for not considering the same service
between the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City
of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and
Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the coastwise trade,
thus:
A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade
in that the latter is intended for the transportation of passengers and/or freight for hire or
compensation between ports or places in the Philippines without definite routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the
William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga,
every week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry
service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back,
twice a week. Certainly, it has a definite route. But that service is not ferry service, but rather
interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to consider steamboat or
motorboat service between the different islands, involving more or less great distance and over more
or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service.
Anyway, whether said service between the different islands is regarded as ferry service or coastwise
trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result
will be the same as far as the Commission is concerned. " 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog
which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the
northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean.
The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by
motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners.
As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and
rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels
as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from
Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no
circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat
service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body
of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by
an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law.
Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a
mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a
common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO
does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets
whenever they board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in
issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any
reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers
just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has been submitted.
21 What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a
private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate
from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private
ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such
an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be
allowed.
What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service
between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the vessel M/V
"Black Double 22 in accordance with the procedure provided for by law for such application for a certificate of public
convenience. 23 However when its request was denied as the said routes "are adequately serviced by
existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same. Obviously to
go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private
ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident
to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not
secure a separate certificate of public convenience. 25 Based on this representation, no less than the Secretary of
Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned
decision of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a
coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the operation
of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of
the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be heard, among
others, as provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT)
of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying the motions
for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent
PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland
services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC)
in accordance with the requirements of the law, with costs against respondent PANTRANCO.
SO ORDERED.

NATIONAL STEEL CORPORATION v. COURT OF APPEALS


G.R. No. 112287 December 12, 1997
Panganiban, J.
Doctrine:
The stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a
private carrier.
Facts:
Plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a
Contract of Voyage Charter Hire whereby NSC hired VSI’s vessel, the MV Vlasons I to make one voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila. The handling, loading and unloading of the cargoes were the responsibility
of the Charterer.
The skids of tinplates and hot rolled sheets shipped were allegedly found to be wet and rusty. Plaintiff, alleging negligence, filed a
claim for damages against the defendant who denied liability claiming that the MV Vlasons I was seaworthy in all respects for the
carriage of plaintiff’s cargo; that said vessel was not a “common carrier” inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course its voyage, the vessel encountered very rough seas.
Issue:
Whether or not the provisions of the Civil Code on common carriers pursuant to which there exists a presumption of negligence
against the common carrier in case of loss or damage to the cargo are applicable to a private carrier.
Held:
No. In a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would be binding
on them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier.
It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt
to avail themselves of its transportation service for a fee [Mendoza vs. Philippine Airlines, Inc., 90 Phil. 836, 842-843 (1952)]. A
carrier which does not qualify under the above test is deemed a private carrier. “Generally, private carriage is undertaken by special
agreement and the carrier does not hold himself out to carry goods for the general public.
Because the MV Vlasons I was a private carrier, the ship owner’s obligations are governed by the foregoing provisions of the Code
of Commerce and not by the Civil Code which, as a general rule, places the prima facie presumption of negligence on a common
carrier.

THIRD DIVISION
[G.R. No. 112287. December 12, 1997]
NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING, INC.,
respondents.
[G.R. No. 112350. December 12, 1997]
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL CORPORATION,
respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners responsibility for damage to the
cargo and its liability for demurrage and attorneys fees. The Court also reiterates the well-known rule that findings of facts of trial
courts, when affirmed by the Court of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both
of which assail the August 12, 1993 Decision of the Court of Appeals. lxv[1] The Court of Appeals modified the decision of the
Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the complaint with cost
against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on both amounts from April
7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED. lxvi[2]
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for demurrage to P44,000.00
and deleting the award for attorneys fees and expenses of litigation. Except as thus modified, the decision is AFFIRMED. There is
no pronouncement as to costs.
SO ORDERED. lxvii[3]
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment for the general
public. Its services are available only to specific persons who enter into a special contract of charter party with its owner. It is
undisputed that the ship is a private carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered into a contract
of affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner,
entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV VLASONS I
to make one (1) voyage to load steel products at Iligan City and discharge them at North Harbor, Manila, under the following terms
and conditions, viz:
1. x x xx x x.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
3. x x xx xx
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours, Sundays and Holidays
Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x xx xx
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for losses/damages except on
proven willful negligence of the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party Agreement
shall form part of this Contract.
xxx xxx xxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI Charter Party which stands
for Freight In and Out including Stevedoring and Trading, which means that the handling, loading and unloading of the cargoes
are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and
discharge the cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage, exercise due diligence to
make the vessel seaworthy and properly manned, equipped and supplied and to make the holds and all other parts of the vessel in
which cargo is carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of
the cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the
vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds and all other parts
of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx; perils, dangers and accidents
of the sea or other navigable waters; xxx; wastage in bulk or weight or any other loss or damage arising from inherent defect,
quality or vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due diligence; any other cause arising
without the actual fault or privity of Owners or without the fault of the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for split, chafing and/or any
damage unless caused by the negligence or default of the master and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV VLASONS I loaded at plaintiffs
pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages
with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the
ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed the
corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August 13, 1974,
when the vessels three (3) hatches containing the shipment were opened by plaintiffs agents, nearly all the skids of tinplates and
hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain
which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the Manila Adjusters
and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a report of its ocular
inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta.
Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the packages of hot
rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that container/metal
casings of the skids were rusting all over. MASCO ventured the opinion that rusting of the tinplates was caused by contact with
SEA WATER sustained while still on board the vessel as a consequence of the heavy weather and rough seas encountered while
en route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at random samples of bad order packing
materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T.
Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of packing materials
xxx shows that wetting was caused by contact with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for damages
suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally
demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on
April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of the act, neglect
and default of the master and crew in the management of the vessel as well as the want of due diligence on the part of the defendant
to make the vessel seaworthy and to make the holds and all other parts of the vessel in which the cargo was carried, fit and safe for
its reception, carriage and preservation -- all in violation of defendants undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was seaworthy in all respects
for the carriage of plaintiffs cargo; that said vessel was not a common carrier inasmuch as she was under voyage charter contract
with the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS
I encountered very rough seas, strong winds and adverse weather condition, causing strong winds and big waves to continuously
pound against the vessel and seawater to overflow on its deck and hatch covers; that under the Contract of Voyage Charter Hire,
defendant shall not be responsible for losses/damages except on proven willful negligence of the officers of the vessel, that the
officers of said MV VLASONS I exercised due diligence and proper seamanship and were not willfully negligent; that furthermore
the Voyage Charter Party provides that loading and discharging of the cargo was on FIOST terms which means that the vessel was
free of risk and expense in connection with the loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual fault or privity of defendant and without the fault of the agents or servants
of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo in Manila were
negligent and did not exercise due care in the discharge of the cargo; and that the cargo was exposed to rain and seawater spray
while on the pier or in transit from the pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs claim was
highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the tinplates were
magnified and considered total loss of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations
under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following
counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire Contract, plaintiff
failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per day for
demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the vessel.
Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant attorneys fees and all
expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings which were set forth in its
decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available for hire only under
special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV VLASONS I was covered
by the required seaworthiness certificates including the Certification of Classification issued by an international classification
society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of Transportation (Exh. 5); International
Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine Coast Guard (Exh. 12); and
Certificate of Approval for Conversion issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas
and coastwise trade, the MV VLASONS I has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the MV VLASONS
I underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessels first voyage after the drydocking. The evidence shows that the MV VLASONS I was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered by hatchboards
which were in turn covered by two or double tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards
were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The provisions of the
Civil Code on common carriers pursuant to which there exists a presumption of negligence in case of loss or damage to the cargo
are not applicable. As to the damage to the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted
testimony of witness Vicente Angliongto that tinplates sweat by themselves when packed even without being in contract (sic) with
water from outside especially when the weather is bad or raining. The rust caused by sweat or moisture on the tinplates may be
considered as a loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which
exempts the carrier from responsibility for loss or damage arising from the character of the goods x x x. All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates
themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch openings of the
MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rainwater to enter the hatches. It was
proven that the stevedores merely set up temporary tents to cover the hatch openings in case of rain so that it would be easy for
them to resume work when the rains stopped by just removing the tent or canvas. Because of this improper covering of the hatches
by the stevedores during the discharging and unloading operations which were interrupted by rains, rainwater drifted into the cargo
through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the
Contract of Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer
and defendant carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan City to Manila causing
sea water to splash on the ships deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest
on August 13, 1974 (Exh. 15) which can be invoked by defendant as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract that it was to insure
the cargo because it did not. Had plaintiff complied with the requirement, then it could have recovered its loss or damage from the
insurer. Plaintiff also violated the charter party contract when it loaded not only steel products, i.e. steel bars, angular bars and the
like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to
ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof, fixed the freight at P30.00
per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the
total freight due of P75,000.00 despite demands. The evidence also showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading of the
cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant for demurrage in the amount of
P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and supplied, and that there
is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character of the goods and not
due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI.lxviii[4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from P88,000.00 to
P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI filed separate motions for
reconsideration. In a Resolutionlxix[5] dated October 20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI
filed their respective petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions.lxx[6]
The Issues
In its petitionlxxi[7] and memorandum,lxxii[8] NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were admissible in evidence and
constituted evidence of the vessels seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs tinplates.
In its separate petition, lxxiii[9] VSI submits for the consideration of this Court the following alleged errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorneys fees and expenses
of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: lxxiv[10]
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist[s] a
presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai Charter, are valid and
binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.
The Courts Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier. The resolution
of this preliminary question determines the law, standard of diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.
It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt
to avail themselves of its transportation service for a fee. lxxv[11] A carrier which does not qualify under the above test is deemed
a private carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold himself out to carry
goods for the general public. The most typical, although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages. lxxvi[12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional Trial Court,
it carried passengers or goods only for those it chose under a special contract of charter party. lxxvii[13] As correctly concluded by
the Court of Appeals, the MV Vlasons I was not a common but a private carrier. lxxviii[14] Consequently, the rights and obligations
of VSI and NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations in their
contract of private carriage or charter party. lxxix[15] Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of
Appeals and Seven Brothers Shipping Corporation, lxxx[16] the Court ruled:
x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would be binding
on them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common carriers.lxxxi[17]
Extent of VSIs Responsibility and Liability Over NSCs Cargo
It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be responsible for losses except
on proven willful negligence of the officers of the vessel. The NANYOZAI Charter Party, which was incorporated in the parties
contract of transportation, further provided that the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure
that the same was properly manned, equipped and supplied, and to make the holds and all other parts of the vessel in which cargo
[was] carried, fit and safe for its reception, carriage and preservation. lxxxii[18] The NANYOZAI Charter Party also provided that
[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master or
crew.lxxxiii[19]
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused by VSIs willful
negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the
cargo. Ineluctably, the burden of proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event, force majeure, or
the nature and inherent defect of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding article if proofs
against him show that they occurred on account of his negligence or his omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading, making him to believe that the goods were of a class or quality
different from what they really were.
Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the foregoing provisions of the Code
of Commerce and not by the Civil Code which, as a general rule, places the prima facie presumption of negligence on a common
carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was
negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carriers custody does not put the burden of
proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of the goods committed to
its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo while
in the carriers possession does not cast on it the burden of proving proper care and diligence on its part or that the loss occurred
from an excepted cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee, and since the carrier is in
a better position to know the cause of the loss and that it was not one involving its liability, the law requires that it come forward
with the information available to it, and its failure to do so warrants an inference or presumption of its liability. However, such
inferences and presumptions, while they may affect the burden of coming forward with evidence, do not alter the burden of proof
which remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage, the burden of going
forward with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach thereof and that such breach
was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost or damaged while in the carriers
possession does not cast on it the burden of proving seaworthiness. x x x Where the contract of carriage exempts the carrier from
liability for unseaworthiness not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of
due diligence to make the vessel seaworthy. lxxxiv[20]
In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position in relation to the question of
who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party
(incidentally plaintiff-appellants [NSCs] interpretation of Clause 12 is not even correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply with any of these obligations as if defendant-appellee [VSI] had the burden
of proof.lxxxv[21]
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether VSI exercised due
diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party; (2) whether the damage to the cargo
should be attributed to the willful negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3)
whether the rusting of the tinplates was caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear the parties
conflicting claims and to carefully weigh their respective evidence. The findings of the trial court were subsequently affirmed by
the Court of Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the same are binding on
this Court. lxxxvi[22] We stress that, subject to some exceptional instances, lxxxvii[23] only questions of law -- not questions of
fact -- may be raised before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough review of the
case at bar, we find no reason to disturb the lower courts factual findings, as indeed NSC has not successfully proven the application
of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the carriage of NSCs cargo
of steel and tinplates. This is shown by the fact that it was drydocked and inspected by the Philippine Coast Guard before it
proceeded to Iligan City for its voyage to Manila under the contract of voyage charter hire. lxxxviii[24] The vessels voyage from
Iligan to Manila was the vessels first voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy,
fitted and equipped; it met all requirements for trading as cargo vessel. lxxxix[25] The Court of Appeals itself sustained the
conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial
and the appellate courts.
Who Were Negligent: Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence of the officers and
the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover the hatches
through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim
as an uncontroverted fact xc[26] and denies that MV Vlasons I was equipped with new canvas covers in tandem with the old ones
as indicated in the Marine Protest xxx. xci[27] We disagree.
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition to the new one used primarily
to make the ships hatches watertight. The foregoing are clear from the marine protest of the master of the MV Vlasons I, Antonio
C. Dumlao, and the deposition of the ships boatswain, Jose Pascua. The salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with approximately 2,487.9
tons of steel plates and tin plates consigned to National Steel Corporation; that before departure, the vessel was rigged, fully
equipped and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros and
Panay, we encountered very rough seas and strong winds and Manila office was advised by telegram of the adverse weather
conditions encountered; that in the morning of August 10, 1974, the weather condition changed to worse and strong winds and big
waves continued pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers and which caused
the first layer of the canvass covering to give way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-secured the canvass covering
back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage, we were again exposed to moderate
seas and heavy rains; that while approaching Fortune Island, we encountered again rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx xcii[28]
And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat bar over the
canvas on the side of the hatches and then we place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers?
A: Two, sir. xciii[29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by the fact that, despite
encountering rough weather twice, the new tarpaulin did not give way and the ships hatches and cargo holds remained waterproof.
As aptly stated by the Court of Appeals, xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on
board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages from NSCs pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. xciv[30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV Vlasons I. On the
contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a passing typhoon disrupted
the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keeping rain and seawater away from the
hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel upon notice
from the National Steel Corporation in order to conduct the inspection of the cargo. During the course of the investigation, did you
chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but majority of the
tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript of stenographic notes shows the
same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed at the opening of the hatches
to protect the cargo from the rain. Now, will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with the whole
side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle because of those weather and this can be
used only to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was not good
enough to hold all of it to prevent the water soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the canvas and
tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its stevedores in
discharging the cargo particularly in this tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind at all, so, I
called the attention of the representative of the National Steel but nothing was done, just the same. Finally, I wrote a letter to them.
xcv[31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the stevedores
negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven days later. xcvi[32] The Court
is not persuaded. Angliongtos candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSCs representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with common sense and ordinary
human experience. Vicente Angliongto could not be blamed for calling the stevedores attention first and then the NSCs
representative on location before formally informing NSC of the negligence he had observed, because he was not responsible for
the stevedores or the unloading operations. In fact, he was merely expressing concern for NSC which was ultimately responsible
for the stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC were negligent in
the unloading of NSCs shipment. We do not think so. Such negligence according to the trial court is evident in the stevedores hired
by [NSC], not closing the hatch of MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rain
water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores merely set up
temporary tents or canvas to cover the hatch openings when it rained during the unloading operations so that it would be easier for
them to resume work after the rains stopped by just removing said tents or canvass. It has also been shown that on August 20, 1974,
VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging
the cargo on rainy days and the improper closing of the hatches which allowed continuous heavy rain water to leak through and
drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with strong winds
that the hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was received by
[NSC] on 22 August 1974 while discharging operations were still going on (Exhibit 13-A). xcvii[33]
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable weather will not make
VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may seek indemnification, subject to the laws
on prescription, from the stevedoring company at fault in the discharge operations. A stevedore company engaged in discharging
cargo xxx has the duty to load the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its
negligence xxx and where the officers and members and crew of the vessel do nothing and have no responsibility in the discharge
of cargo by stevedores xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the stevedores
xxx xcviii[34] as in the instant case.
Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by themselves when packed even
without being in contact with water from outside especially when the weather is bad or raining xxx. xcix[35] The Court of Appeals
affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the tinplates was
occasioned not by airborne moisture but by contact with rain and seawater which the stevedores negligently allowed to seep in
during the unloading.
Second Issue: Effect of NSCs Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and distinct from
the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo caused by the willful negligence of
the officers and the crew of MV Vlasons I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as owner and
real party in interest, to file an action against VSI for damages caused by the latters willful negligence. We do not find anything in
the charter party that would make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSCs
obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the certificates of seaworthiness
offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. c[36]
NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of Court. It points out that
Exhibits 3, 4 and 11 allegedly are not written records or acts of public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not
evidenced by official publications or certified true copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. ci[37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have
not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they have not been proven by
one who saw the writing executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing witness.
Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44 of Rule 130 of
the Rules of Court, which provides that (e)ntries in official records made in the performance of a duty by a public officer of the
Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein
stated. cii[38] Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli
C. Flores to the effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for inspection x x
x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy
condition, meets all requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and
sailed for Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not seaworthy. As observed earlier,
the vessel was a private carrier and, as such, it did not have the obligation of a common carrier to show that it was seaworthy.
Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting
in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not
seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. ciii[39]
The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment for the detention
of the vessel beyond the laytime or that period of time agreed on for loading and unloading of cargo. civ[40] It is given to
compensate the shipowner for the nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running days, this means days
when the ship would be run continuously, and holidays are not excepted. A qualification of weather permitting excepts only those
days when bad weather reasonably prevents the work contemplated. cv[41]
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as WWDSHINC or weather
working days Sundays and holidays included. cvi[42] The running of laytime was thus made subject to the weather, and would
cease to run in the event unfavorable weather interfered with the unloading of cargo. cvii[43] Consequently, NSC may not be held
liable for demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view
of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to
have found and affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of unloading
unhampered by unfavorable weather or rain which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for demurrage, even
if it reduced the amount by half.
Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We disagree. While VSI was compelled
to litigate to protect its rights, such fact by itself will not justify an award of attorneys fees under Article 2208 of the Civil Code
when x x x no sufficient showing of bad faith would be reflected in a partys persistence in a case other than an erroneous conviction
of the righteousness of his cause x x x. cviii[44] Moreover, attorneys fees may not be awarded to a party for the reason alone that
the judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on ones right to litigate or seek
judicial redress of legitimate grievances. cix[45]
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo? Ranged against NSC
are two formidable truths. First, both lower courts found that such damage was brought about during the unloading process when
rain and seawater seeped through the cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that
factual findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between the parties -- the
Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon the shipper, not upon the shipowner.
Such stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not one of
common carriage. Basic too is the doctrine that courts cannot relieve a party from the effects of a private contract freely entered
into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial contract and its
stipulations are agreed upon in consideration of many factors, not the least of which is the transport price which is determined not
only by the actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or damage to the cargo.
In recognition of such factors, the parties even stipulated that the shipper should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or neglected to protect itself with such insurance should not adversely affect
VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned Decision of the Court
of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.

***GOVERNMENT REGULATION OF COMMON CARRIER’S BUSINESS


CASE DIGEST (Transportation Law): Kilusang Mayo Uno vs. Garcia
KILUSANG MAYO UNO LABOR CENTER vs.HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES G.R. No. 115381 December 23, 1994

FACTS :
Then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S.
Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB
official rate for a period of one (1) year.

This range was later increased by LTFRB thru a Memorandum Circular No. 92-009 providing, among others, that "The existing
authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25%
limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range."

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial
bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and
without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares, which the
LTFRB dismissed for lack of merit.

ISSUE:
Whether or not the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen
(15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized
fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal.

HELD:
Yes.

x x x

Under section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public Service Commission the power of
fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. x x x However, nowhere under the aforesaid provisions of law are the regulatory
bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public
service.

G.R. No. 115381 December 23, 1994


KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and
the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
Jose F. Miravite for movants.

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to the general public. They
are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such,
public utility services are impressed with public interest and concern. The same is true with respect to the business of
common carrier which holds such a peculiar relation to the public interest that there is superinduced upon it the right of
public regulation when private properties are affected with public interest, hence, they cease to be juris privati only.
When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public
an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest
he has thus created.1
An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to
show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public
interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders
of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and
Regulatory Board LTFRB)2 which, among others, (a) authorize provincial bus and jeepney operators to increase or
decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and
approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known
as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by
delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for
certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the
proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same
Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places
upon each party the burden to prove his own affirmative allegations.3 The offending provisions contained in the
questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and thoroughfares
thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers
to the burden of spiraling costs of public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC
Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial
bus services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587;
(d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No.
92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB
Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of
15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the memorandum order
reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the
Medium-Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of
regulations in the transport sector. Along this line, the Government intends to move away gradually
from regulatory policies and make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger rates
above and below the official fare declared by LTFRB on many provincial routes. It is in this context
that some form of liberalization on public transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all
provincial bus routes in country (except those operating within Metro Manila). Transport Operators
shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen
percent (15%) below the LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the
DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the
following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB
received on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all
provincial bus routes in the country (except those operating within Metro Manila)" that will allow
operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent
(15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting
the Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the fixing and
determination of rates — (a) the rates to be approved should be proposed by public
service operators; (b) there should be a publication and notice to concerned or
affected parties in the territory affected; (c) a public hearing should be held for the
fixing of the rates; hence, implementation of the proposed fare range scheme on
August 6 without complying with the requirements of the Public Service Act may
not be legally feasible.
2. To allow bus operators in the country to charge fares fifteen (15%) above the
present LTFRB fares in the wake of the devastation, death and suffering caused
by the July 16 earthquake will not be socially warranted and will be politically
unsound; most likely public criticism against the DOTC and the LTFRB will be
triggered by the untimely motu propio implementation of the proposal by the mere
expedient of publicizing the fare range scheme without calling a public hearing,
which scheme many as early as during the Secretary's predecessor know through
newspaper reports and columnists' comments to be Asian Development Bank and
World Bank inspired.
3. More than inducing a reduction in bus fares by fifteen percent (15%) the
implementation of the proposal will instead trigger an upward adjustment in bus
fares by fifteen percent (15%) at a time when hundreds of thousands of people in
Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio
City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and
havoc caused by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies involved in public
transportation can consider measures and reforms in the industry that will be
socially uplifting, especially for the people in the areas devastated by the recent
earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that the
implementation of the proposed fare range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed
an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer
for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and below the
proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to ordinary, first class
and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase
of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected
price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the
proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate of return
of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance
with the following schedule of fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR P1.50 P0.37
STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415.4
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado
issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced
below in view of the importance of the provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation
and Communications (DOTC) as the primary policy, planning, regulating and implementing agency
on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the
transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions
and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful liberalization measures pursued
over the last five years and bring the transport sector nearer to a balanced longer term regulatory
framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies
and principles in the economic regulation of land, air, and water transportation services are hereby
adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no
franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise
holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof
of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the
riding public.
In determining public need, the presumption of need for a service shall be deemed in favor of the
applicant. The burden of proving that there is no need for a proposed service shall be with the
oppositor(s).
In the interest of providing efficient public transport services, the use of the "prior operator" and the
"priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests
of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits
of each franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports
and ports, the use of demand management measures in conformity with market principles may be
considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to
the filing of appropriate notice and following a phase-out period, to inform the public and to minimize
disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger
fares shall also be deregulated, except for the lowest class of passenger service (normally third class
passenger transport) for which the government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15% above and below the indicative or
reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of
particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily
by the government pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such services in the most
advantageous terms to the public and the government, following public bids for the services. The
advisability of bidding out the services or using other kinds of incentives on such routes shall be
studied by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall
not engage in special financing and incentive programs, including direct subsidies for fleet acquisition
and expansion. Only when the market situation warrants government intervention shall programs of
this type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the
Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-
five (45) days of this Order, the detailed rules and procedures for the Implementation of the policies
herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most
recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil
Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-
island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B.
Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules
and procedures to implement above-quoted Department Order No. 92-587 that laid down deregulation and other
liberalization policies for the transport sector. Attached to the said memorandum was a revised draft of the required
rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments
and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the
statement of the DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the
Economic Integration Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular
provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public need. The presumption
of public need for a service shall be deemed in favor of the applicant, while burden of proving that
there is no need for the proposed service shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary with the
quality of service, subject to prior notice and public hearing. Fares shall not be provisionally
authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and
jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by
an indicative or reference rate as the basis for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing
provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition
for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the
existing fares. Said increased fares were to be made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive
portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby
DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this
case was resolved with dispatch at the request of petitioner to enable it to immediately avail of the
legal remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents
from implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant
that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A
moratorium was likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus
operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus
twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose,
is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant
for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public
Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner,
questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal
standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr.
and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim
that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in
applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution
provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending between parties who
have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party
litigant. One who is directly affected by and whose interest is immediate and substantial in the controversy has the
standing to sue. The rule therefore requires that a party must show a personal stake in the outcome of the case or an
injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction
and to justify the exercise of the court's remedial powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and
damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear
legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars
and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the
burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise
the riding public. Certainly, their rights must be protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren
procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the
issues raised. And this act of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this
Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc.,
et al. v. Teofisto Guingona, Jr., et al.,9 we ruled in the same lines and enumerated some of the cases where the same
policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of
its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency
Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v.
Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil.
368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the
public of these cases demands that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits
are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should
be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion
to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress,
and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this court to
question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of
vacation and sick leave to Senators and Representatives and to elective officials of both Houses of
Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive
Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of
the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or
positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic
appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA
221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmeña v. Commission
on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement
and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco
v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975,
establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include those attacking
the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition
imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA
377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution
and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the
referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the
bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel
v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of Investments of
the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from
Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to
naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989];
Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and
resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power
Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders
of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings
conducted on the second provisional increase in oil prices did not allow the petitioner substantial
cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive
Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections
concerning the apportionment, by district, of the number of elective members of Sanggunians (De
Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a
Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta,
101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite
its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved
nevertheless to pass upon the issues raised because of the far-reaching implications of the petition.
We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does
not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed
aside the procedural infirmity "considering the importance of the issue involved, concerning as it does
the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse
of discretion and violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have
power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject
to the limitations and exceptions mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof,
as well as commutation, mileage kilometrage, and other special rates which shall be imposed,
observed, and followed thereafter by any public service: Provided, That the Commission may, in its
discretion, approve rates proposed by public services provisionally and without necessity of any
hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to
the concerns operating in the territory affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for the promotion of a private business,
the net profits of said private business shall be considered in relation with the public service of such
operator for the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power
of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested
with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order
authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares,
rates and other related charges, relative to the operation of public land transportation services provided by
motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing
complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the
laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and
delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of
subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad
policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to
provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike,
authorized to delegate that power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and
above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority.
Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the
ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening mind of another.10 A further delegation
of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated
to discharge it directly.11 The policy of allowing the provincial bus operators to change and increase their fares at will
would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the
mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it
pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co.,12 where
respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight
rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine
Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in
order to meet the competition of road trucks and autobuses, or to change its freight rates at will, or
to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the
Philippine Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to show
that it is untenable. The Legislature has delegated to the Public Service Commission the power of
fixing the rates of public services, but it has not authorized the Public Service Commission to delegate
that power to a common carrier or other public service. The rates of public services like the Philippine
Railway Co. have been approved or fixed by the Public Service Commission, and any change in such
rates must be authorized or approved by the Public Service Commission after they have been shown
to be just and reasonable. The public service may, of course, propose new rates, as the Philippine
Railway Co. did in case No. 31827, but it cannot lawfully make said new rates effective without the
approval of the Public Service Commission, and the Public Service Commission itself cannot
authorize a public service to enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they are submitted to it, if the evidence
shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission
cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just
and reasonable, because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its freight
rates at will. It may change them every day or every hour, whenever it deems it necessary to do so
in order to meet competition or whenever in its opinion it would be to its advantage. Such a procedure
would create a most unsatisfactory state of affairs and largely defeat the purposes of the public
service law.13 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be
authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare over a
period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been computed in a
manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven
(P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare
range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05
centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the
LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation
would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to
impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that
is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected,
not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a
bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the
authorized fare range. Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires
dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to
both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could
be achieved. A rate should not be confiscatory as would place an operator in a situation where he will continue to
operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational
costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes
discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to
the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters,
government must not relinquish this important function in favor of those who would benefit and profit from the industry.
Neither should the requisite notice and hearing be done away with. The people, represented by reputable oppositors,
deserve to be given full opportunity to be heard in their opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all
parties involved. To do away with such a procedure and allow just one party, an interested party at that, to determine
what the rate should be, will undermine the right of the other parties to due process. The purpose of a hearing is
precisely to determine what a just and reasonable rate is.15 Discarding such procedural and constitutional right is
certainly inimical to our fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land
transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as
amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a
citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and
organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely
to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and
meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public
service proposed and the authorization to do business will promote the public interest in a proper and suitable manner.
It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009,
Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines
states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption
of public need for a service shall be deemed in favor of the applicant, while the burden of proving
that there is no need for the proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act
which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the
operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary,
the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the
applicant. In case of conflict between a statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public need.16 As one
of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility
or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately
supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence,
real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for
that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests
of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and
investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public.17 Basic
convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in
mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application.
Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which
he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized
judicial, quasi-judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere
application, his affirmative allegations. Moreover, the offending provisions of the LTFRB memorandum circular in
question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37
presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be
countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure.
19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present
circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the
government of its inherent right to exercise police power, that is, the right of government to regulate public utilities for
protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport
sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No.
92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative
issuances being amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that
the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a
petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992,
the same being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative
issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law
and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority
to increase or decrease the duly prescribed transportation fares; and (b) creating a presumption of public need for a
service in favor of the applicant for a certificate of public convenience and placing the burden of proving that there is
no need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the
bus fare rate increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or
orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.

#Footnotes
1 Pantranco v. Public Service Commission, 70 Phil. 221.
2 The 20th century ushered in the birth and growth of public utility regulation in the country. After the
Americans introduced public utility regulation at the turn of the century, various regulatory bodies
were created. They were the Coastwise Rate Commission under Act No. 520 passed by the
Philippine Commission on November 17, 1902; the Board of Rate Regulation under Act No. 1779
dated October 12, 1907; the Board of Public Utility Commission under Act No. 2307 dated December
19, 1913; and the Public Utility Commission under Act No. 3108 dated March 19, 1923.
During the Commonwealth period, the National Assembly passed a more comprehensive public utility
law. This was Commonwealth Act No. 146, as amended or the Public Service Act, as amended. Said
law created a regulatory and franchising body known as the Public Service Commission (PSC). The
Commission (PSC) existed for thirty-six (36) years from 1936 up to 1972.
On September 24, 1972, Presidential Decree No. 1 was issued and declared "part of the law of the
land." The same effected a major revamp of the executive department. Under Article III, Part X of
P.D. No. 1, the Public Service Commission (PSC) was abolished and replaced by three (3)
specialized regulatory boards. These were the Board of Transportation, the Board of
Communications, and the Board of Power and Waterworks.
The Board of Transportation (BOT) lasted for thirteen (13) years. On March 20, 1985, Executive
Order No. 1011 was issued abolishing the Board of Transportation and the Bureau of Land
Transportation. Their powers and functions were merged into the Land Transportation Commission
(LTC).
Two (2) years later, LTC was abolished by Executive Order Nos. 125 dated January 30, 1987 and
125-A dated April 13, 1987 which reorganized the Department of Transportation and
Communications. On June 19, 1987, the Land Transportation Franchising and Regulatory Board
(LTFRB) was created by Executive Order No. 202. The LTFRB, successor of LTC, is the existing
franchising and regulatory body for overland transportation today.

243 SCRA 436 – Business Organization – Corporation Law – Corporate Nationality – Public Utility – Nationality
Requirement in Nationalized Areas of Activity
In 1989, the government planned to build a railway transit line along EDSA. No bidding was made but certain corporations were
invited to prequalify. The only corporation to qualify was the EDSA LRT Consortium which was obviously formed for this
particular undertaking. An agreement was then made between the government, through the Department of Transportation and
Communication (DOTC), and EDSA LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme provided
for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the facilities, i.e., railways,
and shall supply the train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall pay rent for the
same for 25 years. By the end of 25 years, it was projected that the government shall have fully paid EDSA LRT Consortium.
Thereafter, EDSA LRT Consortium shall sell the facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the implementation of said agreement as they
averred that EDSA LRT Consortium is a foreign corporation as it was organized under Hongkong laws; that as such, it cannot own
a public utility such as the EDSA railway transit because this falls under the nationalized areas of activities. The petition was filed
against Jesus Garcia, Jr. in his capacity as DOTC Secretary.
ISSUE: Whether or not the petition shall prosper.
HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the agreement, does not
and will not become the owner of a public utility hence, the question of its nationality is misplaced. It is true that a foreign
corporation cannot own a public utility but in this case what EDSA LRT Consortium will be owning are the facilities that it will be
building for the EDSA railway project. There is no prohibition against a foreign corporation to own facilities used for a public
utility. Further, it cannot be said that EDSA LRT Consortium will be the one operating the public utility for it will be DOTC that
will operate the railway transit. DOTC will be the one exacting fees from the people for the use of the railway and from the proceeds,
it shall be paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do is to build the facilities and
receive rent from the use thereof by the government for 25 years – it will not operate the railway transit. Although EDSA LRT
Consortium is a corporation formed for the purpose of building a public utility it does not automatically mean that it is operating a
public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or
any other form of authorization for that purpose.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMEÑA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD., respondents.

DECISION
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the
“Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA” dated April 22, 1992, and
the “Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail
Transit System for EDSA” dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmeña and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their
capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of
Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation
organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which
shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA
LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation
problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary
Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled “An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes,” was signed by President Corazon C. Aquino. Referred to as
the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects through
private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22, 1991
and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification Bids and Awards
Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and implementation of
the project The notice, advertising the prequalification of bidders, was published in three newspapers of general circulation once a
week for three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five groups
responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of
Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic corporations:
namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the
Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta,
E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical Committee
were adopted by the PBAC. The criteria totaling 100 percent, are as follows: (a) Legal aspects — 10 percent; (b)
Management/Organizational capability — 30 percent; and (c) Financial capability — 30 percent; and (d) Technical capability —
30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and Regulations
thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five applicants, only
the EDSA LRT Consortium “met the requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects, and
obtaining an over-all passing mark of at least 82 points” (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT
contractor-applicant meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by Secretary
Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively
recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting
for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations
of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed with
the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in
substitution of the EDSA LRT Consortium, entered into an “Agreement to Build, Lease and Transfer a Light Rail Transit System
for EDSA” under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed Secretary
Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed to conduct actual
public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award
BOT projects, and the prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the
Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding
was of doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT or BT Scheme provided
in the law had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the agreement. On April
22, 1992, the parties entered into a “Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA” (Rollo, pp. 47-78) inasmuch as “the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement
without need of approval by the President pursuant to the provisions of Executive Order No. 380 and that certain events [had]
supervened since November 7, 1991 which necessitate[d] the revision of the Agreement” (Rollo, p. 51). On May 6, 1992, DOTC,
represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a “Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA” so as to
“clarify their respective rights and responsibilities” and to submit [the] Supplemental Agreement to the President, of the Philippines
for his approval” (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum
to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will
have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such vehicles
operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8
kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised
and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in 16-hectare
government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail transit system
(Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from
the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental
Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and
possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated
Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable
Letter of Credit. The rentals shall be determined by an independent and internationally accredited inspection firm to be appointed
by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent’s capital shall be recovered
from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated
Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the
project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo,
p. 67).
On May 5, 1994, R.A. No. 7718, an “Act Amending Certain Sections of Republic Act No. 6957, Entitled “An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes” was
signed into law by the President. The law was published in two newspapers of general circulation on May 12, 1994, and took effect
15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993,
INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA
LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED
IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS
UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE
REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE,
IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL
APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos and are not disadvantageous
to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature On May
12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered that the
action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer’s suits are to allow taxpayers to question contracts entered into by the national government or
government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110
[1994]) and to disallow the same when only municipal contracts are involved (Bugnay Construction and Development Corporation
v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental Agreement of
May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens
and domestic corporations, not foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the only
mode of awarding infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public
respondent, is admittedly a foreign corporation “duly incorporated and existing under the laws of Hongkong” (Rollo, pp. 50, 79).
There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as
lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like the
coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to
serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but
their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a
franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period
than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the “operation” of a public utility and the ownership of the facilities and equipment used
to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in
everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on
the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the
public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the
transportation of passengers from one point to another point, their loading and unloading at designated places and the movement
of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919]
;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can
own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the
facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control
thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very
well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft
and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA LRT III, it admits that it is not enfranchised
to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent
and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of
lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide
technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-
62). Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for
routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised
and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling
stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised
and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC operational
personnel which includes actual driving of light rail vehicles under simulated operating conditions, control of operations, dealing
with emergencies, collection, counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex
E, Secs. 2-3). Personnel of DOTC will work under the direction and control of private respondent only during training (Revised
and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA
LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking training
of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-
year construction period and upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III
on its own and train all new personnel by itself.
Fees for private respondent’ s services shall be included in the rent, which likewise includes the project cost, cost of replacement
of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated
Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this
purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be
claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT
III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment facilities
(Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with
the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the
Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein,
the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint
venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build,
at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was
to lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC’s participation was
not confined to the construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming
indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect,
the PCSO leased out its franchise to PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v. United
States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246
[1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners
of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities
(Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public
utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any
other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its
Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme — A contractual arrangement whereby the contractor undertakes the construction including
financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over a
fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the
contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return
thereon. The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed
term which shall not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or
domestic sources and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure
of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in accordance with the
Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer corporation, the
citizenship of each stockholder in the corporate investors shall be the basis for the computation of Filipino equity in the said
corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor shall be employed or hired in the
different phases of the construction where Filipino skills are available: Provided, furthermore, that the financing of a foreign or
foreign-controlled contractor from Philippine government financing institutions shall not exceed twenty percent (20%) of the total
cost of the infrastructure facility or project: Provided, finally, That financing from foreign sources shall not require a guarantee by
the Government or by government-owned or controlled corporations. The build-operate-and-transfer scheme shall include a supply-
and-operate situation which is a contractual agreement whereby the supplier of equipment and machinery for a given infrastructure
facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training
to Filipino nationals.
(b) Build-and-transfer scheme — “A contractual arrangement whereby the contractor undertakes the construction including
financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit
concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This
arrangement may be employed in the construction of any infrastructure project including critical facilities which for security or
strategic reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure
facility, and operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover
its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the
contractor transfers the ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the ownership and
operation thereof are turned over to the government. The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return. If payment is to be effected through amortization payments by the government
infrastructure agency or local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship
requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the government
of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation within the context of the
two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and details for the multifarious and
complex situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v.
Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to amortize
payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a schedule of
rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo,
p. 85). At the end of 25 years and when full payment shall have been made to and received by private respondent, it shall transfer
to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and
Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain price and
for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no
transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased premises shall be transferred
to the lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III
Project is a high priority project certified by Congress and the National Economic and Development Authority as falling under the
Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency
Act (R.A. No. 529), which reads as follows:
Sec. 1. — Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the
Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared
against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority economic
projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before congressional
approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector pursuant to the BOT
Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including “rail-based projects packaged with commercial development opportunities”
(Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III
contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been rigged
from the very beginning to do away with the usual open international public bidding where qualified internationally known
applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public bidding
in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v.
Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree No. 1594
allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, “Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts,”
allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as follows:
Bidding. — Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be
undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or
where there is lack of qualified bidders or contractors, or where there is conclusive evidence that greater economy and efficiency
would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject to the
approval of the Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or the Minister
of Energy, as the case may be, if the project cost is less than P1 Million, and the President of the Philippines, upon recommendation
of the Minister, if the project cost is P1 Million or more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may be made by
negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs
particular arrangements or schemes aimed at encouraging private sector participation in government infrastructure projects. The
two laws are not inconsistent with each other but are in pari materia and should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the competing firms
ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of
Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon may have
disapproved the “Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA,” there is nothing in our laws that
prohibits parties to a contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the circumstances, to require the parties to go back to step one of the
prequalification process would just be an idle ceremony. Useless bureaucratic “red tape” should be eschewed because it discourages
private sector participation, the “main engine” for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT
Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer — A contractual arrangement whereby a project proponent is authorized to finance and construct an
infrastructure or development facility and upon its completion turns it over to the government agency or local government unit
concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the
government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. — Direct negotiation shall be resorted to when there is only one complying bidder left as defined
hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification requirements, after
which it is required to submit a bid proposal which is subsequently found by the agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification
requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying.
Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the implementing agency, agency/LGUs
prequalification bids and awards committee within fifteen (15) working days to the head of the agency, in case of national projects
or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal
within forty-five (45) working days from receipt thereof.
Petitioners’ claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now been
rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure agencies,
government-owned and controlled corporations and local government units to enter into contract with any duly prequalified
proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility
through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer),
ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2 thereof,
including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and “a climate of minimum government
regulations and procedures and specific government undertakings in support of the private sector” (Sec. 1). A curative statute makes
valid that which before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private
respondent and DOTC may have engendered and committed in entering into the questioned contracts, these have now been cured
by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA
1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are excessive
and private respondent’s development rights over the 13 stations and the depot will rob DOTC of the best terms during the most
productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years, exclusive
rights over the depot and the air space above the stations for development into commercial premises for lease, sublease, transfer,
or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private
respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the
Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC
shall be allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA LRT III
(Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the commercial
spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative
agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should
be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190
SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this
presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other. The matter
of valuation is an esoteric field which is better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it
engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the
government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is
the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the
promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as
well as in the fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987,
Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise
determine whether or not a specific transportation or communication project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the
President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED

***GOVERNING LAW
Transportation Case Digest: Samar Mining Co., Inc. v. Nordeutcher Lloyd, et. al.(1984)
G.R. No. L-28673 October 23, 1984
Lessons Applicable: Bill of Lading (Transportation)
Laws Applicable: Article 1736, Article 1738,Article 1884,Article 1889,Article 1892,Article
1909
FACTS:
 Samar Mining Company, Inc. imported1 crate of welded wedge wire sieves shipped
through Nordeutscher Lloyd
o Bill of Lading No. 18:
 transshipped at port of discharge: davao
 Section 1, paragraph 3 of Bill of Lading No. 18
 The carrier shall not be liable in any capacity whatsoever for any delay,
loss or damage occurring before the goods enter ship's tackle to be
loaded or after the goods leave ship's tackle to be discharged,
transshipped or forwarded ...
 Section 11:
 Whenever the carrier or m aster may deem it advisable or in
any case where the goods are placed at carrier's disposal at or
consigned to a point where the ship does not expect to load or
discharge, the carrier or master may, without notice, forward
the whole or any part of the goods before or after loading at the
original port of shipment, ... This carrier, in making
arrangements for any transshipping or forwarding vessels or
means of transportation not operated by this carrier shall be
considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the
freight for the whole transport has been collected by him. ...
Pending or during forwarding or transshipping the carrier may
store the goods ashore or afloat solely as agent of the shipper
and at risk and expense of the goods and the carrier shall not
be liable for detention nor responsible for the acts, neglect,
delay or failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or any service
incidental thereto
 When the goods arrived in the port of Davao, it was delivered in good order and condition to
the bonded warehouse of AMCYL but it was not delivered and received by Samar Mining
Company, Inc.
 Samar filed a claim against Nordeutscher and C.F. Sharp who brought in AMCYL as third party
defendant
 RTC: favored Samar
o Nordeutscher and C.F. Sharp laible but may enforce judgment against AMCYL
ISSUE: W/N the stipulations in bills of lading exempting the carrier from liability for loss or damage to
the goods when the same are not in its actual custody is valid
HELD: YES. Reversed
 Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the provisions
of article 1738. - applicable
 Article 1738. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them. - no applicable
since article contemplates a situation where the goods had already reached their place of
destination and are stored in the warehouse of the carrier
 Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for
the damages which, through his non-performance, the principal may suffer.
 Article 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.
 Article 1892. The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

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

 G.R. No. L-28673 October 23, 1984


 SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.
 This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of
Manila, finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee.
The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under the
bill of lading covering the subject shipment.
 The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of
one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by
defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP &
CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING
COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation
was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 The goods
were however never delivered to, nor received by, the consignee at the port of destination — Davao.
 When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein
appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at
that time, against the former, but neither paid. Hence, the filing of the instant suit to enforce payment.
Defendants-appellants brought in AMCYL as third party defendant.
 The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay
plaintiff by enforcing the judgment against third party defendant AMCYL which had earlier been declared in
default. Only the defendants appealed from said decision.
 The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations
which should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking
is not only proper but necessary as well because of the nature of the bill of lading which operates both as a
receipt for the goods; and more importantly, as a contract to transport and deliver the same as stipulated
therein. 2 Being a contract, it is the law between the parties thereto 3 who are bound by its terms and conditions
4 provided that these are not contrary to law, morals, good customs, public order and public policy. 5
 Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was
received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while
the freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao,
the carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of
discharge from ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of
destination or "port of discharge of goods The stipulation is plainly indicated on the face of the bill which
contains the following phrase printed below the space provided for the port of discharge from ship", thus:
têñ.£îhqwâ£
 if goods are to be transshipped at port of discharge, show destination under the column for "description of
contents" 7
 As instructed above, the following words appeared typewritten under the column for "description of contents":
têñ.£îhqwâ£
 PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
 It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into
the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual
stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants'
duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means:
têñ.£îhqwâ£
 to transfer for further transportation from one ship or conveyance to another 9
 The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are
spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£
 The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the
goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or
forwarded ... (Emphasis supplied)
 and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£
 Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's
disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master
may, without notice, forward the whole or any part of the goods before or after loading at the original port of
shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of
transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for the whole transport has been collected
by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat
solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10
 Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from ship
— Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their
responsibility for the cargo had ceased. 11
 We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability
for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in
PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches
the present controversy not only as to the material facts but more importantly, as to the stipulations contained
in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases
were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of
lading.
 The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject
stipulations before Us, provides: têñ.£îhqwâ£
 The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods
are not in its actual custody. (Par. 2, last subpar.)
 xxx xxx xxx
 The carrier or master, in making arrangements with any person for or in connection with all transshipping or
forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated
by the carrier, shall be considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12
 Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We
sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the
Court concluded that: têñ.£îhqwâ£
 ... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila,
but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms
of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods
were unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the shipper
and consignee. ... (Emphasis supplied) 14
 Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in
conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third
paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier
from liability for loss or damage to the goods while the same are not in the latter's actual custody.
 The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign
country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said
Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by
special laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title
VIII, Book IV) directs our attention to Article 1736 thereof, which reads: têñ.£îhqwâ£
 Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive
them, without prejudice to the provisions of article 1738.
 Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£
 Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time
the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been
advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
 There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a
situation where the goods had already reached their place of destination and are stored in the warehouse of
the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored in
the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the
instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods
upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a
right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the
seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by
him to receive the goods as his representative for the purpose of custody or disposal. 17 By the same token,
there is actual delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The
court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier.
 It becomes necessary at this point to dissect the complex relationship that had developed between appellant
and appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared
embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF
GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS
from Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two
undertakings of appellant which is the moment when the subject goods are discharged in Manila, its
personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's
possession also changes, from possession in its own name as carrier, into possession in the name of
consignee as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from
appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point
onwards. This is the full import of Article 1736, as applied to the case before Us.
 But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing
goods, It is true that the transshipment of the goods, which was the object of the agency, was not fully
performed. However, appellant had commenced said performance, the completion of which was aborted by
circumstances beyond its control. An agent who carries out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to
accomplish the object of the agency, 21 This can be gleaned from the following provisions of the New Civil
Code on the obligations of the agent: têñ.£îhqwâ£
 Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages
which, through his non-performance, the principal may suffer.
 xxx xxx xxx
 Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those
of the principal, he should prefer his own.
 Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substitute:
 (1) When he was not given the power to appoint one;
 (2) When he was given such power but without designating the person and the person appointed was
notoriously incompetent or insolvent.
 xxx xxx xxx
 Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with
more or less rigor by the courts, according to whether the agency was or was not for a compensation.
 The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative
in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT,
which acted as appellant's substitute in storing the goods awaiting transshipment.
 The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful
stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common
carriers, agency and contracts, they incur no liability for the loss of the goods in question.
 WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby
DISMISSED.
 No costs.
 SO ORDERED.

TRANSPO Eastern Shipping Lines Inc. v. IAC, 150 SCRA 463


Eastern Shipping Lines Inc. v. IAC, 150 SCRA 463
Doctrine:
When a carrier fails to establish any caso fortuito, the presumption by law of fault or negligence on the part of the carrier
applies.
FACTS:
Carrier – Eastern Shipping Lines Inc
Shipper/Consignee –Stresstek Post Tensioning Philippines Inc
Insurer - First Nationwide Assurance Corporation
Arrastre Operator – E. Razon Inc. (not significant)

Eastern Shipping Lines Inc shipped uncoated 7-wire stress relieved wire strand for prestressed concrete were shipped on board
the vessel "Japri Venture,". Upon arrival at the port of Manila, it discharged the cargo to the custody of the defendant E. Razon,
Inc. from whom the consignee's customs broker received it for delivery to the consignee's warehouse. First Nationwide
Assurance, indemnified the consignee in the amount of P171,923.00 for damage and loss to the insured cargo, whereupon the
former was subrogated for the latter. The insurer now seeks to recover from the defendants what it has indemnified the
consignee. The petitioner protested alleging that it should not be held liable to answer for damages for the event that caused
the rusting of the goods was due to the “encountered very rough seas and stormy weather” classified as force majeure, hence
relieving them of any liability.
Aggrieved, respondent filed a case against petitioner.
RTC– dismissed the case
CA –set aside RTC’s decision and ordered petitioner to pay respondent
ISSUE:
W/N petitioner was negligent and should be held liable for the payment of damages.
HELD:
YES. Plainly, the heavy seas and rains referred to in the master's report were not
caso fortuito, but normal occurrences that an ocean-going vessel, particularly in the month of September which, in our area, is a
month of rains and heavy seas would encounter as a matter of routine. They are not unforeseen nor unforeseeable. These are
conditions that ocean-going vessels would encounter and provide for, in the ordinary course of a voyage. That rain water (not
sea water) found its way into the holds of the Jupri Venture is a clear indication that care and foresight did not attend the closing
of the ship's hatches so that rainwater would not find its way into the cargo holds of the ship.

Moreover, under Article 1733 of the Civil Code, common carriers are bound to observe "extra-ordinary vigilance over goods
. . . .according to all circumstances of each case," and Article 1735 of the same Code states, to wit:

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.

Since the carrier has failed to establish any caso fortuito, the presumption by law of fault or negligence on the part of the
carrier applies; and the carrier must present evidence that it has observed the extraordinary diligence required by Article 1733
of the Civil Code in order to escape liability for damage or destruction to the goods that it had admittedly carried in this case. No
such evidence exists of record. Thus, the carrier cannot escape liability.

The presumption, therefore, that the cargo was in apparent good condition when it was delivered by the vessel to the
arrastre operator by the clean tally sheets has been overturned and traversed. The evidence is clear to the effect that the damage
to the cargo was suffered while aboard petitioner's vessel.

G.R. No. 97412 July 12, 1994


EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods
can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b)
whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is
filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred
to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led
to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey."
Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment
to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the
rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action
of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in
good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer
its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that
plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already
in damage and bad order condition when received by it, but nonetheless, it still exercised extra
ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition
shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate
any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted
to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh.
G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated
that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No.
86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but contents intact. Net
unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee,
one drum was found with adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment reached the consignee while
under the successive custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe extraordinary diligence in the vigilance
of goods remains in full force and effect even if the goods are temporarily unloaded
and stored in transit in the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable opportunity to remove
or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own
exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states
that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum
from October 1, 1982, the date of filing of this complaints, until fully paid (the liability
of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF
value of the loss, whichever is lesser, while the liability of defendant Metro Port
Service, Inc. shall be to the extent of the actual invoice value of each package,
crate box or container in no case to exceed P5,000.00 each, pursuant to Section
6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount
it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the
part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE
OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF
THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed,
we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131
SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases,
enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods
to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182
SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between
the consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good
condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular
case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence
that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage
of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total
amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither
established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of
proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants
(defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal
rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial
court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person
and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value
of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a month as the
estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are
actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the
filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants
and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial
court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's
decision became final, the case was remanded to the lower court for execution, and this was when the trial
court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the
Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in
its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance
of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with,
nor involving loans or forbearance of any money, goods or credits does not fall within the coverage
of the said law for it is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action
for Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case
was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent
Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award
from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint
until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of
the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court,
the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October
1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos
to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%)
per cent per annum imposed on the total amount of the monetary award was in contravention of law." The
Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution
of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance
of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a
loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the
judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment,
that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly,
they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for
review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the
amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively,
and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00
as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private
respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered a new one,
"ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral
damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated
October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in
the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory
damages, with interest at the legal rate from the date of the filing of the complaint until fully paid
(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and
an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory
damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave
abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court
said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from
the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply
to actions based on a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14 decided
on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for
eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6%
legal interest per annum under the Civil Code, the Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity
for damages. The legal interest required to be paid on the amount of just compensation for the
properties expropriated is manifestly in the form of indemnity for damages for the delay in the
payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of earnings from
loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first
group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.
Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the
Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding
that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16 of money,
goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the
6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the
complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17
depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of
the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,
explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from
the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed
from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications,
guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of
interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of
thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is
breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing.21 Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded.22 In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 116923 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that
the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be
imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.

NATIONAL DEVELOPMENT COMPANY vs. THE COURT OF APPEALS and DEVELOPMENT


INSURANCE AND SURETY CORPORATION
G.R. No. L-49407 19 August 1988

Facts:
National Development Company (NDC) appointed Maritime Company of the Philippines (MCP) as its agent to manage
and operate its vessel, ‘Dona Nati’, for and in behalf of its account. In 1964, while en route to Japan from San Francisco,
Dona Nati collided with a Japanese vessel, ‘SS Yasushima Maru’, causing its cargo to be damaged and lost. The private
respondent, as insurer to the consigners, paid almost Php400,000.00 for said lost and damaged cargo. Hence, the
private respondent instituted an action to recover from NDC.

Issue:
Which laws govern the loss and destruction of goods due to collision of vessels outside Philippine waters?

Ruling:
In a previously decided case, it was held 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 pursuant to Article 1753 of the Civil
Code. It is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, hence, we apply
Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

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


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

PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and
National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the
then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development
Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff
Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND
AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal
interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN
THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development Company
to pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime
Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff
pursuant to the judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered into
between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred
mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant
MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus,
on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati"
at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of
Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in
behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation
(Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo
of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of
200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to
Manila the vessel 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).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY
SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF
ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE
TERRITORIAL JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE
INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-
APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT
INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME
COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST
HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION
AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS
EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE
YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION
WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE
YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE
PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS
DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO
CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE
CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF
P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING
AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE
INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT
COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH
LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR
ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS
ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-
4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods
due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription
provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at
bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for
the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier
in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which
were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have
been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was
applied and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to
the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987])
where it was held under similar circumstance "that the law of the country to which the goods are to be transported
governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code).
Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the
carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations
of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the
Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco, California
and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused
by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of
the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay,
Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code,
in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault
or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible
error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code
of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a
vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But
more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages
suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier,
is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary
liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or
captain is merely the representative of the owner who has the actual or constructive control over the conduct of the
voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade
and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not
specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts
for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly
provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which
is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the
existence of the Code of Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation,
has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership
or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were
transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to
said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of
lading covering the shipments in question and an examination of the invoices in particular, shows that the actual
consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a
certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount
of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee
has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p.
10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the
vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in
excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit
6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in
Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract
in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances,
MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and
the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co.,
supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262
[1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided
in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the
Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover,
the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the
obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and
Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of
the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to
such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the
vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of
raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be
applied in determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated
no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan
Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such
injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of
the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the
Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to
the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at
variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of
Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their
visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of
the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to
give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would
necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision,
the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13
and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-
mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the
lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3,
sub-paragraph (6) of the Carriage of Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the
respondent Appellate Court is AFFIRMED.
SO ORDERED.

II. CONTRACTUAL EFFECTS


A. VIGILANCE OVER GOODS
1. EXTRAORDINARY DILIGENCE
a. “registered owner rule”
Bienvenido Gelisan v. Benito Alday
G.R. No. L-30212 September 30, 1987
FACTS:
 Gelisan – owner of a freight truck; he entered into a contract with Roberto Espiritu under which Espiritu hired the same freight
truck of Gelisan for the purpose of hauling rice, sugar, flour and fertilizer provided the loads shall not exceed 200 sacks; it was
agreed that Espiritu shall bear and pay all losses and damages attending the carriage of the goods to be hauled by him the truck was
taken by a driver of Espiritu on the day the loss of the goods occurred Benito Alday – trucking operator who had a contract to haul
the fertilizers of the Atlas Fertilizer Corp. from Pier 4, North Harbor, to its Warehouse in Mandaluyong; he met Espiritu at the gate
of Pier 4 and the latter offered the use of his truck with the driver and helper for a consideration; the offer was accepted by Alday
and he instructed his checker to let Espiritu haul the fertilizer; Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer
was delivered to the driver and helper of Espiritu with the necessary way bill receipts; Espiritu, however,did not deliver the fertilizer
to the Atlas Fertilizer bodega at Mandaluyong (crime: qualified theft)Alday was compelled to pay the value of the bags of fertilizer
to Atlas Fertilizer Corp.; he filed an action for the recovery of damages suffered by him thru the criminal acts committed against
him

ISSUE: WON Gelisan is liable for the act committed by Espiritu


HELD: Yes. The registered owner of a public service vehicle is responsible for damages that may arise from consequences incident
to its operation or that may be caused to any of the passengers therein. The claim of the petitioner that he is not liable in view of
the lease contract executed by and between him and Espiritu which exempts him from liability to third persons, cannot be sustained
because it appears that the lease contract had not been approved by the Public Service Commission. If the property covered by a
franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the public
and third persons.
Ratio: Since a franchise is personal in nature any transfer or lease thereof should be notified to the PSC so that the latter may take
proper safeguards to protect the interest of the public. The law requires that, before the approval is granted, there should be a public
hearing, with notice to all interested parties, in order that PSC may determine if there are good and reasonable grounds justifying
the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest. Gelisan’s right
of recourse: he has a right to be indemnified by Espiritu for the amount that he may be required to pay as damages for the injury
caused to Alday since the lease contract is valid and binding between the contracting parties.

FIRST DIVISION

[G.R. No. L-30670. September 15, 1987.]

PASTOR TANCHOCO, MACARIO TANCHOCO, AGRIPINA TANCHOCO, INOCENCIA TANCHOCO, LIBERATA


TANCHOCO and TRINIDAD TANCHOCO, Petitioners, v. HON. FLORENDO P. AQUINO, as Judge of the Court of
First Instance of Nueva Ecija, Branch I, VICENTE TECSON VDA. DE LAJOM, JOSE T. LAJOM, RAFAEL VIOLA
and THE PROVINCIAL SHERIFF OF NUEVA ECIJA, Respondents.

RESOLUTION

PARAS, J.:

This is a petition for certiorari with preliminary injunction, seeking the annulment of the Orders dated June 25, 1968, July 31,
1968, March 14, 1969 and May 29, 1969 issued by Respondent Court of First Instance of Nueva Ecija, Branch I, in Civil Case No.
8077, entitled "Donato Lajom v. Jose P. Viola, Et. Al."cralaw virtua1aw library

The dispositive portion of the Order dated June 25, 1968 (Rollo, p. 63) reads as follows:jgc:chanrobles.com.ph

"WHEREFORE, the undivided one-half of lot 314 described under T.C.T. No. 11682 is now declared to have been ceded and
conveyed to the plaintiffs Vicenta T. Vda. de Lajom and Jose T. Lajom, and therefore declared owners thereof. (The Register of
Deeds for the Province of Nueva Ecija is hereby ordered to issue the title of said undivided one half of lot 314 in the names of said
plaintiffs Vicenta T. Vda. de Lajom, of legal age, widow, Filipino, and resident of 119 D. Arellano, Caloocan City, and Jose T.
Lajom, of legal age, single, Filipino, and resident of 119 D. Arellano, Caloocan City, as an effect of the lis pendens annotated
thereon on January 11, 1950). The defendant Rafael Viola and his supposed successors over the aforesaid property after the lis
pendens had become operative on January 11, 1950 are hereby ordered to respect the rights and ownership of the aforementioned
plaintiffs Vicenta T. Vda. de Lajom and Jose T. Lajom by virtue of the terms and conditions of this order.

SO ORDERED."cralaw virtua1aw library

The Order of July 31, 1968 (Rollo, p. 68) states:jgc:chanrobles.com.ph

"Supplementary to the order of the Court of June 25, 1968, the Register of Deeds of Nueva Ecija is hereby ordered to cancel all
annotations with respect to the undivided one half (1/2) of Lot 314 described under Transfer Certificate of Title No. 11862 after
the notice of lis pendens at the back of the said title was annotated on January 11, 1950 and to cancel the original and owner’s
duplicate certificate of titles of all whomsoever claim to have derived title from the defendant Rafael Viola over the afore-mentioned
property after the said lis pendens became imperative on January 11, 1950.

SO ORDERED."cralaw virtua1aw library

The Order of March 14, 1969 (Rollo, p. 139) reads, as follows:jgc:chanrobles.com.ph

"Considering the exhaustive pleadings filed by the movants as well as the plaintiffs in support of the Motion for Reconsideration
filed in connection with the Orders of this Court of June 25 and July 21, 1969, the Court believes and so finds that the movants not
having been parties to the action at bar, they have no personality to question the aforementioned orders sought to be reconsidered;
and without further dwelling into the other level issues raised by the movants the Motion for Reconsideration is hereby denied for
lack of merit. This does not mean, however, that this Court is closing any avenue of legal remedy that might be available to the
movants in another action.

SO ORDERED."cralaw virtua1aw library

The order of May 29, 1969 (Rollo, p. 141) is quoted as follows:jgc:chanrobles.com.ph

"Submitted for resolution is a Motion for Extension with Writ of Possession.

The Court finds the said motion, dated May 22, 1969 to be well founded and therefore grants the same.
Let a Writ of Execution with Writ of Possessions issue in favor of the plaintiffs in accordance with the order sought to be executed.

SO ORDERED."cralaw virtua1aw library

The factual background of the case may be found in the decision of the Court in G.R. No. L-6457, entitled Donato Lajom v. Jose
Viola, Et. Al. promulgated on May 30, 1956, quoted in Lajom v. Leuterio, Et. Al. (107 Phil. 651 [1960]), as
follows:jgc:chanrobles.com.ph

"Maximo Viola died on September 3, 1933. Judicial proceedings of his testate estate were instituted in the Court of First Instance
of Bulacan (Civil Case No. 4741) and closed on March 17, 1937. An agreement of partition and distribution (dated October 25,
1935) was executed by and between Jose P. Viola, Rafael Viola and Silvio Viola, legitimate children of Maximo Viola and Juana
Toura, whereby the properties left by their father, Maximo Viola, were divided among themselves. On March 17, 1939, Donato
Lajom (plaintiff-appellee herein) filed in the Court of First Instance of Nueva Ecija, a complaint, amended on May 16, 1939,
praying, among other things, that he be declared a natural child of Maximo Viola, impliedly recognized and acknowledged in
accordance with the laws in force prior to the Civil Code, thereby being a co-heir of Jose P. Viola, Rafael Viola and Silvio Viola
(defendants-appellants); that the agreement of partition and distribution executed in 1935 by these three legitimate children of
Maximino Viola be declared null and void and after collation, payment of debts and accounting of fruits, a new partition be ordered
adjudicating one-seventh of the estate left by Maximo Viola to Donato Lajom and two-seventh to each of the three appellants. The
latter filed a demurrer to the amended complaint which was sustained by the Court of First Instance of Nueva Ecija in its order of
July 31, 1939, holding that the allegations of the amended complaint called for the exercise of probate jurisdiction and that as the
complaint showed that the will of the deceased Maximo Viola had already been probated in the Court of First Instance of Bulacan
which had first taken cognizance of the settlement of his estate, the Court of First Instance of Nueva Ecija could not subsequently
assume the same jurisdiction. Upon appeal to the Supreme Court by the plaintiff-appellee, the order sustaining the demurrer was
reversed and the case was remanded to the Court of First Instance of Nueva Ecija for further proceeding.

"On December 21, 1942, the defendants-appellants accordingly filed an answer to the amended complaint containing specific
demands and setting up the affirmative defenses that the appellants are the sole heirs of Maximo Viola; that corresponding judicial
proceedings of his testate estate were duly instituted and terminated in the Court of First Instance of Bulacan, of which plaintiff-
appellee was fully aware; that the action was filed by the appellee two years after the termination of said testate proceedings and
almost six years after the death of Maximo Viola, without having previously asserted any right whatsoever to any part of said
estate, and he is therefore now barred from doing so; and that assuming the appellee to be an acknowledged natural child of Maximo
Viola, his right of action had prescribed. After the trial, the Court of First Instance of Nueva Ecija rendered a decision in favor of
the plaintiff, the dispositive part of which reads as follows:jgc:chanrobles.com.ph

"‘EN VISTA DE LAS CONSIDERACIONES ARRIBA EXPUESTAS, el Juzgado falla este asunto a favor del demandante y
contra de los demandados, declarando al demandante, Donato Lajom, hijo natural, implicita y tacitamente, reconocido por su padre,
el difunto Dr. Maximo Viola, de acuerdo con la Ley de Toro; se declara la particion y distribucion hecha por los demandados’
convenio de particion y adjudicacion de los Bienes Dejados por el Difundo Dr. Maximo Viola, ilegal, nulo y de ningun valor; se
ordena la colacion de los bienes en cuestion, poniendo los mismos en manos de un administrador judicial; se ordena a todos y cada
uno de los aqui demandados a presentar una liquidacion de los frutos y productos provenientes de dichas propiedades asignadas a
cada uno de ellos desde el Octubre 25, 1935, con el fin de una nueva distribucion; se ordena a los demandados Jose P. Viola y
Silvio Viola a someter una liquidacion de los frutos y productos de las tres parcelas de terreno mencionadas en los parrafos 1 y 2
del Annex ‘A’ que han sido puestas bajo su administracion en el Procedimiento Especial No. 4741 del Juzgado de Primera Instancia
de Bulacan a partir del 3 del Septiembre de 1933; y finalmente, se ordena la particion y adjudicacion a favor del demandante de
una septima (1/7) parte de dichas propiedades y productos; dos septimas (2/7) partes a cada uno de los aqui demandados; cuando
todas esas propiedades pertenecientes al finado Dr. Maximo Viola sean colados, todas las deudas pagadas y los frutos rendidos.
Con costas.’"

Said decision of the Court of First Instance of Nueva Ecija was, on appeal, affirmed by this Court in the cited case, L-6457, May
30, 1956.

When the decision of the Court became final, the records were remanded to the lower court where Lajom filed a motion for the
execution of the judgment, the collation of all properties of the late Dr. Maximo Viola and the redistribution of the estate as indicated
in said judgment. Acting on the motion, respondent Court issued an order dated October 30, 1956, declaring, among others, that
the decision sought to be executed annulled the partition previously entered into by the defendants in Civil Case No. 8077 and
ordered the "collation of all the properties in question" placing the same in the hands of a judicial administrator. Accordingly,
respondent Court ordered the defendants in possession of each and every one of the 47 parcels of land enumerated in the agreement
of partition which was annulled, to deliver the same to the judicial administrator to be appointed by said court and to submit a
liquidation of the fruits and products of the properties assigned to each and everyone of them from October 25, 1935.chanrobles
law library

When Rafael Viola filed the report required in the Order, Lajom questioned the omission of 215 hectares of riceland allegedly
donated by Maximo Viola to said Rafael Viola who objected to the inclusion of the aforementioned property. He was sustained by
respondent Court on the ground that the property was not among the properties in question enumerated in the inventory of property
attached to Lajom’s original complaint in Civil Case No. 8077 and was not covered by the decision therein rendered and
subsequently affirmed by the Court in L-6457. On certiorari the Court affirmed the decision of the respondent Court in L-13557
(107 Phil. 651 [1960]).

Pending the partition, adjudication and distribution of the estate in the proportion indicated in the decision in view of the fact that
the accounting of the fruits covering a period of 30 years had not yet been completely terminated, aside from other pending matters,
on April 6, 1964 Rafael Viola sold an undivided 1/2 portion of Lot No. 314, which portion is located on the western part of the
property, in favor of petitioners herein, Pastor, Macario and Agripina Tanchoco to whom was issued TCT No. OCT-66683-Nueva
Ecija for the sum of P50,000.00, annotated at the back of TCT No. 11682, under Entry No. 33432/T-11682 and again on January
5, 1965 sold a portion of 6/7 of 1/2 of the same land which is located on the eastern part of Lot No. 314 or parcel No. 2 of the
property in favor of petitioners Inocencia, Liberata and Trinidad Tanchoco to whom was issued TCT No. NT-66684-Nueva Ecija
for Lot 314-B-2-B for the sum of P42,000.00, also annotated at the back of TCT No. 11682 under Entry No. 34720/T-11682 (Rollo,
pp. 4, 23, 31).

On February 27, 1967 Donato Lajom, one of the private respondents herein, filed a motion for contempt and to return Lot 314 to
the estate of the late Dr. Maximo Viola (Rollo, p. 30) against the defendants in Civil Case No. 8077 and the Tanchocos, petitioners
herein, in view of the sale without permission of respondent Court in spite of the lis pendens in his favor annotated on the back of
TCT No. 11682 under Entry No. 19553/T-14707 dated January 11, 1950 and the decision rendered by respondent Court which
became final after the same was affirmed by the Court on May 30, 1956. Lajom prayed for an order:chanrob1es virtual 1aw library

(1) Citing defendants Rafael Viola, Pastor, Macario, Agripina, Inocencia, Liberata and Trinidad, all surnamed Tanchoco, and
Deputy Register of Deeds Lauro P. Puno for contempt of court — for having unlawfully interfered with property under
administration.

(2) Declaring the sales executed by Rafael Viola in favor of the Tanchocos, dated April 6, 1964 and January 5, 1965 illegal and
null and void — for having been made without permission of the court;

(3) Cancelling the new titles TCT No. NT-66682, TCT No. NT-66683 and TCT No. NT-66684 in the names of Rafael Viola and
the Tanchocos, respectively; and, the false Entry No. 22189 on the back of TCT No. 11682;

(4) Directing Pastor, Macario and Agripina, all surnamed Tanchoco, to submit an accounting of the fruits gathered by them on Lot
314-B-2-A to begin from April 6, 1964 until they shall have allowed the administrator to gather the fruits corresponding to the
estate;

(5) Directing Inocencia, Liberata and Trinidad, all surnamed Tanchoco, to submit an accounting of the fruits gathered by them on
Lot 314-B-2-B to begin from January 5, 1965 until they shall have allowed the administrator to gather the fruits corresponding to
the estate; and

(6) Directing all the defendants Tanchocos to immediately deliver and surrender joint possession of Lots 314-B-2-A and 314-B-2-
B to the administrator Maximino M. Lorenzo, and to permit and allow the said administrator to jointly participate in harvesting and
gathering 1/2 of the crops of palay now standing thereon — otherwise, they should be incarcerated until they comply with the
order.

After hearing the motion for contempt, respondent Court issued the order dated June 15, 1967 (Rollo, p. 37), the dispositive portion
of which reads as follows:jgc:chanrobles.com.ph

"IN VIEW OF THE FOREGOING, let the annotations appearing in T.C.T. No. 11682 be carried to the two transfer certificates of
titles, T.C.T. No. NT-66683 and T.C.T. No. NT-66684, particularly the lis pendens under Entry No. 19553-T-14707 at the back of
T.C.T. No. 11682; and once accomplished, the portion of the Motion for Contempt of March 3, 1967 with respect to the
aforementioned annotations will have been considered withdrawn. The Register of Deeds of Nueva Ecija is hereby ordered by this
Court to make the aforementioned annotations on the back of T.C.T. Nos. NT-66683 and NT -66684 in accordance with the
dispositive part and spirit of this order within a period of five (5) days from receipt hereof. The respondent Tanchocos who are in
possession of the transfer certificates of title on which the said annotation should be made are likewise ordered to present to the
Register of Deeds the corresponding titles within a period of fifteen (15) days from today the owner’s duplicate copies of said titles
for the corresponding entry of such annotations. With respect to the other issues raised by the plaintiff in his motion of March 3,
1967, he may now follow the course of action he believes proper and adequate in the premises."cralaw virtua1aw library

On July 10, 1967, Donato Lajom (already dead) substituted by his heirs and successors-in-interest Vicenta T. Vda. de Lajom and
Jose T. Lajom, and the Violas submitted to respondent Court for approval a compromise agreement (Rollo, pp. 49-55) wherein
they amicably settled their dispute over the estate of the late Maximo Viola. Among the provisions of the agreement was a statement
that the agreement notwithstanding, the above entitled case, that is Civil Case No. 8077, shall continue but only for the purpose of
the recovery and bringing back to the estate of the undivided one-half of Lot No. 314 until all the issues raised in the aforementioned
pending motion for contempt shall have been completely resolved by final judgment and/or such other matters the lower court may
deem proper (Rollo, p. 52).chanrobles virtual lawlibrary

Respondent Court approved the compromise agreement on July 11, 1967 except paragraph 2 thereof, the agreement with respect
to Lot No. 314 which had been subdivided into Lots No. 314-b-2-a and 314-b-2-b and covered by T.C.T. No. NT-66683 and NT-
66684, respectively. Respondent Court withheld action thereon until it shall have finally resolved the motion still pending before
it with respect to the said lots. This dispositive portion of the order of the Court, approving the compromise agreement
states:jgc:chanrobles.com.ph

"All the properties described in paragraph 1 of the Compromise Agreement are now declared to have been ceded and conveyed by
the defendants in this case to Vicenta Tecson Vda. de Lajom and Jose T. Lajom. The Register of Deeds of Nueva Ecija is hereby
ordered to effect the transfer of the titles of the properties aforementioned in accordance with the terms of the Compromise
Agreement hereto attached excepting Lot No. 314 now Lots Nos. 314-b-2-a and 314-b-2-b, subject to the condition herein recited
in paragraph 1 of this order."cralaw virtua1aw library

Meantime, on August 21, 1967 petitioners as defendants in the contempt charge entered their special appearance with respondent
Court "with respect to the return of Lot 314 to the Estate of the late Dr. Maximo Viola and more particularly to prayers (2), (3),
(4), (5) and (6) of the motion for contempt dated February 27, 1967 for the sole and only purpose of raising the question of this
court’s lack of jurisdiction not only over the persons of the TANCHOCOS but also on the subject matter of the motion," asserting
that they have not been summoned but merely notified of the motion for contempt by registered mail and that while it is true that
they appeared in court in the contempt phase of the motion they did not appear in court on the other phase of the motion which is
for the return of Lot 314 (Rollo, p. 39). An opposition to special appearance was filed by private respondent Jose Lajom as plaintiff
in Civil Case No. 8077, praying for its dismissal on the ground that petitioners cannot split the single action nor split their
appearance in the action for contempt on the basis of the number of reliefs prayed for, because the prayer for reliefs does not and
cannot change or alter the singleness of the action, and that consequently, the special appearance entered allegedly for the sole and
separate purpose of objecting to the jurisdiction of respondent court not only over the persons of the Tanchocos but also over the
subject matter must be held as a general appearance. A voluntary general appearance waives notice (Rollo, p. 41).chanrobles
lawlibrary : rednad

A rejoinder to the opposition was filed by petitioners on October 17, 1967 (Rollo, p. 46)

On February 15, 1968 the Lajoms, private respondents herein, filed with respondent court a motion to approve paragraph 2 of the
compromise agreement and to issue a writ of possession (Rollo, p. 56) specifically praying for an Order, among others (1) directing
Rafael Viola, his purchasers, Pastor Tanchoco, Et Al., and all whomsoever derived title from him to return to the estate thru the
administrator the undivided one-half of Lot 314 described under TCT No. 11682 and simultaneously upon issuance of such order;
(2) approving paragraph 2 of the compromise agreement, dated July 10, 1967; and ceding and adjudicating to the plaintiffs Vicente
T. Vda. de Lajom and Jose T. Lajom the undivided one-half of Lot 314 described under TCT No. 11682, together with the crops
of palay existing thereon; (3) directing the Register of Deeds for the province of Nueva Ecija to effect the transfer of title of the
undivided one-half of Lot 314 described under TCT No. 11682 to and in favor of plaintiffs Vicenta T. Vda. de Lajom and Jose T.
Lajom, and to cancel any and all titles or transactions affecting the undivided one-half of Lot 314 described under TCT No. 11682
made or done after the annotation of the lis pendens on January 11, 1950; and (4) issuing a writ of possession directing the Sheriff
of Nueva Ecija and/or his duly authorized representative to place the plaintiff Vicenta T. Vda. de Lajom and Jose T. Lajom in
possession of the undivided one-half of Lot 314 described under TCT No. 11682 and the crops of palay existing thereon, more
particularly the western half thereof (to the extent of their one-half share) bordering the Provincial Board and Moreno property on
the west, situated at San Isidro, Nueva Ecija, and ousting therefrom the defendant Rafael Viola, his purchasers Pastor Tanchoco,
Et. Al. and all whomsover derived title from him or any of them immediately upon issuance thereof.chanrobles law library : red

Acting upon the motion respondent court issued the questioned order of June 25, 1968 followed by the Suppletory Order of July
31, 1968 and finally the order of March 14, 1969 denying petitioner’s motion for reconsideration dated August 7, 1968 (Rollo, p.
72) and suppletory motion for reconsideration dated October 11, 1968 (Rollo, p. 78) both opposed by the Lajoms, private
respondents herein (Rollo, p. 74 and 81) completed with a reply to the two oppositions (Rollo, p. 83), a rejoinder to the reply (Rollo,
p. 100) and a sur-rejoinder to the rejoinder (Rollo, p. 109).

The writ of execution and writ of possession were issued on May 29, 1969 (Rollo, p. 123) executing respondent court’s orders of
June 25, 1968 and July 31, 1968. It was returned to respondent Court duly enforced on June 4, 1969 (Rollo, p. 180) Thus, this
petition.

The petition was received and filed with the Court on July 7, 1969 (Rollo, p. 1). The writ of preliminary injunction, restraining the
execution and implementation of respondent court’s orders of June 25 and July 31, 1968 and the writ of possession of May 29,
1969 in Civil Case No. 8077, was issued on July 28, 1969 (Rollo, p. 160). The answer of private respondents Vicenta T. Vda. de
Lajom and Jose T. Lajom was filed on August 8, 1969 (Rollo, p. 168).

The case was orally argued by both parties in the hearing of the case held on October 1, 1969 and both parties were required to
submit simultaneously their respective memoranda in amplification of their oral arguments (Rollo, p. 233).

On the same date private respondents Vicenta T. Vda. de Lajom and Jose T. Lajom filed a motion to dismiss the petition (Rollo, p.
190) on the ground that Civil Case No. 474 (Rollo, p. 194) for quieting of title, cancellation of transfer certificate of title, partition
and damages, etc. filed by petitioners on April 29, 1969 is pending before the Court of First Instance of Nueva Ecija, Branch V,
involving identical parties, identical courses of action, that any judgment that may be rendered in the first action, regardless of
which party is successful will necessarily amount to an adjudication of the second action (Rollo, p. 190).

The petitioners’ memorandum was filed on October 16, 1969 (Rollo, p. 238); the memorandum for private respondents Vicenta T.
Vda. de Lajom and Jose T. Lajom was filed on November 3, 1969 (Rollo, p. 271), three (3) days late since the Court granted private
respondents a second extension of five (5) days from October 26 to file a memorandum, in its Resolution dated November 3, 1969
(Rollo, p. 273). Private respondents Rafael Viola failed to file his written memorandum in spite of the extension of fifteen (15)
days granted by the Court within which to file said memorandum, which expired on October 31, 1969.

The Court resolved on December 9, 1969 to consider the case submitted for decision (Rollo, p. 277). It denied the motion of the
counsel for petitioners to have the case set again for oral argument, in its Resolution dated November 17, 1977 (Rollo, p. 287).

On September 10, 1986 the case was transferred to the Second Division in a Resolution of the First Division of the Court (Rollo,
p. 299). In its Resolution of May 18, 1987 the Court ordered the case to be calendared for deliberation (Rollo, p. 300).

The lone issue to be resolved by the Court is the question of whether or not the petitioners were denied procedural due process that
could nullify respondent court’s orders of June 25, 1968, July 31, 1968, March 14, 1969 and May 29, 1969.

The answer is in the negative.

Several circumstances belie petitioners claim of having been denied procedural due process.

First, is the undisputed fact that when petitioners purchased on April 6, 1964 from Rafael Viola an undivided (1/2) portion of Lot
314 and then on January 5, 1965 a 6/7 portion of the other half of Lot 314 there was at the back of TCT No. 11682 covering Lot
314 an annotation of a notice of lis pendens in favor of Donato Lajom, under Entry No. 19553/T-14707 (Rollo, p. 23), as
follows:jgc:chanrobles.com.ph

"Entry No. 19553/T-14707; Kind — Lis pendens in favor of — Donato Lajom; Conditions — 1/2 of the properties described in
this title is the object of a complaint filed in Civil Case No. 8077 of the C.F.I. of N.E.; Date of instrument — Dec. 16, 1949; Date
of Inscription — Jan. 11, 1950 at 2:00 p.m."cralaw virtua1aw library

Petitioner Pastor Tanchoco who holds office as Asst. Provincial Fiscal of Nueva Ecija (Rollo, p. 30) could not have missed the
import of such annotation. It was an announcement to the whole world that a particular real property is in litigation, serving as a
warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation
over said property. Since petitioners herein bought the land in question with the knowledge of the existing encumbrances thereon,
they cannot invoke the right of purchasers in good faith, and they cannot likewise have acquired better rights than those of their
predecessors in interest (Constantino v. Espiritu, 45 SCRA 557 [1972]).

Obviously, Rafael Viola sold to the Tanchocos an undivided 1/2 portion of Lot 314 and the 6/7 portion of the other half of the same
lot in bad faith manifestly to defeat the judgment of respondent court in Civil Case No. 8077 affirmed by the Court on May 5, 1956.
On October 30, 1956 respondent Court in implementation of said decision ordered the placing of the properties subject of litigation
in the hands of a judicial administrator who was to submit an accounting of the fruits and products thereof after which a partition
of said properties and the fruits thereof would be made (Lajom v. Leuterio, 107 Phil. 651, 654). In December 1956 co-administrator
Manuel Gallego, Jr. took over the administration of the properties of the estate, among them, Lot No. 314, appearing in his verified
report of May 31, 1959 as Inventory Item No. 34 of Annex B, Table II of the report which is a list of properties under administration
since 1956 (Rollo, p. 31). However, without the knowledge and consent of respondent court, while said administration of the
properties and accounting of the fruits of the same properties were in progress, Rafael Viola made the sale to the petitioners.
Afterwards, on December 6, 1966, Rafael Viola adjudicated to himself Lot 314-B-2 securing a title thereto in his name under TCT
No. NT-66682 (Rollo, p. 23). As the annotations at the back of TCT No. 11682 show, Lots 314-A and 314-B belong to a certain
Paz Villaruz Viola by virtue of a sale dated October 9, 1937 and another sale dated March 15, 1939.chanrobles virtual lawlibrary

On the same date that TCT No. NT-66682 was obtained, it was cancelled by TCT NT-66683 in the name of petitioners Mario
Tanchoco, Pastor Tanchoco and Agripina Tanchoco covering Lot 314-B-2-A (Rollo, p. 26), and TCT NT-66684 in the name of
petitioners Inocencia Tanchoco, Liberata Tanchoco and Trinidad Tanchoco, covering Lot 314-B-2-B (Rollo, p. 28). It appears that
on the same date it was annotated at the back of TCT No. 11682 that by virtue of the decision of the Court in G.R. No. L-6457,
one-seventh (1/7) of one half (1/2) of Lot 314-B-2 was adjudicated to Donato Lajom, the original plaintiff of Civil Case No. 8077
(Rollo, p. 23). The notice of lis pendens was not carried over in the new titles notwithstanding the fact that said notice was subsisting
as there was no order issued by respondent Court for its cancellation. It was only after the hearing of the motion for contempt filed
by private respondents Vicenta T. Vda. de Lajom and Jose T. Lajom that the existing notice of lis pendens was annotated at the
back of TCT NT-66683 and TCT NT-66684 by order of respondent Court dated June 15, 1967 (Rollo, p. 37).

The purpose of a notice of lis pendens is precisely to avoid such sales pending the execution of a court’s judgment. The doctrine
of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the
litigation within the power of the court until the judgment or decree shall have been entered; otherwise, by successive alienations
pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. (Laroza v. Guia, 134 SCRA
341 [1985]). Purchasers pendente lite of the property subject of the litigation after the notice of lis pendens is inscribed in the Office
of the Register of Deeds are bound by the judgment against their predecessor (Correa v. Pascual, 99 Phil. 696 [1956]). They will
be held to have bought the land in bad faith since they are charged with notice of the existence of the litigation over the property in
question (Bancairan v. Diones, 98 Phil. 122 [1965]). Furthermore, a conveyance of property, which is manifestly fraudulent, to
defeat a judgment in favor of judgment creditors is null and void (Nerona v. Intermediate Appellate Court, 133 SCRA 837 [1985]).
Such a situation appears to exist in this instant case.chanroblesvirtualawlibrary

Second, in the hearing of the contempt portion of the motion for contempt and to return lot 314 to the estate of the late Dr. Maximo
Viola, petitioners were notified of the entire motion and as mentioned in the order of respondent Court dated June 15, 1967.
Petitioners appeared as defendants and even manifested to respondent Court through counsel, that they would cause to be annotated
at the back of TCT No. NT-66683 and TCT No. NT-66684 the existing annotation on the title from which the said two titles had
been derived (Rollo, p. 37).

Third, the compromise agreement entered into by the protagonists in Civil Case No. 8077 covered all the properties belonging to
the estate of the late Maximo Viola described in the inventory attached to private Respondent Donato Lajom’s original complaint
in Civil Case No. 8077, which properties were placed in the hands of a judicial administrator, including of course the undivided
one-half of Lot 314, not only appearing in the verified report dated May 31, 1959 of the administrator Manuel Gallego, Jr. as
Inventory Item No. 34 (Rollo, p. 31) but also in the inventory attached to the complaint as Item No. 14, Annex A (Rollo, p. 30).
Lot 314 therefore is covered by the decision rendered in Civil Case No. 8077 subsequently affirmed by the Court in Case No. L-
6457 and among those subject to be partitioned between plaintiff and defendants in said case. In approving the compromise
agreement and later on paragraph 2 of the compromise agreement which pertain to Rafael Viola’s conveyance and adjudication to
private respondent Lajom of the undivided one-half of Lot 314 as part of the latter’s share on the estate left by Dr. Maximo Viola,
the effectivity of which the parties themselves stipulated at first to hold in abeyance until the lot has been returned to the
administrator by order of respondent court, the latter was merely enforcing the aforementioned decision in Civil Case No. 8077
affirmed by this Court in case No. L-6457. Said decision has already become final. Any order directing what was not required in
said decision would be in excess of its jurisdiction and therefore, null and void (Lajom v. Leuterio and Viola, 107 Phil. 651 [1960]).

As the transferees pendente lite of the property involved in the litigation stand exactly in the shoes of their predecessor in interest,
Petitioners as such are bound by the proceedings in the case (Fatalino v. Sanz, 44 Phil. 691 [1923]). The Register is now asking
petitioners to surrender their titles, and petitioners may not properly refuse, because they received their titles from the Register
upon their undertaking to respect the outcome of the litigation, the title being expressly subject thereto, by the annotation of lis
pendens (Selph v. Vda. de Aguilar, 107 Phil. 443 [1960]).

PREMISES CONSIDERED, this Petition is hereby DISMISSED for lack of merit and the writ of preliminary injunction issued by
the Court on July 28, 1969 restraining the execution and implementation of respondent Court’s orders of June 25 and July 3, 1968
and the writ of possession of May 29, 1969 in Civil Case No. 8077 are hereby lifted permanently.

SO ORDERED.

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


G.R. No. 70876 July 19, 1990
Feliciano, J.
FACTS:
Greenhills Wood Industries - bound itself to sell and deliver to Blue Star Mahogany, Inc. 100,000 board feet of
sawn lumber with the understanding that an initial delivery would be made. Greenhills resident manager in Maddela, Dominador
Cruz, contracted Virgilio Licuden, thed r i v e r o f a c a r g o t r u c k , t o t r a n s p o r t i t s s a w n l u m b e r t o t h e
c o n s i g n e e B l u e S t a r i n Valenzuela, Bulacan; this cargo truck was registered in the name of Ma. Luisa Benedicto,the
proprietor of Macoven Trucking, a business enterprise engaged in hauling freight the Manager of Blue Star called up
Greenhills’ president informing him that the sawn lumber on board the subject cargo truck had not yet arrived
in Valenzuela, Bulacan; because of the delay in delivery Blue Star was constrained to look for other suppliers
G r e e n h i l l ’ s f i l e d c r i m i n a l c a s e a g a i n s t d r i v e r L i c u d e n f o r e s t a f a ; a n d a c i v i l c a s e f o r recovery
of the value of the lost sawn lumber plus damages against Benedicto. Benedicto denied liability as she was a complete stranger to
the contract of carriage, the subject truck having been earlier sold by her to Benjamin Tee; but the truck had remained registered
in her name because Tee have not yet fully paid the amount of the truck; be that as it may, Tee had been
operating the said truck in Central Luzon from that and Licuden was Tee’s employee and not hers
ISSUE:
WON Benedicto, being the registered owner of the carrier, should be held liable for the value of the undelivered or lost sawn lumber
HELD:
Yes. The registered owner liable for consequences flowing from the operations of the carrier, even though the specific
vehicle involved may already have been transferred to a n o t h e r p e r s o n . T h i s d o c t r i n e r e s t s u p o n t h e
principle that in dealing with vehicles registered under the Public Service Law, the public
h a s t h e r i g h t t o a s s u m e t h a t t h e registered owner is the actual or lawful owner thereo f It would be very
difficult and often impossible as a practical matter, for members of the general public to enforce the rights of action that they
may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove who the actual owner
is. Greenhills is not required to go beyond the vehicle’s certificate of registration to ascertain the owner of the carrier.

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

FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court dated 30 January
1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the Regional Trial Court ("RTC") of Dagupan
City in Civil Case No. 5206. There, the RTC held petitioner Ma. Luisa Benedicto liable to pay private respondent
Greenhills Wood Industries Company, Inc. ("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the
cost of Greenhills' lost sawn lumber and attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City, operates sawmill
in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc., ("Blue Star") a
company with business operations in Valenzuela, Bulacan 100,000 board feet of sawn lumber with the understanding
that an initial delivery would be made on 15 May 1980. 1 To effect its first delivery, private respondent's resident
manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225
GA TH to transport its sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered
in the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business enterprise engaged in
hauling freight, with main office in B.F. Homes, Parañaque.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the loading of 7,690 board
feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck. Before the cargo truck left Maddela for
Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices Nos. 3259 and 3260 both of which were initialed by the
latter at the bottom left corner.2 The first invoice was for the amount of P11,822.80 representing the value of 5,374
board feet of sawn lumber, while the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz
instructed Licuden to give the original copies of the two (2) invoices to the consignee upon arrival in Valenzuela, Bulacan
3 and to retain the duplicate copies in order that he could afterwards claim the freightage from private respondent's
Manila office. 4
On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills' president, Henry Lee Chuy,
informing him that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela, Bulacan. The
latter in turn informed Greenhills' resident manager in its Maddela saw-mill of what had happened. In a letter 5 dated
18 May 1980, Blue Star's administrative and personnel manager, Manuel R. Bautista, formally informed Greenhills'
president and general manager that Blue Star still had not received the sawn lumber which was supposed to arrive on
15 May 1980 and because of this delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to continue with their
contract, private respondent Greenhill's filed Criminal Case No. 668 against driver Licuden for estafa. Greenhills also
filed against petitioner Benedicto Civil Case No. D-5206 for recovery of the value of the lost sawn lumber plus damages
before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the contract of
carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28 February 1980 as evidenced by a
deed of sale. 7 She claimed that the truck had remained registered in her name notwithstanding its earlier sale to Tee
because the latter had paid her only P50,000.00 out of the total agreed price of P68,000.00 However, she averred that
Tee had been operating the said truck in Central Luzon from that date (28 February 1980) onwards, and that, therefore,
Licuden was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the subject truck, and
holding that Licuden was her employee, the trial court adjudged as follows:
WHEREFORE, in the light of the foregoing considerations, this Court hereby renders judgment
against defendant Maria Luisa Benedicto, ordering her to pay the Greenhills Wood Industries Co.
Inc., thru its President and General Manager, the amount of P16,016 cost of the sawn lumber loaded
on the cargo truck, with legal rate of interest from the filing of the complaint to pay attorney's fees in
the amount of P2,000.00; and to pay the costs of this suit.
SO ORDERED. 8
On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the decision of the trial
court in toto. Like the trial court, the appellate court held that since petitioner was the registered owner of the subject
vehicle, Licuden the driver of the truck, was her employee, and that accordingly petitioner should be responsible for the
negligence of said driver and bear the loss of the sawn lumber plus damages. Petitioner moved for reconsideration,
without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the facts and applicable law, the
appellate court was correct in finding that petitioner, being the registered owner of the carrier, should be held liable for
the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine which makes the
registered owner of a common carrier vehicle answerable to the public for the negligence of the driver despite the sale
of the vehicle to another person, applies only to cases involving death of or injury to passengers. What applies in the
present case, according to petitioner, is the rule that a contract of carriage requires proper delivery of the goods to and
acceptance by the carrier. Thus, petitioner contends that the delivery to a person falsely representing himself to be an
agent of the carrier prevents liability from attaching to the registered owner.
The Court considers that petitioner has failed to show that appellate court committed reversible error in affirming the
trial court's holding that petitioner was liable for the cost of the sawn lumber plus damages.
There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of
hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the
operations of the carrier, even though the specific vehicle involved may already have been transferred to another
person. This doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law, the
public has the right to assume that the registered owner is the actual or lawful owner thereof It would be very difficult
and often impossible as a practical matter, for members of the general public to enforce the rights of action that they
may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove who the
actual owner is. 11 The registered owner is not allowed to deny liability by proving the identity of the alleged transferee.
Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle's certificate of
registration to ascertain the owner of the carrier. In this regard, the letter presented by petitioner allegedly written by
Benjamin Tee admitting that Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not
presented in court to testify on this matter but also because of the aforementioned doctrine. To permit the ostensible
or registered owner to prove who the actual owner is, would be to set at naught the purpose or public policy which
infuses that doctrine.
In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a contract of carriage on
behalf of the registered owner. It appears that, earlier, in the first week of May 1980, private respondent Greenhills had
contracted Licuden who was then driving the same cargo truck to transport and carry a load of sawn lumber from the
Maddela sawmill to Dagupan City. 12 No one came forward to question that contract or the authority of Licuden to
represent the owner of the carrier truck.
Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the freight truck for her
own benefit and convenience, that is, to secure the payment of the balance of the selling price of the truck. She may
have been unaware of the legal security device of chattel mortgage; or she, or her buyer, may have been unwilling to
absorb the expenses of registering a chattel mortgage over the truck. In either case, considerations both of public policy
and of equity require that she bear the consequences flowing from registered ownership of the subject vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving negligence and
resulting injury to or death of passengers, and not to cases involving merely carriage of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the
law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers but also in caring
for goods transported by it. 13 The loss or destruction or deterioration of goods turned over to the common carrier for
conveyance to a designated destination, raises instantly a presumption of fault or negligence on the part of the carrier,
save only where such loss, destruction or damage arises from extreme circumstances such as a natural disaster or
calamity or act of the public enemy in time of war, or from an act or omission of the shipper himself or from the character
of the goods or their packaging or container. 14
This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier. 15 Clearly, to
permit a common carrier to escape its responsibility for the passengers or goods transported by it by proving a prior
sale of the vehicle or means of transportation to an alleged vendee would be to attenuate drastically the carrier's duty
of extraordinary diligence. It would also open wide the door to collusion between the carrier and the supposed vendee
and to shifting liability from the carrier to one without financial capability to respond for the resulting damages. In other
words, the thrust of the public policy here involved is as sharp and real in the case of carriage of goods as it is in the
transporting of human beings. Thus, to sustain petitioner Benedicto's contention, that is, to require the shipper to go
behind a certificate of registration of a public utility vehicle, would be utterly subversive of the purpose of the law and
doctrine.
Petitioner further insists that there was no perfected contract of carriage for the reason that there was no proof that her
consent or that of Tee had been obtained; no proof that the driver, Licuden was authorized to bind the registered owner;
and no proof that the parties had agreed on the freightage to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a transparent attempt to evade
statutory responsibilities. Driver Licuden was entrusted with possession and control of the freight truck by the registered
owner (and by the alleged secret owner, for that matter).i•t•c-aüsl Driver Licuden, under the circumstances, was clothed
with at least implied authority to contract to carry goods and to accept delivery of such goods for carriage to a specified
destination. That the freight to be paid may-not have been fixed before loading and carriage, did not prevent the contract
of carriage from arising, since the freight was at least determinable if not fixed by the tariff schedules in petitioner's
main business office. Put in somewhat different terms, driver Licuden is in law regarded as the employee and agent of
the petitioner, for whose acts petitioner must respond. A contract of carriage of goods was shown; the sawn lumber
was loaded on board the freight truck; loss or non-delivery of the lumber at Blue Star's premises in Valenzuela, Bulacan
was also proven; and petitioner has not proven either that she had exercised extraordinary diligence to prevent such
loss or non-delivery or that the loss or non-delivery was due to some casualty or force majeure inconsistent with her
liability. 16 Petitioner's liability to private respondent Greenhills was thus fixed and complete, without prejudice to
petitioner's right to proceed against her putative transferee Benjamin Tee and driver Licuden for reimbursement or
contribution. 17
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former Intermediate Appellate
Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

CASE DIGEST (Transportation Law): PHILTRANCO vs. CA

PHILTRANCO vs. Court of Appeals


(G.R. No. 120553 June 17, 1997)

FACTS:

Ramon Acuesta, while riding in his bicycle, was bumped and ran over by a defendant’s bus which resulted to his death.

As expected, the heirs of Ramon filed a suit for damages with the trial court which eventually ordered, after trial, that the petitioners
to jointly and severally pay the private respondents the following amounts:

1) P55, 615.72 as actual damages;


2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorney's fees; and
6) the costs of suit.

On appeal, the CA affirmed the trial court’s decision.

ISSUE:

Whether or not the damages awarded are improper and excessive.

HELD: Yes.

The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the award in their Opposition
to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of Appeals, 185 SCRA 110,
our Supreme Court held that the award of damages for death is computed on the basis of the life expectancy of the deceased." In
that case, the "death indemnity" was computed by multiplying the victim's gross annual income by his life expectancy, less his
yearly living expenses. Clearly then, the "death indemnity" referred to was the additional indemnity for the loss of earning capacity
mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the first paragraph thereof. This
article provides as follows:

Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though
there may have been mitigating circumstances. In addition:

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of
the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of his death;

We concur with petitioners' view that the trial court intended the award of "P200,000.00 as death indemnity" not as compensation
for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the same must be
struck out for lack of basis. There is no evidence on the victim's earning capacity and life expectancy.

Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by current
jurisprudence at P50,000.

The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive and unreasonable.
This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta, x x x. Since the other heirs of the deceased did not
take the witness stand, the trial court had no basis for its award of moral damages to those who did not testify thereon.

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow
the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the
defendant's culpable action and must, perforce, be proportional to the suffering inflicted. 20 In light of the circumstances in this
case, an award of P50,000 for moral damages is in order.

The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be awarded if the party
at fault acted with gross negligence. The Court of Appeals found that there was gross negligence on the part of petitioner Manilhig.
Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good, in
addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it must be fair and reasonable in
every case and should not be awarded to unjustly enrich a prevailing party. In the instant case, an award of P50,000 for the purpose
would be adequate, fair, and reasonable.

Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees cannot be recovered as
part of damages because of the policy that no premium should be placed on the right to litigate. Stated otherwise, the grant of
attorney's fees as part of damages is the exception rather than the rule, as counsel's fees are not awarded every time a party prevails
in a suit. Such attorney's fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be
reasonable. In the instant case, the counsel for the plaintiffs is himself a co-plaintiff; it is then unlikely that he demanded from his
brothers and sisters P100,000 as attorney's fees as alleged in the complaint and testified to by him. He did not present any written
contract for his fees. He is, however, entitled to a reasonable amount for attorney's fees, considering that exemplary damages are
awarded. Among the instances mentioned in Article 2208 of the Civil Code when attorney's fees may be recovered is "(1) when
exemplary damages are awarded." Under the circumstances in this case, an award of P25,000 for attorney's fees is reasonable.

The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such award shall stand.

THIRD DIVISION
[G.R. No. 120553. June 17, 1997]
PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner, vs. COURT OF APPEALS and
HEIRS OF THE LATE RAMON ACUESTA, respondents.
DECISION
DAVIDE, JR., J.:
The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of Court from the 31 January 1995
Decision of the Court of Appeals in CA-G.R. CV No. 41140cx[1] affirming the 22 January 1993cxi[2] Decision of Branch 31 of
the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the petitioners to pay the private respondents
damages as a result of a vehicular accident.
Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of Ramon A. Acuesta, namely,
Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O. Acuesta; Maximo O. Acuesta; Neri
O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O. Acuesta. Atty. Julio O. Acuesta also appeared as counsel
for the plaintiffs (herein private respondents).cxii[3] The private respondents alleged that the petitioners were guilty of gross
negligence, recklessness, violation of traffic rules and regulations, abandonment of victim, and attempt to escape from a crime.
To support their allegations, the private respondents presented eight witnesses. On 10 February 1992, after the cross-examination
of the last witness, the private respondents counsel made a reservation to present a ninth witness. The case was then set for
continuation of the trial on 30 and 31 March 1992. Because of the non-appearance of the petitioners counsel, the 30 March 1992
hearing was cancelled. The next day, private respondents counsel manifested that he would no longer present the ninth witness. He
thereafter made an oral offer of evidence and rested the case. The trial court summarized private respondents evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy rider bicycle
(Exhibit O), along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga Park. On the Magsaysay Blvd.,
also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-
725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by some persons in order to start its engine. The
Magsaysay Blvd. runs perpendicular to Gomez St. and the said Philtranco bus 4025 was heading in the general direction of the said
Gomez Street. Some of the persons who were pushing the bus were on its back, while the others were on the sides. As the bus was
pushed, its engine started thereby the bus continued on its running motion and it occurred at the time when Ramon A. Acuesta who
was still riding on his bicycle was directly in front of the said bus. As the engine of the Philtranco bus started abruptly and suddenly,
its running motion was also enhanced by the said functioning engine, thereby the subject bus bumped on the victim Ramon A.
Acuesta who, as a result thereof fell and, thereafter, was run over by the said bus. The bus did not stop although it had already
bumped and ran [sic] over the victim; instead, it proceeded running towards the direction of the Rosales Bridge which is located at
one side of the Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was
riding on his bicycle. P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting the victim Ramon
A. Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being pushed by some passengers, when its
engine abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver defendant Manilhig
herein and signalled to him to stop, but the latter did not listen. So the police officer jumped into the bus and introducing himself
to the driver defendant as policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus near the Nijaga
Park and Sgt. Yabao thereafter, told the driver to proceed to the Police Headquarter which was only 100 meters away from Nijaga
Park because he was apprehensive that the said driver might be harmed by the relatives of the victim who might come to the scene
of the accident. Then Sgt. Yabao cordoned the scene where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the
Traffic Investigator, conduct an investigation and make a sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters
away when he saw the bus of defendant Philtranco bumped [sic] and [sic] ran over the victim. From the place where the victim was
actually bumped by the bus, the said vehicle still had run to a distance of about 15 meters away.cxiii[4]
For their part, the petitioners filed an Answercxiv[5] wherein they alleged that petitioner Philtranco exercised the diligence of a
good father of a family in the selection and supervision of its employees, including petitioner Manilhig who had excellent record
as a driver and had undergone months of rigid training before he was hired. Petitioner Manilhig had always been a prudent
professional driver, religiously observing traffic rules and regulations. In driving Philtranco's buses, he exercised the diligence of
a very cautious person.
As might be expected, the petitioners had a different version of the incident. They alleged that in the morning of 24 March 1990,
Manilhig, in preparation for his trip back to Pasay City, warmed up the engine of the bus and made a few rounds within the city
proper of Calbayog. While the bus was slowly and moderately cruising along Gomez Street, the victim, who was biking towards
the same direction as the bus, suddenly overtook two tricycles and swerved left to the center of the road. The swerving was abrupt
and so sudden that even as Manilhig applied the brakes and blew the bus horn, the victim was bumped from behind and run over
by the bus. It was neither willful nor deliberate on Manilhig's part to proceed with the trip after his bus bumped the victim, the truth
being that when he looked at his rear-view window, he saw people crowding around the victim, with others running after his bus.
Fearing that he might be mobbed, he moved away from the scene of the accident and intended to report the incident to the police.
After a man boarded his bus and introduced himself as a policeman, Manilhig gave himself up to the custody of the police and
reported the accident in question.
The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles, without taking precautions such
as seeing first that the road was clear, which caused the death of the victim. The latter did not even give any signal of his intention
to overtake. The petitioners then counterclaimed for P50,000 as and for attorney's fees; P1 million as moral damages; and P50,000
for litigation expenses.
However, the petitioners were not able to present their evidence, as they were deemed to have waived that right by the failure of
their counsel to appear at the scheduled hearings on 30 and 31 March 1992. The trial court then issued an Ordercxv[6] declaring
the case submitted for decision. Motions for the reconsideration of the said Order were both denied.
On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and severally pay the private
respondents the following amounts:
1) P55, 615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorneys fees; and
6) the costs of suit.cxvi[7]
Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the trial court the following errors:
(1) in preventing or barring them from presenting their evidence;
(2) in finding that petitioner Manilhig was at fault;
(3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to, his unfortunate accident;
(4) in awarding damages to the private respondents; and
(5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages.cxvii[8]
In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held that the petitioners were not
denied due process, as they were given an opportunity to present their defense. The records show that they were notified of the
assignment of the case for 30 and 31 March 1992. Yet, their counsel did not appear on the said dates. Neither did he file a motion
for postponement of the hearings, nor did he appeal from the denial of the motions for reconsideration of the 31 March 1992 Order
of the trial court. The petitioners have thereby waived their right to present evidence. Their expectation that they would have to
object yet to a formal offer of evidence by the private respondents was misplaced, for it was within the sound discretion of the court
to allow oral offer of evidence.
As to the second and third assigned errors, the respondent court disposed as follows:
... We cannot help but accord with the lower court's finding on appellant Manilhig's fault. First, it is not disputed that the bus driven
by appellant Manilhig was being pushed at the time of the unfortunate happening. It is of common knowledge and experience that
when a vehicle is pushed to a jump-start, its initial movement is far from slow. Rather, its movement is abrupt and jerky and it
takes a while before the vehicle attains normal speed. The lower court had thus enough basis to conclude, as it did, that the bumping
of the victim was due to appellant Manilhig's actionable negligence and inattention. Prudence should have dictated against jump-
starting the bus in a busy section of the city. Militating further against appellants' posture was the fact that the precarious pushing
of subject bus to a jumpstart was done where the bus had to take a left turn, thereby making the move too risky to take. The
possibility that pedestrians on Gomez Street, where the bus turned left and the victim was biking, would be unaware of a vehicle
being pushed to a jumpstart, was too obvious to be overlooked. Verily, contrary to their bare arguments, there was gross negligence
on the part of appellants.
The doctrine of last clear chance theorized upon by appellants, is inapplicable under the premises because the victim, who was
bumped from behind, obviously, did not of course anticipate a Philtranco bus being pushed from a perpendicular street.
The respondent court sustained the awards of moral and exemplary damages and of attorneys fees, for they are warranted under
Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent the solidary liability of petitioner Philtranco, the same
finds support in Articles 2180 and 2194 of the said Code. The defense that Philtranco exercised the diligence of a good father of a
family in the selection and supervision of its employees crumbles in the face of the gross negligence of its driver, which caused the
untimely death of the victim.
Their motion for reconsideration having been denied, the petitioners came to us claiming that the Court of Appeals gravely erred
I
...IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT THEIR EVIDENCE, AND THAT
PETITIONERS WERE NOT DENIED DUE PROCESS.
II
...IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND IN HOLDING THAT PETITIONER
PHILTRANCO CAN NOT INVOKE THE DEFENSE OF DILIGENCE OF A GOOD FATHER OF A FAMILY.
III
...IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE TRIAL COURT'S AWARD OF
DAMAGES EXCESSIVE.
We resolved to give due course to the petition and required the parties to submit their respective memoranda after due consideration
of the allegations, issues, and arguments adduced in the petition, the comment thereon by the private respondents, and the reply to
the comment filed by the petitioners. The petitioners filed their memorandum in due time; while the private respondents filed theirs
only on 3 January 1997, after their counsel was fined in the amount of P1,000 for failure to submit the required memorandum.
The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were duly notified in open court of
the order of the trial court of 10 February 1992 setting the case for hearing on 30 and 31 March 1992.cxviii[9] On both dates neither
the petitioners nor their counsel appeared. In his motion for reconsideration,cxix[10] Atty. Buban gave the following reasons for
his failure to appear on the said hearings:
1. That when this case was called on March 27, 1992, counsel was very much indisposed due to the rigors of a very hectic campaign
as he is a candidate for City Councilor of Tacloban; he wanted to leave for Calbayog City, but he was seized with slight fever on
the morning of said date; but then, during the last hearing, counsel was made to understand that plaintiffs would formally offer
their exhibits in writing, for which reason, counsel for defendants waited for a copy of said formal offer, but counsel did not receive
any copy as counsel for plaintiffs opted to formally offer their exhibits orally in open court;
2. That counsel for defendants, in good faith believed that he would be given reasonable time within which to comment on the
formal offer in writing, only to know that counsel for plaintiffs orally offered their exhibits in open court and that the same were
admitted by the Honorable Court; and that when this case was called on March 30 and 31, 1992, the undersigned counsel honestly
believed that said schedule would be cancelled, pending on the submission of the comments made by the defendants on the formal
offer; but it was not so, as the exhibits were admitted in open court.cxx[11]
In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious basis," as Atty. Buban could
have filed a motion for postponement.cxxi[12] Atty. Buban then filed a motion to reconsidercxxii[13] the order of denial, which
was likewise denied by the trial court in its order of 12 August 1992.cxxiii[14] Nothing more was done by the petitioners after
receipt of the order of 12 August 1992. A perusal of the first and second motions for reconsideration discloses absence of any claim
that the petitioners have meritorious defenses. Clearly, therefore, the trial court committed no error in declaring the case submitted
for decision on the basis of private respondent's evidence.
The second imputed error is without merit either.
Civil Case No. 373 is an action for damages based on quasi-delictcxxiv[15] under Article 2176 and 2180 of the Civil Code against
petitioner Manilhig and his employer, petitioner Philtranco, respectively. These articles pertinently provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
...
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned
tasks even though the former are not engaged in any business or industry.
...
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage.
We have consistently held that the liability of the registered owner of a public service vehicle, like petitioner Philtranco,cxxv[16]
for damages arising from the tortious acts of the driver is primary, direct, and joint and several or solidary with the driver.cxxvi[17]
As to solidarity, Article 2194 expressly provides:
ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it is to
recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based on quasi-
delict. Article 2181 of the Civil Code provides:
ART. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he has paid or
delivered in satisfaction of the claim.
There is, however, merit in the third imputed error.
The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the award in their Opposition
to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of Appeals, 185 SCRA 110,
our Supreme Court held that the award of damages for death is computed on the basis of the life expectancy of the deceased." In
that case, the "death indemnity" was computed by multiplying the victim's gross annual income by his life expectancy, less his
yearly living expenses. Clearly then, the "death indemnity" referred to was the additional indemnity for the loss of earning capacity
mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the first paragraph thereof. This
article provides as follows:
ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though
there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of
the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to
the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for
a period of not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental
anguish by reason of the death of the deceased.
We concur with petitioners view that the trial court intended the award of "P200,000.00 as death indemnity" not as compensation
for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the same must be
struck out for lack of basis. There is no evidence on the victim's earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by current
jurisprudence at P50,000.cxxvii[18]
The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive and unreasonable.
This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta, contained in his "Direct Testimony... As Plaintiff,
conducted by Himself,"cxxviii[19] to wit:
Q. What was your feeling or reaction as a result of the death of your father Ramon A. Acuesta?
A. We, the family members, have suffered much from wounded feelings, moral shock, mental anguish, sleepless nights, to
which we are entitled to moral damages at the reasonable amount of ONE MILLION (P1,000,000.00) PESOS or at the sound
discretion of this Hon. Court."
Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for its award of moral damages to
those who did not testify thereon.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow
the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the
defendant's culpable action and must, perforce, be proportional to the suffering inflicted.cxxix[20] In light of the circumstances in
this case, an award of P50,000 for moral damages is in order.
The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be awarded if the party
at fault acted with gross negligence.cxxx[21] The Court of Appeals found that there was gross negligence on the part of petitioner
Manilhig.cxxxi[22] Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for
the public good, in addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it must be fair
and reasonable in every case and should not be awarded to unjustly enrich a prevailing party. In the instant case, an award of
P50,000 for the purpose would be adequate, fair, and reasonable.
Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees cannot be recovered as
part of damages because of the policy that no premium should be placed on the right to litigate.cxxxii[23] Stated otherwise, the
grant of attorney's fees as part of damages is the exception rather than the rule, as counsel's fees are not awarded every time a party
prevails in a suit.cxxxiii[24] Such attorney's fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in
all cases it must be reasonable. In the instant case, the counsel for the plaintiffs is himself a co-plaintiff; it is then unlikely that he
demanded from his brothers and sisters P100,000 as attorney's fees as alleged in the complaint and testified to by him.cxxxiv[25]
He did not present any written contract for his fees. He is, however, entitled to a reasonable amount for attorney's fees, considering
that exemplary damages are awarded. Among the instances mentioned in Article 2208 of the Civil Code when attorney's fees may
be recovered is "(1) when exemplary damages are awarded." Under the circumstances in this case, an award of P25,000 for
attorney's fees is reasonable.
The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such award shall stand.
IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of CA-G.R. CV No. 41140
is AFFIRMED, subject to modifications as to the damages awarded, which are reduced as follows:
(a) Death indemnity, from P200,000 to P50,000;
(b) Moral damages, from P1 million to P50,000;
(c) Exemplary damages, from P500,000 to P50,000; and
(d) Attorney's fees, from P50,000 to P25,000.
No pronouncements as to costs in this instance.
SO ORDERED.

b. “kabit system”

CASE DIGEST (Commercial Law): Santos vs. Sibug


ADOLFO L. SANTOS vs. ABRAHAM SIBUG and COURT OF APPEALS G.R. No. L-26815 May 26, 19810

FACTS:
Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad was a duly authorized passenger jeepney operator. Also prior to
the ACCIDENT DATE, petitioner Adolfo L. Santos was the owner of a passenger jeep, but he had no certificate of public
convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD
so that it could be operated under the latter's certificate of public convenience. In other words, SANTOS became what is known
in ordinary parlance as a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former,
which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS
was to be withdrawn from the kabit arrangement.

On the ACCIDENT DATE, private respondent Abraham Sibug was bumped by a passenger jeepney operated by VIDAD and driven
by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with the Court of First
Instance of Manila, Branch XVII, and after trial sentenced VIDAD and Gragas, jointly and severally, to indemnify SIBUG.

On April 10, 1964, the Sheriff of Manila levied on a motor vehicle registered in the name of VIDAD.

SANTOS thereafter filed a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating
that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public
Convenience.

ISSUE:
Whether petitioner Santos may prevent the levying of his vehicle.

HELD:
No.

x x x

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at
the time of the accident. It is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although
SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the
franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence
of the negligent or careless operation of the vehicle.] > This ruling is based on the principle that the operator of record is
considered the operator of the vehicle in contemplation of law as regards the public and third persons even if the vehicle involved
in the accident had been sold to another where such sale had not been approved by the then Public Service Commission. [ For
the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle
should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret
ownership of the vehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and
to avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one
way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling public.

G.R. No. L-26815 May 26, 19810


ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J.:1äwphï1.ñët
The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963
(the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also
prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but
he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then
transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience.
ln other words, SANTOS became what is known in ordinary parlance as a kabit operator. For the protection of SANTOS,
VIDAD executed a re-transfer document to the former, which was to be a private document presumably to be registered
if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney
operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against
VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum.
That Civil Case will hereinafter be referred to as the BRANCH XVII CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally,
to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and
costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name
of VIDAD, and scheduled the public auction sale thereof on May 8,1964.
On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle
levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of
VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a
bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff
from liability if he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and
injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No.
56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE).
The complaint was later amended to include the BONDING COMPANY as a party defendant although its bond had not
become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle
subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes
of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not receive any payment
from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in question,
VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in
the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that
SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood
to suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that
1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to
restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the
Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS
to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven during
the trial plus attorney's fees in the amount of P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the
Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued
wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another
Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on his own
responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond securing him
against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As said in Uy Piaoco
vs. Osmeña 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and personal liability." The
mentioned discretional power and personal liability have been further elucidated in Planes and Verdon vs. Madrigal &
Co., et al., 94 Phil. 754, where it was held. 1äwphï1.ñët
The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is
governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be.
followed where the property levied on execution 'is claimed by a by person. lf the third-party claim is
sufficient, the sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless
he is given by the judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial
Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the Indemnity
bond, but in such case he will answer for any damages with his own personal funds (Waits vs.
Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados
de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall
prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule
39.).
It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with
the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from
proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the successful
third-party claimant.
On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence
adduced, and decreed: 1äwphï1.ñët
WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale
of the vehicle in question ordering its return to the plaintiff and furthermore sentencing the defendant
Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is
returned to him, and P500.00 as attorney's fee's as well as the costs. 4
This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include
the BONDING COMPANY as jointly slid severally liable with SIBUG. 51äwphï1.ñët
... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed
P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co.,
Inc. the same sums it is ordered to pay under this decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking
furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold,
the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING
COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle
in question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation
business known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided:
1äwphï1.ñët
... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the
approval and authorization of the Commission previously had – ... (g) to sell, alienate, mortgage,
encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator
of record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was
not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered
owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to
SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based
on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards
the public and third persons 7 even if the vehicle involved in the accident had been sold to another where such sale
had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in
question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the
judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle
belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his
responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one
way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the
actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by
reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH
XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG,
9 as well as for exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution.
SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X
had no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction.
11
On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH
X CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction
property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the
Judgment or decree of another court of concurrent jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate
Court in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals
enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13 On September
28, 1966, respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment renderred in
the Branch X Case and permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled
that: 1äwphï1.ñët
... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch
XVII when it issued a restraining order and finally a decision permanently enjoining the other court
from excuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an
interference with the powers and authority of the other court having co-equal and coordinate
jurisdiction. To rule otherwise, would indubitably lead to confusion which might hamper or hinder the
proper administration of justice. ... 14
Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle
being levied upon but registered in another's name in a separated action, observing that: 1äwphï1.ñët
As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any
person affected by the representation that said vehicle is registered under the name of a particular
person had the right to rely on his declaration of ownership and registration: and the registered owner
or any other person for that matter cannot be permitted to repudiate said declaration with the objective
of proving that said registered vehicle is owned by another person and not by the registered owner
(sec. 68, (a), Rule 123, and art. 1431, New Civil Code)
xxx xxx xxx
Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the
registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner
of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be
opened to collusion between a person and a registered owner for the latter to escape said
responsibility to the public or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that: 1äwphï1.ñët
1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of
Manila has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle
to satisfy the judgment indebtedness of another person:
2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that
was levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of
Manila in Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the
same court (Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its
registered owner;
3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First
Instance of Manila (Branch X ) in Civil Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted
for decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at
the instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon
by a judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant
has a right to vindicate his claim to the vehicle levied upon through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15
speaking through Mr. Justice Ramon Aquino, succinctly held: 1äwphï1.ñët
It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the
judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the
injunctive relief, is applied in cases, where no third-party claimant is involved, in order to prevent one
court from nullifying the judgment or process of another court of the same rank or category, a power
which devolves upon the proper appellate court.
xxx xxx xxx
When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of
injunction, which is issued to stop the auction sale of that property, is not an interference with the writ
of execution issued by another court because the writ of execution was improperly implemented by
the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized
to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666,
January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).
An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively: 1äwphï1.ñët
Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a
court of concurrent jurisdiction. – No court has power to interfere by injunction with the judgments or
decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief
sought by injunction.
Same, Same; Same; When applicable. – For this doctrine to apply, the injunction issued by one court
must interfere with the judgment or decree issued by another court of equal or coordinate jurisdiction
and the relief sought by such injunction must be one which could be granted by the court which
rendered the judgment or issued the decree.
Same, Same Same; Exception Judgment rendered by another court in favor of a third person who
claims property levied upon on execution. – Under section 17 of Rule 39 a third person who claims
property levied upon on execution may vindicate such claim by action. A judgment rendered in his
favor - declaring him to be the owner of the property - would not constitute interference with the
powers or processes of the court which rendered the judgment to enforce which the execution was
levied. lf that be so - and it is so because the property, being that of a stranger, is not subject to levy
- then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership
by the claimant, cannot be considered as such interference either.
Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the
Rules of Court, interpreted – The right of a person who claims to be the owner of property levied
upon on execution to file a third-party claim with the sheriff is not exclusive, and he may file an action
to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to
answer for any damages that may be suffered by the third party claimant. By "action", as stated in
the Rule, what is meant is a separate and independent action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it
was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of
ownership in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X,
declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers or
processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so because
property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in question was in
custodia legis, and should not be interfered with without the permission of the proper Court, the property must be one
in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply
and interference with his custody is not interference with another Court's Order of attachment. 17
However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision
of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's
property" that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in
fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service,
with its effects on the riding public, is involved. Whatever legal technicalities may be invoked, we find the judgment of
respondent Court of Appeals to be in consonance with justice.
WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo
L. Santos is dismissed with costs against the petitioner.
SO ORDERED.
Makasiar, Guerrero and De Castro, * JJ., concur.1äwphï1.ñët
Teehankee (Chairman), concurs in the result.

CASE DIGEST (Transportation Law): Lita Enterprises vs. Intermediate Appellate Court
LITA ENTERPRISES, INC., vs.INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA.
[G.R. No. L-64693 April 27, 1984]

FACTS:
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment
from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise
to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the
use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of
P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises,
Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme
Taxi, petitioner's trade name.

About a year later one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one
Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio
Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises,
Inc., as registered owner of the taxicab in the latter case. Petitioner Lita Enterprises, Inc. was adjudged liable for damages by the
CFI.

This decision having become final, a writ of execution was issued. Two of the vehicles of respondent spouses were levied upon
and sold at public auction.

Thereafter, Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises,
Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against
Lita Enterprises, Inc., Mrs. de Galvez and the Sheriff of Manila for reconveyance of motor vehicles with damages.

ISSUE: Whether or not petitioner has a cause of action against defendants.

HELD:
No.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system", whereby a person
who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such
franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege
by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the
prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, "this is a
pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public
policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not
aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant
error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412
of the Civil Code denies them such aid. It provides:

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules
shall be observed:

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking.

Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this
Court said in Eugenio v. Perdido, "the mere lapse of time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails.
Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law,
from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been
laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other." Although certain exceptions to the rule are provided by law, We see no cogent reason why the
full force of the rule should not be applied in the instant case.

G.R. No. L-64693 April 27, 1984


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

ESCOLIN, J.:ñé+.£ªwph!1
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be
applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts,
and each must bear the consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in
installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since
they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an
initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid
cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses
Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a
motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was
eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case,
Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for
damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.
This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with
Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest
bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a
certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the
manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused.
Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety
& Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case
No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de
Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota
cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D]
by executing a deed of conveyance in favor of the plaintiff.
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of
convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars.
(Annex A, Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo
on October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by
including as part of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£
In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of
conveyance because of their deterioration, or because they are no longer serviceable, or because
they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market
value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: têñ.£îhqwâ£
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or
amending the decision of public respondent so that:
(a) the additional paragraph added by the public respondent to the DECISION of the lower court
(CFI) be deleted;
(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid
or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita
Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross
negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39,
Rollo.)
Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a
person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate
under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government .
Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one
of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of
Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an
imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that
the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from
their predicament. Article 1412 of the Civil Code denies them such aid. It provides:têñ.£îhqwâ£
ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed;
(1) when the fault, is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription.
As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."
The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law
prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation.
The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto,
no affirmative relief of any kind will be given to one against the other." 3 Although certain exceptions to the rule are
provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia,
Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No.
59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc.,
Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby
annuleled and set aside. No costs.
SO ORDERED.1äwphï1.ñët
Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana,
Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
Aquino, J., took no part.

Footnotestêñ.£îhqwâ£
1 Dizon v. Octavio, 51 O.G. 4059.
2 97 Phil. 41.
3 Pomeroy's Equity Jurisprudence, Vol. 3, 5th ed., p. 728.

Teja Marketing v. Intermediate Appellate Court


(148 SCRA 347)

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

Teja Marketing made demands for the payment of the motorcycle but just the same Nale failed to comply, thus forcing
Teja Marketing to consult a lawyer and file an action for damage before the City Court of Naga in the amount of P546.21
for attorney's fees and P100.00 for expenses of litigation. Teja Marketing also claimed that as of 20 February 1978, the
total account of Nale was already P2, 731, 05 as shown in a statement of account; includes not only the balance of P1,
700.00 but an additional 12% interest per annum on the said balance from 26 January 1976 to 27 February 1978; a
2% service charge; and P546.21 representing attorney's fees. On his part, Nale did not dispute the sale and the
outstanding balance of P1,700.00 still payable to Teja Marketing; but contends that because of this failure of Teja
Marketing to comply with his obligation to register the motorcycle, Nale suffered damages when he failed to claim any
insurance indemnity which would amount to no less than P15,000.00 for the more than 2 times that the motorcycle
figured in accidents aside from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when
the motorcycle was impounded by the LTC for not being registered. The City Court rendered judgment in favor of Teja
Marketing, dismissing the counterclaim, and ordered Nale to pay Teja Marketing On appeal to the Court of First Instance
of Camarines Sur, the decision was affirmed in toto. Nale filed a petition for review with the Intermediate Appellate
Court. On 18 July 1983, the appellate court set aside the decision under review on the basis of doctrine of "pari delicto,"
and accordingly, dismissed the complaint of Teja Marketing, as well as the counterclaim of Nale; without
pronouncements as to costs. Hence, the petition for review was filed by Teja Marketing and/or Angel Jaucian.
Issue: Whether the defendant can recover damages against the plaintiff?

Held: Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system"
whereby a person who has been granted a certificate of public convenience allows another person who owns motor
vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred
by the government. Abuse of this privilege by the grantees thereof cannot be countenanced.

The "kabit system" has been identified as one of the root causes of the prevalence of graft and corruption in the
government transportation offices. Although not out rightly penalized as a criminal offense, the kabit system is invariably
recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code.
It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where
it finds then. Upon this premise it would be error to accord the parties relief from their predicament.

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


TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.

PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied
to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and
each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed
decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and
a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the
total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would
pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise
and so upon his own request, the period of paying the balance was extended to one year in monthly
installments until January 1976 when he stopped paying anymore. The plaintiff made demands but
just the same the defendant failed to comply with the same thus forcing the plaintiff to consult a
lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00
for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total account of
the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount
includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said
balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21
representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the
payment of the balance of the purchase price. It has been the practice of financing firms that
whenever there is a balance of the purchase price the registration papers of the motor vehicle subject
of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to the
defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing
and Angel Jaucian are one and the same, because it was made to appear that way only as the
defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The
agreement also of the parties here was for the plaintiff to undertake the yearly registration of the
motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on
February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00
for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on
that year on the ground that the defendant failed to comply with some requirements such as the
payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the
plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained
also that though the ownership of the motorcycle was already transferred to the defendant the vehicle
was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason
that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still
payable to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with
the side car because of the condition that the plaintiff would be the one to register every year the
motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to register
both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the
defendant gave him P90.00 for mortgage fee and registration fee and had the motorcycle insured
with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit
"3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle the
defendant suffered damages when he failed to claim any insurance indemnity which would amount
to no less than P15,000.00 for the more than two times that the motorcycle figured in accidents aside
from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the
motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
resulting in its not being registered. The truth being that the motorcycle was being used for
transporting passengers and it kept on travelling from one place to another. The motor vehicle sold
to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and
knowledge and the defendant was not even given a copy of the mortgage deed. The defendant
claims that it is not true that the motorcycle was mortgaged because of re-discounting for
rediscounting is only true with Rural Banks and the Central Bank. The defendant puts the blame on
the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration
papers inspite of demands made. Finally, the evidence of the defendant shows that because of the
filing of this case he was forced to retain the services of a lawyer for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in question,
particularly for the purpose of engaging and using the same in the transportation business and for
this purpose said trimobile unit was attached to the plaintiffs transportation line who had the franchise,
so much so that in the registration certificate, the plaintiff appears to be the owner of the unit.
Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that
plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the
registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the amount
of P82.00 for its registration, as well as the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against
private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant
to pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal
rate of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff
the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation;
and to pay the costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed
a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision,
the pertinent portion of which reads —
However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the
private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the
prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal
transaction involving the fictitious registration of the motor vehicle in the name of the private
respondent so that he may traffic with the privileges of his franchise, or certificate of public
convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring
an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja
Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case
No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City
Court of Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a
lone assignment of error — whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby
a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to
public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that
the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise
it would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such
aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given by
virtue of the contract, or demand, the performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere
lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate
Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.
Alampay, J., took no part.

Footnotes
* Penned by Justice Carolina C. Griño-Aquino; concurred in by Justices Nestor B. Alampay and
Reynato S. Puno.

c. “boundary system”
MAGBOO vs. BERNARDO

GR No. 16790 Date: April 30, 1963 Ponente: Makalintal

Nature of the case: FACTS


1.

Plaintiffs are the parents of Cesar Magboo, 8 y/o, who lived with them and was under their custody until his death when he was
killed in a motor vehicle accident, the fatal vehicle being a passenger jeepney owned by defendant Bernardo. 2.

At the time of the accident, the jeepney was driven by Conrado Roque. 3.

The contract between Roque and defendant Bernardo was that Roque was to pay to defendant the sum of P8.00, for privilege of
driving the jeepney, and that whatever earnings Roque could make out of the use of the jeepney in transporting passengers from
one point to another in the City of Manila would belong entirely to Roque himself. 4.

As a consequence of the accident and as a result of the death of Cesar Magboo in said accident, Conrado Roque was prosecuted for
homicide thru reckless imprudence and was declared guilty and was sentenced to arresto mayor. However, being an insolvent, he
failed to pay the indemnity for damages. 5.

The RTC ordered defendant to pay plaintiffs as his ubsidiary liability as employer in accordance with Article 103, Revised Penal
Code. 6.

Defendant argued that there was no existing employer-employee relationship; and that the relationship is essentially that of lessor
and lessee.
ISSUE/S
I.

Whether or not petition is meritorious RATIO


1.

No, defendant’s contention does not hold water.


Since the lease was made without approval of the Public Service Commission, which was required by law, the owner continued to
be the operator of the vehicle in legal contemplation and as such was responsible for the consequences incident to its operation.
The same responsibility was held to attach in a case where the injured party was not a passenger but a third person, who sued on
the theory of culpa aquiliana. There is no reason why a different rule should be applied in a
subsidiary liability case
under Article 103 of the Revised Penal Code, as in the existence of an employer-employee relationship between the owner of the
vehicle and the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system"
on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law but also to place the
riding public at the mercy of reckless and irresponsible drivers - reckless because the measure of their earnings depends largely
upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are
in no position to pay the damages they might cause.

RULING
Petition DENIED.

G.R. No. L-16790 April 30, 1963


URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees,
vs.
DELFIN BERNARDO, defendant-appellant.
Parades, Gaw and Associates for plaintiffs-appellees.
Bonifacio B. Camacho for defendant-appellant.
MAKALINTAL, J.:
Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter to this Court on the ground
that only questions of law are involved.
The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for enforcement of his subsidiary
liability as employer in accordance with Article 103, Revised Penal Code. The trial court ordered defendant to pay plaintiffs
P3,000.00 and costs upon the following stipulated facts:
1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them and was under their custody
until his death on October 24,1956 when he was killed in a motor vehicle accident, the fatal vehicle being a passenger
jeepney with Plate No, AC-1963 (56) owned by the defendant;
2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque;
3. That the contract between Conrado Roque and defendant Delfin Bernardo was that Roque was to pay to defendant the
sum of P8.00, which he paid to said defendant, for privilege of driving the jeepney on October 24, 1956, it being their
agreement that whatever earnings Roque could make out of the use of the jeepney in transporting passengers from one
point to another in the City of Manila would belong entirely to Conrado Roque;
4. That as a consequence of the accident and as a result of the death of Cesar Magboo in said accident, Conrado Roque
was prosecuted for homicide thru reckless imprudence before the Court of First Instance of Manila, the information
having been docketed as Criminal Case No. 37736, and that upon arraignment Conrado Roque pleaded guilty to the
information and was sentenced to six (6) months of arresto mayor, with the accessory penalties of the law; to indemnify
the heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, and to pay the
costs;
5. That pursuant to said judgment Conrado Roque served his sentence but he was not able to pay the indemnity because
he was insolvent."
Appellant assails said decision, assigning three errors which boil down to the question of whether or not an employer-employee
relationship exists between a jeepney-owner and a driver under a "boundary system" arrangement. Appellant contends that the
relationship is essentially that of lessor and lessee.
A similar contention has been rejected by this Court in several cases. In National Labor Union v. Dinglasan, 52 O.G., No. 4, 1933,
it was held that the features which characterize the "boundary system" — namely, the fact that the driver does not receive a fixed
wage but gets only the excess of the receipt of fares collected by him over the amount he pays to the jeep-owner and that the
gasoline consumed by the jeep is for the account of the driver — are not sufficient to withdraw the relationship between them from
that of employer and employee. The ruling was subsequently cited and applied in Doce v. Workmen's Compensation Commission,
L-9417, December 22, 1958, which involved the liability of a bus owner for injury compensation to a conductor working under the
"boundary system."
The same principle applies with greater reason in negligence cases concerning the right of third parties to recover damages for
injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, the owner and operator of a passenger jeepney leased it to
another, but without the approval of the Public Service Commission. In a subsequent collision a passenger died. We ruled that since
the lease was made without such approval, which was required by law, the owner continued to be the operator of the vehicle in
legal contemplation and as such was responsible for the consequences incident to its operation. The same responsibility was held
to attach in a case where the injured party was not a passenger but a third person, who sued on the theory of culpa aquiliana (Timbol
vs. Osias, L-7547, April 30, 1955). There is no reason why a different rule should be applied in a subsidiary liability case under
Article 103 of the Revised Penal Code. As in the existence of an employer-employee relationship between the owner of the vehicle
and the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the
ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law but also to place the riding
public at the mercy of reckless and irresponsible drivers - reckless because the measure of their earnings depends largely upon the
number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no
position to pay the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court,
without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët
Appellant further argues that he should not have been held subsidiarily liable because Conrado Roque (the driver of the jeepney)
pleaded guilty to the charge in the criminal case without appellant's knowledge and contrary to the agreement between them that
such plea would not be entered but, instead evidence would be presented to prove Roque's innocence. On this point we quote with
approval the pertinent portion of the decision appealed from:
"'With respect to the contention of the defendant that he was taken unaware by the spontaneous plea of guilt entered by
the driver Conrado Roque, and that he did not have a chance to prove the innocence of said Conrado Roque, the Court
holds that at this stage, it is already too late to try the criminal case all over again. Defendant's allegation that he relied
on his belief that Conrado Roque would defend himself and they had sufficient proof to show that Roque was not guilty
of the crime charged cannot be entertained. Defendant should have taken it to himself to aid in the defense of Conrado
Roque. Having failed to take this step and the accused having been declared guilty by final judgment of the crime of
homicide thru reckless imprudence, there appears no more way for the defendant to escape his subsidiary liability as
provided for in Article 103 of the Revised Penal Code."'
WHEREFORE, the judgment appealed from, being in accordance with law, is hereby affirmed, with costs against defendant-
appellant.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and Regala, JJ., concur.
Padilla, J., took no part

2. LIABILITY OF CARRIERS FOR LOSS, DESTRCUTION AND


DETERIORATION

Eastern Shipping Lines, Inc. v CA (Credit Transactions)


G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents.

VITUG, J.:

FACTS:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a
shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.

the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine
insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants.

DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly and severally * CA: affirmed trial court.

ISSUES AND RULING:

(a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the
common carrier, the arrastre operator and the customs broker;

YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them
in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to,
or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are
lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there
need not be an express finding of negligence to hold it liable.

(b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed
or from the date the decision appealed from is rendered; and

FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)


I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo (Court of Appeals)
AND A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of the
Supreme Court decision until the payment thereof.

RATIO: when the judgment awarding a sum of money becomes final and executory, the monetary award shall earn interest at
12% per annum from the date of such finality until its satisfaction, regardless of whether the case involves a loan or forbearance
of money. The reason is that this interim period is deemed to be by then equivalent to a forbearance of credit.

NOTES: the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance of money, goods or
credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under
the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount
is fully paid.

Doctrine:
When a carrier fails to establish any caso fortuito, the presumption by law of fault or negligence on the part of the carrier
applies.
Facts:

- 13 coils of uncoated 7-wire stress relived wire strand for prestressed concrete were shipped on board the vessel “Japri Venture”
(owned by Easter Shipping Lines) for delivery to Stresstek Post-Tensioning Phils. in Manila. The cargo was insured by First
Nationwide Assurance Corporation (FNAC).
- The vessel arrived in Manila and discharged the cargo to the custody of E.Razon Inc., from whom the consignee’s customs
broker received it for delivery to the consignee’s warehouse.
- It appears that while en route to Manila, the vessel encountered very rough seas and stormy weather and the cargo stored in the
lower hatch of the vessel was flooded with water about one foot deep. That upon survey, it was found that several coils were rusty
on one side and that the wetting of the cargo was caused by fresh water that entered the hatch when the vessel encountered heavy
weather.
- FNAC paid Stresstek about Php 172K for damage and loss to the insured cargo.
- Being subrogated to the rights of Stresstek, FNAC now seeks o recover from Eastern what it has indemnified Stresstek less the
salvage value of the goods, or the total of about Php 124K.
- The RTC ordered for the dismissal of the case.
Upon appeal, the CA held that Eastern is liable to FNAC.

Issue:
Whether Easter should be held liable even if it claims that the shipment was discharged and delivered complete into the custody of
the arrastre operator under clean tally sheets.

Held:

- YES. In arriving at the decision, the SC agreed with the CA on its findings and conclusions.
- The heavy seas and rains referred to in the master’s report were not caso fortuito, but normal occurrences that an ocean going
vessel, particularly in the month of September which, in our area, is a month of rains and heavy seas would encounter as a matter
of routine. They are not unforeseen nor unforeseeable. These are conditions that ocean-going vessels would encounter and provide
for, in the ordinary course of voyage.
- The rain water (not sea water) found its way into Japri Venture is a clear indication that care and foresight did not attend the
closing of the ship’s hatches so that rain water would not find its way into the cargo,
- Since Easter has failed to establish any caso fortuito, the presumption of fault or negligence on the part of the carrier applies;
and the carrier must present evidence that it has observed the extraordinary diligence required in Art. 1733 to escape liability.
The SC held that the presumption that the cargo was in apparent good condition when it was delivered by the vessel to the arrastre
operation by the clean tally sheets has been overturned. The evidence is clear to the effect that the damage to the cargo was suffered
while aboard petitioner’s vessel.

CASE DIGEST (Transportation Law): Ganzon vs. CA

GANZON vs.COURT OF APPEALS and GELACIO E. TUMAMBING


(G.R. No. L-48757, May 30, 1988)

FACTS:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap iron from
Mariveles, Bataan, to the port of Manila on board the lighter LCT "Batman. Pursuant to that agreement, Mauro B. Ganzon sent his
lighter "Batman" to Mariveles where it docked in three feet of water. Gelacio Tumambing delivered the scrap iron to defendant
Filomeno Niza, captain of the lighter, for loading which was actually begun on the same date by the crew of the lighter under the
captain's supervision. When about half of the scrap iron was already loaded, Mayor Jose Advincula of Mariveles, Bataan, arrived
and demanded P5,000.00 from Gelacio Tumambing. The latter resisted the shakedown and after a heated argument between them,
Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing who sustained injuries.

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio Rub, accompanied by
three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron where the lighter was docked. The rest was
brought to the compound of NASSCO. Later on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had
taken custody of the scrap iron.

Tumabing sued Ganzon; the latter alleged that the goods have not been unconditionally placed under his custody and control to
make him liable. The trial court dismissed the case but on appeal, respondent Court rendered a decision reversing the decision of
the trial court and ordering Ganzon to pay damages.

ISSUE:

Whether or not a contract of carriage has been perfected.

HELD:

Yes.

By the said act of delivery, the scraps were unconditionally placed in the possession and control of the common carrier, and upon
their receipt by the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the petitioner-carrier's
extraordinary responsibility for the loss, destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such
extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee, or to the
person who has a right to receive them. The fact that part of the shipment had not been loaded on board the lighter did not impair
the said contract of transportation as the goods remained in the custody and control of the carrier, albeit still unloaded.
Before Ganzon could be absolved from responsibility on the ground that he was ordered by competent public authority to unload
the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power to issue the disputed order, or that it was lawful, or
that it was issued under legal process of authority. The appellee failed to establish this. Indeed, no authority or power of the acting
mayor to issue such an order was given in evidence. Neither has it been shown that the cargo of scrap iron belonged to the
Municipality of Mariveles. What we have in the record is the stipulation of the parties that the cargo of scrap iron was accumulated
by the appellant through separate purchases here and there from private individuals. The fact remains that the order given by the
acting mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor Jose Advincula to shakedown
Tumambing for P5,000.00. The order of the acting mayor did not constitute valid authority for Ganzon and his representatives to
carry out.

Ganzon v. CA (G.R. No. L-48757)


Facts:
Private respondent Tumambing contracted the services of petitioner Ganzon to haul 305 tons of scrap iron from Bataan to the port
of Manila on board the lighter LCT “Batman.” Petitioner sent his lighter with its Captain Filomeno to dock at Mariveles, where
respondent Tumambing delivered the scrap irons for loading which also begun on the same day. Mayor Advincula arrived at the
port and demanded P 5,000 shakedown from respondent. The two ended up in a heated argument where respondent had to be taken
to a hospital to be treated of a gunshot wound. After sometime, the loading of the scrap iron was resumed. But now, the Acting
Mayor together with 3 policemen ordered Captain Filomeno to dump the scrap iron where the lighter was docked and the rest to
be brought to NASSCO compound. Later, the Acting Mayor issued a receipt stating that the Municipality had taken custody of the
scrap iron. Respondent instituted an action for damages against petitioner. Respondent Court found in favor for Tumambing.
Issue:
Whether or not petitioner Ganzon, a common carrier, can be exempt from liability by invoking order of competent authority.
Ruling: NO.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes enumerated in Article 1734 of
the Civil Code.
Before the appellee Ganzon could be absolved from responsibility on the ground that he was ordered by competent public authority
to unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power to issue the disputed order, or that it was
lawful, or that it was issued under legal process of authority. The appellee failed to establish this. Indeed, no authority or power of
the acting mayor to issue such an order was given in evidence. Neither has it been shown that the cargo of scrap iron belonged to
the Municipality of Mariveles. The fact remains that the order given by the acting mayor to dump the scrap iron into the sea was
part of the pressure applied by Mayor Jose Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor did
not constitute valid authority for appellee Mauro Ganzon and his representatives to carry out. The petitioner was not duty bound to
obey the illegal order to dump into the sea the scrap iron.

Sarkies Tours Phils. V. IAC


Facts:
On August 31, 1984, Fatima boarded petitioner’s bus from Manila to Legazpi. Her belongings consisting of 3 bags were
kept at the baggage compartment of the bus, but during the stopover in Daet, it was discovered that only one remained.
The others might have dropped along the way. Other passengers suggested having the route traced, but the driver
ignored it. Fatima immediately told the incident to her mother, who went to petitioner’s office in Legazpi and later in
Manila. Petitioner offered P1,000 for each bag, but she turned it down. Disapointed, she sought help from Philtranco
bus drivers and radio stations. One of the bags was recovered. She was told by petitioner that a team is looking for the
lost luggage. After nine months of fruitless waiting, respondents filed a case to recover the lost items, as well as moral
and exemplary damages, attorney’s fees and expenses of litigation. The trial court ruled in favor of respondents, which
decision was affirmed with modification by the Court of Appeals, deleting moral and exemplary damages.
Issues:
(1) Whether petitioner is liable for the loss of the luggage
(2) Whether the damages sought should be recovered
Held:
(1) The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the baggage
compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage was lost, to the
prejudice of the paying passengers.
(2) There is no dispute that of the three pieces of luggage of Fatima, only one was recovered. Respondents had to shuttle
between Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had to
travel from the United States just to be able to testify. Expenses were also incurred in reconstituting their lost
documents. Under these circumstances, the Court agrees with the Court of Appeals in awarding P30,000.00 for the
lost items and P30,000.00 for the transportation expenses, but disagrees with the deletion of the award of moral and
exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of petitioner
having been duly established, should be granted to respondents in the amount of P20,000.00 and P5,000.00,
respectively.
THIRD DIVISION
[G.R. No. 108897. October 2, 1997]
SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE COURT OF APPEALS (TENTH DIVISION), DR.
ELINO G. FORTADES, MARISOL A. FORTADES and FATIMA A. FORTADES., respondent.
DECISION
ROMERO, J.:
This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 18979 promulgated on
January 13, 1993, as well as its resolution of February 19, 1993, denying petitioners motion for reconsideration for being a mere
rehash of the arguments raised in the appellants brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all surnamed Fortades, against
petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on her way to Legazpi City. Her brother Raul helped
her load three pieces of luggage containing all of her optometry review books, materials and equipment, trial lenses, trial contact
lenses, passport and visa, as well as her mother Marisols U.S. immigration (green) card, among other important documents and
personal belongings. Her belongings was kept in the baggage compartment of the bus, but during a stopover at Daet, it was
discovered that all but one bag remained in the open compartment. The others, including Fatimas things, were missing and could
have dropped along the way. Some of the passengers suggested retracing the route to try to recover the lost items, but the driver
ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners office in Legazpi City and later at its head
office in Manila. The latter, however, merely offered her P1,000.00 for each piece of luggage lost, which she turned down. After
returning to Bicol disappointed but not defeated, they asked assistance from the radio stations and even from Philtranco bus drivers
who plied the same route on August 31st. The effort paid off when one of Fatimas bags was recovered. Marisol also reported the
incident to the National Bureau of Investigations field office in Legazpi City, and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint from petitioner. In a
letter dated October 1, 1984, the latter apologized for the delay and said that (a) team has been sent out to Bicol for the purpose of
recovering or at least getting the full detailcxxxv[1] of the incident.
After more than nine months of fruitless waiting, respondents decided to file the case below to recover the value of the remaining
lost items, as well as moral and exemplary damages, attorneys fees and expenses of litigation. They claimed that the loss was due
to petitioners failure to observe extraordinary diligence in the care of Fatimas luggage and that petitioner dealt with them in bad
faith from the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that Fatima allegedly did not
declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of herein respondents, viz:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and against the herein
defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the following sums of money, to wit:
1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva Fortades, etc. less
the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorneys fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00) Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from receipt of this Decision.
SO ORDERED.
On appeal, the appellate court affirmed the trial courts judgment, but deleted the award of moral and exemplary damages. Thus,
WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses at P30,000.00 and
the deletion of the award for moral and exemplary damages, the decision appealed from is AFFIRMED, with costs against
defendant-appellant.
SO ORDERED."
Its motion for reconsideration having was likewise rejected by the Court of Appeals, so petitioner elevated its case to this Court for
a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts resolved the issues judiciously
based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was declared at the start of the
trip. The documentary and testimonial evidence presented at the trial, however, established that Fatima indeed boarded petitioners
De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought three pieces of luggage with her, as testified by her brother
Raul,cxxxvi[2] who helped her pack her things and load them on said bus. One of the bags was even recovered with the help of a
Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its liability by apologizing to respondents and
assuring them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The incident was reported to the police, the
NBI, and the regional and head offices of petitioner. Marisol even sought the assistance of Philtranco bus drivers and the radio
stations. To expedite the replacement of her mothers lost U.S. immigration documents, Fatima also had to execute an affidavit of
loss.cxxxvii[3] Clearly, they would not have gone through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Other passengers suffered a similar fate: Dr. Lita Samarista testified that
petitioner offered her P1,000.00 for her lost baggage and she accepted it;cxxxviii[4] Carleen Carullo-Magno also lost her chemical
engineering review materials, while her brother lost abaca products he was transporting to Bicol.cxxxix[5]
Petitioners receipt of Fatimas personal luggage having been thus established, it must now be determined if, as a common carrier, it
is responsible for their loss. Under the Civil Code, (c)ommon 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 x x x transported by them,cxl[6] and this
liability 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 for transportation until the same are delivered, actually or
constructively, by the carrier to x x x the person who has a right to receive them,cxli[7] unless the loss is due to any of the excepted
causes under Article 1734 thereof.cxlii[8]
The cause of the loss in the case at bar was petitioners negligence in not ensuring that the doors of the baggage compartment of its
bus were securely fastened. As a result of this lack of care, almost all of the luggage was lost, to the prejudice of the paying
passengers. As the Court of Appeals correctly observed:
x x x. Where the common carrier accepted its passengers baggage for transportation and even had it placed in the vehicle by its
own employee, its failure to collect the freight charge is the common carriers own lookout. It is responsible for the consequent loss
of the baggage. In the instant case, defendant appellants employee even helped Fatima Minerva Fortades and her brother load the
luggages/baggages in the bus baggage compartment, without asking that they be weighed, declared, receipted or paid for (TSN,
August 4, 1986, pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the other passengers (TSN, August
4, 1986, p. 104; February 5, 1988, p. 13).
Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree with the trial and appellate
courts conclusions. There is no dispute that of the three pieces of luggage of Fatima, only one was recovered. The other two
contained optometry books, materials, equipment, as well as vital documents and personal belongings. Respondents had to shuttle
between Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel from
the United States just to be able to testify. Expenses were also incurred in reconstituting their lost documents. Under these
circumstances, the Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the
transportation expenses, but disagrees with the deletion of the award of moral and exemplary damages which, in view of the
foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution dated February 19, 1993,
are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to pay respondent an additional P20,000.00 as moral
damages and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

274 SCRA 642 – Civil Law – Preliminary Title – Waiver of Patrimonial Rights
On January 16, 1984 plaintiff Valenzuela Hardwood and Industrial Supply Inc. entered into an agreement with the defendant Seven
Brothers whereby the latter undertook to load on board its vessel the formers lavan round logs. On January 20, 1984 plaintiff
insured the loss and/or damages with defendant South Sea Surety and insured company for 2 million pesos on January 24, 1984,
plaintiff gave the check in payment of the premium on the insurance policy. In the meantime, the said vessel sank on January 25,
1984 resulting in the loss of the plaintiff’s insured logs. Plaintiff demanded payment of the proceeds and lost claim for the value of
the lost logs to insurance company and Seven Brothers Shipping Corporation respectively to which both of them denied liability.
After due hearing, the RTC rendered judgment in favor of plaintiff. Both defendants appealed. The CA affirmed in part the RTC
judgment by sustaining liability of South Sea Surety but modified it by holding that the Seven Brothers was not liable for the lost
of the cargo. The CA held that the stipulation in the character party that the ship owner would be exempted from liability in case
of loss or even for negligence of its agent is valid.
ISSUE: Whether or not patrimonial rights may be waived.
HELD: As a general rule, patrimonial rights may be waived. In the case at bar, the waiver of petitioner per contractual
stipulation and that it is solely responsible for any damage to the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. The Supreme Court cited Article 6 of the Civil Code which states that rights may be
waived unless the waiver is contrary to law, public order, public policy, morals or good customs or prejudicial to a person of a right
recognized by law.
THIRD DIVISION

G.R. No. 102316 June 30, 1997


VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.

DECISION
PANGANIBAN, J.:
Is a stipulation in a charter party that the “(o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo” 1 valid? This is the main question raised in this petition for review assailing the Decision of Respondent
Court of Appeals 2 in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the judgment of
the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the sum of TWO
MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest thereon from the date of
demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven Brothers Shipping Corporation to
pay plaintiff the amount of TWO MILLION PESOS (2,000,000.00) representing the value of lost logs plus legal interest from the
date of demand on April 24, 1984 until full payment thereof; the reasonable attorney’s fees in the amount equivalent to five (5)
percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company’s counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers Shipping
Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement with the
defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V Seven Ambassador
the former’s lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance Co., Inc.
for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiff’s insured
logs.
On 30 January 1984, a check for P5,625.00 (Exh. “E”) to cover payment of the premium and documentary stamps due on the policy
was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance
policy it issued as of the date of the inception for non-payment of the premium due in accordance with Section 77 of the Insurance
Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of
the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers
Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both defendants shipping
corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment of errors, to
wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was not due to
fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing the iron chains to snap and
the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from logs (sic) of
the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the alternative and
ordering/directing it to pay plaintiff-appellee the amount of two million (2,000,000.00) pesos representing the value of the logs
plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee reasonable
attorney’s fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for attorney’s fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and Insurance
Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker Columbia Insurance Brokers,
Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on the policies
issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the “receipt of payment clause” attached to and forming part of the Marine Cargo Insurance
Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and documentary stamps to be
paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy due to non-payment of premium and
documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay plaintiff-appellee
P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney’s fees alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable to the
plaintiff for the latter’s lost logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance Company
(“South Sea”), but modified it by holding that Seven Brothers Shipping Corporation (“Seven Brothers”) was not liable for the lost
cargo. 5 In modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the shipping
corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home Insurance
Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (“Valenzuela”) filed separate petitions for review
before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of South Sea. 7 There the Court found no reason
to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed an authorized agent of South Sea
when he received Valenzuela’s premium payment for the marine cargo insurance policy which was thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which exempted
Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela’s arguments resolve around a single issue: “whether or not respondent Court (of Appeals) committed a
reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner and the private
respondent exempting the latter from liability for the loss of petitioner’s logs arising from the negligence of its (Seven Brothers’)
captain.” 9
The Court’s Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the “(o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo.” 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the “snapping of the iron chains and the subsequent rolling of the logs to the
portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous
event.” 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a private carrier when it contracted to transport
the cargo of Petitioner Valenzuela. Even the latter admits this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public policy, 13 citing Article 1745 of the Civil Code
which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary
prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carrier’s liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat,
violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of Commerce 14 and
Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further
contends that said stipulation “gives no duty or obligation to the private respondent to observe the diligence of a good father of a
family in the custody and transportation of the cargo.”
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in
transporting petitioner’s lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by
petitioner may not be applied unless expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer,
exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain.
Pursuant to Article 1306 17 of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the same
is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a
contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably
be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common
carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this Court in Home
Insurance Co. vs. American Steamship Agencies, Inc. 18 In that case, the trial court similarly nullified a stipulation identical to that
involved in the present case for being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code
of Commerce. Consequently, the trial court held the shipowner liable for damages resulting for the partial loss of the cargo. This
Court reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and
doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private
carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed
valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void if the strict public policy governing common carriers is applied. Such policy has no force
where the public at large is not involved, as in this case of a ship totally chartered for the use of a single party. 19 (Emphasis
supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of transportation
with common carriers without a hand or a voice in the preparation thereof. The riding public merely adheres to the contract; even
if the public wants to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on common
carriers extends its protective mantle against one-sided stipulations inserted in tickets, invoices or other documents over which the
riding public has no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage
is not similarly situated. It can — and in fact it usually does — enter into a free and voluntary agreement. In practice, the parties in
a contract of private carriage can stipulate the carrier’s obligations and liabilities over the shipment which, in turn, determine the
price or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the
protection of the law on common carriers. When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it “covers only a stipulation
exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation exempting a private
carrier like private respondent from the negligence of his employee or servant which is the situation in this case.” 20 This contention
of petitioner is bereft of merit, for it raises a distinction without any substantive difference. The case Home Insurance specifically
dealt with “the liability of the shipowner for acts or negligence of its captain and crew” 21 and a charter party stipulation which
“exempts the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of
the captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable
except for said paragraph.” 22 Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the Philippines 23 deserves
scant consideration. The Court there categorically held that said rule was “reasonable” and proceeded to apply it in the resolution
of that case. Petitioner miserably failed to show such circumstances or arguments which would necessitate a departure from a well-
settled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and
Article 8 of the Civil Code which provides that “(j)udicial decisions applying or interpreting the laws or the Constitution shall form
part of the legal system of the Philippines.”
In fine, the respondent appellate court aptly stated that “[in the case of] a private carrier, a stipulation exempting the owner from
liability even for the negligence of its agents is valid.” 24
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the other arguments
of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce which
confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or conduct of the captain. 25 We
are not persuaded. Whatever rights petitioner may have under the aforementioned statutory provisions were waived when it entered
into the charter party.
Article 6 of the Civil Code provides that “(r)ights may be waived, unless the waiver is contrary to law, public order, public policy,
morals, or good customs, or prejudicial to a person with a right recognized by law.” As a general rule, patrimonial rights may be
waived as opposed to rights to personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner’s right conferred under said articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible or any damage to the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner and
private respondent alone; it is not imbued with public policy considerations for the general public or third persons are not affected
thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and 1173 of the
Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith,
the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a
family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to perform. In the instant
case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the loss was shifted to
petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited by
petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the Civil Code
which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the instant case, Article
362 of the Code of Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a carrier. The standard of
diligence under this statutory provision may, however, be modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto &
Co. 30 and argues that the public policy considerations stated there vis-a-vis contractual stipulations limiting the carrier’s liability
be applied “with equal force” to this case. 31 It also cites Manila Railroad Co. vs. Compañia Transatlantica 32 and contends that
stipulations exempting a party from liability for damages due to negligence “should not be countenanced” and should be “strictly
construed” against the party claiming its benefit. 33 We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of such policy
considerations and concomitantly stricter rules. As already discussed above, the public policy considerations behind the rigorous
treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws applicable to common carriers are
not applied to private carries. The case of Manila Railroad is also inapplicable because the action for damages there does not
involve a contract for transportation. Furthermore, the defendant therein made a “promise to use due care in the lifting operations”
and, consequently, it was “bound by its undertaking”‘; besides, the exemption was intended to cover accidents due to hidden defects
in the apparatus or other unforeseeable occurrences” not caused by its “personal negligence.” This promise was thus constructed
to make sense together with the stipulation against liability for damages. 34 In the present case, we stress that the private respondent
made no such promise. The agreement of the parties to exempt the shipowner from responsibility for any damage to the cargo and
place responsibility over the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith & Co. vs.Cadwallader Gibson
Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta Development Co. vs. Steamship “Pompey” 38 and Limpangco
Sons vs. Yangco Steamship Co. 39 in support of its contention that the shipowner be held liable for damages. 40 These however are
not on all fours with the present case because they do not involve a similar factual milieu or an identical stipulation in the charter
party expressly exempting the shipowner form responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has earlier affirmed
the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is not legally entitled to
collect twice for a single loss. 41 In view of the above disquisition upholding the validity of the questioned charter party stipulation
and holding that petitioner may not recover from private respondent, the present issue is moot and academic. It suffices to state that
the Resolution of this Court dated June 2, 1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the
petitioner from proceeding against private respondent. An aggrieved party may still recover the deficiency for the person causing
the loss in the event the amount paid by the insurance company does not fully cover the loss. Article 2207 of the Civil Code
provides:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity for the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency form the person causing the loss or
injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error on the part
of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.

Yobido v CA (Torts)
YOBIDO v CA [G.R. No. 113003. October 17, 1997.] ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,
vs. COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.
FACTS:
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children, Ardee and Jasmin, boarded at Mangagoy,
Surigao del Sur, a Yobido bus bound for Davao City. Along Picop road in Km. 17, Sta. Maria, Agusan del Sur, the left
front tire of the bus suddenly exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree
which resulted in the death of Tito Tumboy and physical injuries to other passengers. Thereafter, a complaint for breach
of contract of carriage, damages and attorney's fees was filed by Leny and her children against Alberta Yobido, the
owner of the bus, and Cresencio Yobido, its driver in the Regional Trial Court of Davao City.

Defenses:
Abundio Salce, who was the bus conductor when the incident happened, testified that 1. the 42-seater bus was not full
as there were only 32 passengers, such that he himself managed to get a seat;
2. the bus was running at a speed of "60 to 50" and that it was going slow because of the zigzag road.
3. the left front tire that exploded was a "brand new tire" that he mounted on the bus on April 21, 1988 or only five (5)
days before the incident.

DECISION:
(1) Trial Court: dismissing the action for lack of merit
(2) Court of Appeals: rendered a decision reversing that of the lower court

ISSUE:
Whether the tire blow-out is a fortuitous event

RULING:
No.

A fortuitous event is possessed of the following characteristics:


(a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations
must be independent of human will;
(b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be
impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and
(d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.

As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which,
though foreseen was inevitable. In other words, there must be an entire exclusion of human agency from the cause of
injury or loss.

There is no reason to overturn the findings and conclusions of the Court of Appeals. Petitioners' contention that they
are exempted from liability because the tire blowout was a fortuitous event that could not have been foreseen, must
fail. It is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not
a caso fortuito that would exempt the carrier from liability for damages. Accordingly, the challenged decision is affirmed
subject to modification that petitioners shall additionally pay herein, respondents P20,000.00 as exemplary damages.
The explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the
situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was
properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name
noted for quality, resulting in the conclusion that it could not explode within five days' use. Be that as it may, it is settled
that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito
that would exempt the carrier from liability for damages.

It was incumbent upon the defense to establish that it took precautionary measures considering partially dangerous
condition of the road. As stated above, proof that the tire was new and of good quality is not sufficient proof that it was
not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier such as
conducting daily routinary check-ups of the vehicle's parts. As the late Justice J.B.L. Reyes said: "It may be
impracticable, as appellee argues, to require of carriers to test the strength of each and every part of its vehicles before
each trip, but we are of the opinion that a due regard for the carrier's obligations toward the traveling public demands
adequate periodical tests to determine the condition and strength of those vehicle portions the failure of which may
endanger the safety of the passengers."
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running at "60-50"
kilometers per hour only within the prescribed lawful speed limit. However, they failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the presumption of negligence of the carrier in the law.

THIRD DIVISION
[G.R. No. 113003. October 17, 1997]
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT OF APPEALS, LENY TUMBOY, ARDEE
TUMBOY and JASMIN TUMBOY, respondents.
DECISION
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not the explosion of a newly
installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy,
Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front
tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the
death of 28-year-old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and attorneys fees was filed by Leny and her
children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao
City. When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito. They
also filed a third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer
with compulsory counterclaim. At the pre-trial conference, the parties agreed to a stipulation of facts.cxliii[1]
Upon a finding that the third party defendant was not liable under the insurance contract, the lower court dismissed the third party
complaint. No amicable settlement having been arrived at by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the drivers
failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. According to
Leny Tumboy, the bus left Mangagoy at 3:00 oclock in the afternoon. The winding road it traversed was not cemented and was
wet due to the rain; it was rough with crushed rocks. The bus which was full of passengers had cargoes on top. Since it was running
fast, she cautioned the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard
something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous event. Abundio Salce, who was the bus
conductor when the incident happened, testified that the 42-seater bus was not full as there were only 32 passengers, such that he
himself managed to get a seat. He added that the bus was running at a speed of 60 to 50 and that it was going slow because of the
zigzag road. He affirmed that the left front tire that exploded was a brand new tire that he mounted on the bus on April 21, 1988 or
only five (5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao
Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated that all driver applicants in
Yobido Liner underwent actual driving tests before they were employed. Defendant Cresencio Yobido underwent such test and
submitted his professional drivers license and clearances from the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decisioncxliv[2] dismissing the action for lack of merit. On the issue of whether
or not the tire blowout was a caso fortuito, it found that the falling of the bus to the cliff was a result of no other outside factor than
the tire blow-out. It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesuscxlv[3] that a tire blowout is a
mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a
more thorough or rigid check-up before it took to the road that morning is inapplicable to this case. It reasoned out that in said case,
it was found that the blowout was caused by the established fact that the inner tube of the left front tire was pressed between the
inner circle of the left wheel and the rim which had slipped out of the wheel. In this case, however, the cause of the explosion
remains a mystery until at present. As such, the court added, the tire blowout was a caso fortuito which is completely an
extraordinary circumstance independent of the will of the defendants who should be relieved of whatever liability the plaintiffs
may have suffered by reason of the explosion pursuant to Article 1174cxlvi[4] of the Civil Code.
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the following errors: (a) finding that
the tire blowout was a caso fortuito; (b) failing to hold that the defendants did not exercise utmost and/or extraordinary diligence
required of carriers under Article 1755 of the Civil Code, and (c) deciding the case contrary to the ruling in Juntilla v.
Fontanar,cxlvii[5] and Necesito v. Paras.cxlviii[6]
On August 23, 1993, the Court of Appeals rendered the Decisioncxlix[7] reversing that of the lower court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due to a factory defect,
improper mounting, excessive tire pressure, is not an unavoidable event. On the other hand, there may have been adverse conditions
on the road that were unforeseeable and/or inevitable, which could make the blow-out a caso fortuito. The fact that the cause of the
blow-out was not known does not relieve the carrier of liability. Owing to the statutory presumption of negligence against the
carrier and its obligation to exercise the utmost diligence of very cautious persons to carry the passenger safely as far as human
care and foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out was a fortuitous event. It
is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants burden. As enunciated in Necesito
vs. Paras, the passenger has neither choice nor control over the carrier in the selection and use of its equipment, and the good repute
of the manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The driver could have explained that
the blow-out that precipitated the accident that caused the death of Toto Tumboy could not have been prevented even if he had
exercised due care to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering defendants to pay plaintiffs the sum
of P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on November 4, 1993 by the Court of Appeals.
Hence, the instant petition asserting the position that the tire blowout that caused the death of Tito Tumboy was a caso fortuito.
Petitioners claim further that the Court of Appeals, in ruling contrary to that of the lower court, misapprehended facts and, therefore,
its findings of fact cannot be considered final which shall bind this Court. Hence, they pray that this Court review the facts of the
case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of the established principle that the
factual findings of the Court of Appeals are final and may not be reviewed on appeal by this Court. This general principle is subject
to exceptions such as the one present in this case, namely, that the lower court and the Court of Appeals arrived at diverse factual
findings.cl[8] However, upon such re-examination, we found no reason to overturn the findings and conclusions of the Court of
Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he has taken. After all, a
carrier is not an insurer of the safety of its passengers and is not bound absolutely and at all events to carry them safely and without
injury.cli[9] However, when a passenger is injured or dies while travelling, the law presumes that the common carrier is negligent.
Thus, the Civil Code provides:
Art. 1756. In case of death 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.
Article 1755 provides that (a) common carrier is bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Accordingly, in culpa
contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This
disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence as prescribed by
Articles 1733,clii[10] 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous
event.cliii[11] Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it
responsible for damages sought by the passenger.cliv[12]
In view of the foregoing, petitioners contention that they should be exempt from liability because the tire blowout was no more
than a fortuitous event that could not have been foreseen, must fail. A fortuitous event is possessed of the following characteristics:
(a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen,
it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.clv[13] As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or
which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury
or loss.clvi[14]
Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human
factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects
or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name
noted for quality, resulting in the conclusion that it could not explode within five days use. Be that as it may, it is settled that an
accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt
the carrier from liability for damages.clvii[15]
Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous event alone. The common
carrier must still prove that it was not negligent in causing the death or injury resulting from an accident.clviii[16] This Court has
had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of the tire were still visible, this fact alone does
not make the explosion of the tire a fortuitous event. No evidence was presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to compensate for any conditions liable to cause accidents. The
sudden blowing-up, therefore, could have been caused by too much air pressure injected into the tire coupled by the fact that the
jeepney was overloaded and speeding at the time of the accident.clix[17]
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running at 60-50 kilometers per
hour only or within the prescribed lawful speed limit. However, they failed to rebut the testimony of Leny Tumboy that the bus
was running so fast that she cautioned the driver to slow down. These contradictory facts must, therefore, be resolved in favor of
liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the established condition of the
road rough, winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary measures
considering partially dangerous condition of the road. As stated above, proof that the tire was new and of good quality is not
sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its
carrier, such as conducting daily routinary check-ups of the vehicles parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of its vehicles before
each trip; but we are of the opinion that a due regard for the carriers obligations toward the traveling public demands adequate
periodical tests to determine the condition and strength of those vehicle portions the failure of which may endanger the safety of
the passengers.clx[18]
Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing evidence, petitioners are
hereby held liable for damages. Article 1764clxi[19] in relation to Article 2206clxii[20] of the Civil Code prescribes the amount of
at least three thousand pesos as damages for the death of a passenger. Under prevailing jurisprudence, the award of damages under
Article 2206 has been increased to fifty thousand pesos (P50,000.00).clxiii[21]
Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven. However, the same
damages may be recovered when breach of contract of carriage results in the death of a passenger,clxiv[22] as in this case.
Exemplary damages, awarded by way of example or correction for the public good when moral damages are awarded,clxv[23] may
likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent
manner.clxvi[24] Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which resulted
in the death of Tito Tumboy, it is deemed to have acted recklessly.clxvii[25] As such, private respondents shall be entitled to
exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that petitioners shall, in
addition to the monetary awards therein, be liable for the award of exemplary damages in the amount of P20,000.00. Costs against
petitioners.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

3. COMMENCEMENT, DURATION AND TERMINATION OF CARRIER’S


RESPONSIBILITY OVER THE GOODS

4. STIPULATIONS LIMITING
a. Degree of diligence
b. Amount of liability
c. Void stipulation
5. PASSENGER’S BAGGAGES

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