TEST OF A COMMON CARRIER

FIRST DIVISION
G.R. No. 150403
January 25, 2007
CEBU SALVAGE CORPORATION vs. PHILIPPINE HOME ASSURANCE CORPORATION
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?
This is the issue presented for the Courts resolution in this petition for review on certiorari
assailing the March 16, 2001 decision and September 17, 2001 resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27, 1989 decision of the
Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter wherein petitioner
was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu Santo at Ayungon,
Negros Occidental for transport to and discharge at Tagoloan, Misamis Oriental to consignee
Ferrochrome Phils., Inc.
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day. The shipment never reached its destination, however, because the M/T Espiritu Santo sank
in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the
total loss of the cargo.
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation. Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII. Thereafter, it filed a case in the RTC against petitioner for
reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of affreightment
wherein the ship was leased for a single voyage for the conveyance of goods, in consideration of
the payment of freight. Under a voyage charter, the shipowner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of the space in the vessel
in return for his payment of freight. An owner who retains possession of the ship remains liable
as carrier and must answer for loss or non-delivery of the goods received for transportation.
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage. It insists that the agreement was merely a
contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises (ALS). Not
being the owner of the M/T Espiritu Santo, petitioner did not have control and supervision over
the vessel, its master and crew. Thus, it could not be held liable for the loss of the shipment
caused by the sinking of a ship it did not own.
We disagree.
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Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down.
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it
was engaged in the business of carrying and transporting goods by water, for compensation, and
offered its services to the public.
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport according to the circumstances of
each case. In the event of loss of the goods, common carriers are responsible, unless they can
prove that this was brought about by the causes specified in ART. 1734 of the Civil Code. In all
other cases, common carriers are presumed to be at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence.
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had control
over what vessel it would use. All throughout its dealings with MCCII, it represented itself as a
common carrier. The fact that it did not own the vessel it decided to use to consummate the
contract of carriage did not negate its character and duties as a common carrier. The MCCII
(respondents subrogor) could not be reasonably expected to inquire about the ownership of the
vessels which petitioner carrier offered to utilize. As a practical matter, it is very difficult and
often impossible for the general public to enforce its rights of action under a contract of carriage
if it should be required to know who the actual owner of the vessel is. In fact, in this case, the
voyage charter itself denominated petitioner as the "owner/operator" of the vessel.
Petitioner next contends that if there was a contract of carriage, then it was between MCCII and
ALS as evidenced by the bill of lading ALS issued.
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed by
the supercargo of ALS. This is consistent with the fact that MCCII did not contract directly with
ALS. While it is true that a bill of lading may serve as the contract of carriage between the
parties, it cannot prevail over the express provision of the voyage charter that MCCII and
petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard a
vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill of
lading operates as the receipt for the goods, and as document of title passing the property of the
goods, but not as varying the contract between the charterer and the shipowner." The Bill of
Lading becomes, therefore, only a receipt and not the contract of carriage in a charter of the
entire vessel, for the contract is the Charter Party, and is the law between the parties who are
bound by its terms and condition provided that these are not contrary to law, morals, good
customs, public order and public policy.
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account. This deserves scant
consideration. This simply meant that the charterer would take care of having the goods insured.
It could not exculpate the carrier from liability for the breach of its contract of carriage. The law,
in fact, prohibits it and condemns it as unjust and contrary to public policy.
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To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on board
the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove that it
exercised extraordinary diligence to prevent such loss or that it was due to some casualty or
force majeure. The voyage charter here being a contract of affreightment, the carrier was
answerable for the loss of the goods received for transportation.
The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does not
own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists that MCCII
should sue ALS for reimbursement for its loss. Certainly, to permit a common carrier to escape its
responsibility for the goods it agreed to transport (by the expedient of alleging non-ownership of
the vessel it employed) would radically derogate from the carrier's duty of extraordinary
diligence. It would also open the door to collusion between the carrier and the supposed owner
and to the possible shifting of liability from the carrier to one without any financial capability to
answer for the resulting damages.
WHEREFORE, the petition is hereby DENIED.
ARTICLES 1734 TO 1754
SECOND DIVISION G.R. No. 162467
May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. vs. PHOENIX ASSURANCE CO. OF NEW
YORK/MCGEE & CO., INC.,
DECISION
TINGA, J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure
of the 29 October 2003 Decision of the Court of Appeals and the 26 February 2004 Resolution of
the same court denying petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage
Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of
146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples
belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold
of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods were to
be transported by it to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del
Monte Produce insured the shipment under an "open cargo policy" with private respondent
Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private
respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix.
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail
from the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon
discharge that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of
Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong),
surveyed the extent of the damage of the shipment. In a survey report, it was stated that 16,069
cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged
that they no longer had commercial value.
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGees Marine Claims Insurance Adjuster evaluated the claim and recommended that payment
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in the amount of $210,266.43 be made. A check for the recommended amount was sent to Del
Monte Produce; the latter then issued a subrogation receipt to Phoenix and McGee.
Phoenix and McGee instituted an action for damages against Mindanao Terminal in the Regional
Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC, in a decision dated 20 October
1999, held that the only participation of Mindanao Terminal was to load the cargoes on board the
M/V Mistrau under the direction and supervision of the ships officers, who would not have
accepted the cargoes on board the vessel and signed the foremans report unless they were
properly arranged and tightly secured to withstand voyage across the open seas. Accordingly,
Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had
loaded and stowed them. Moreover, citing the survey report, it was found by the RTC that the
cargoes were damaged on account of a typhoon which M/V Mistrau had encountered during the
voyage. It was further held that Phoenix and McGee had no cause of action against Mindanao
Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation
from Del Monte Produce, had no contract with the assured Del Monte Produce. The RTC dismissed
the complaint and awarded the counterclaim of Mindanao Terminal in the amount of P83,945.80
as actual damages and P100,000.00 as attorneys fees. The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminals lawyer in attending the
hearings in the case wherein he had to travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside
the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao
Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest from the
filing of the complaint until fully paid and attorneys fees of 20% of the claim." It sustained
Phoenixs and McGees argument that the damage in the cargoes was the result of improper
stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo,
the duty to exercise extraordinary diligence in loading and stowing the cargoes. It further held
that even with the absence of a contractual relationship between Mindanao Terminal and Del
Monte Produce, the cause of action of Phoenix and McGee could be based on quasi-delict under
ART. 2176 of the Civil Code.
Mindanao Terminal filed a motion for reconsideration, which the Court of Appeals denied in its 26
February 2004 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal
under ART. 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to
be answered: first, whether Phoenix and McGee have a cause of action against Mindanao
Terminal; second, whether Mindanao Terminal, as a stevedoring company, is under obligation to
observe the same extraordinary degree of diligence in the conduct of its business as required by
law for common carriers and warehousemen; and third, whether Mindanao Terminal observed the
degree of diligence required by law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and careless loading and stowing of
the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have
only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause
of action in light of the Courts consistent ruling that the act that breaks the contract may be also
a tort. In fine, a liability for tort may arise even under a contract, where tort is that which
breaches the contract. In the present case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service but from the alleged negligent manner
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by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the
absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to establish a cause of
action arising from quasi-delict.
The resolution of the two remaining issues is determinative of the ultimate result of this case.
ART. 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected
of a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a
stevedoring company which was charged with the loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no
specific provision of law that imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and stowing of cargoes. It was
neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by
contractual stipulation to observe a higher degree of diligence than that required of a good
father of a family. We therefore conclude that following ART. 1173, Mindanao Terminal was
required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau. xxx The case of Summa Insurance Corporation vs. CA, which
involved the issue of whether an arrastre operator is legally liable for the loss of a shipment in its
custody and the extent of its liability, is inapplicable to the factual circumstances of the case at
bar. Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier
3, South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd.
with Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a bundle of
PC 8 U blades, was discharged from the vessel to the custody of the private respondent, the
exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship's checker and a representative of private
respondent. When Semirara inspected the shipment at house, it discovered that the bundle of
PC8U blades was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a warehouseman. In the
performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as enunciated
under ART. 1733 of the Civil Code and SEC. 3(b) of the Warehouse Receipts Law, respectively.
Being the custodian of the goods discharged from a vessel, an arrastre operator's
duty is to take good care of the goods and to turn them over to the party entitled to
their possession.
There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish word which refers
to hauling of cargo, comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The responsibility of the arrastre
operator lasts until the delivery of the cargo to the consignee. The service is usually performed
by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds
of the vessel or between the ship's tackle and the holds of the vessel. The responsibility of the
stevedore ends upon the loading and stowing of the cargo in the vessel.
It is not disputed that Mindanao Terminal was performing purely stevedoring function while the
private respondent in the Summa case was performing arrastre function. In the present case,
Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the
cargoes from the pier to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading
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and stowing of cargoes would not have a far reaching public ramification as that of a common
carrier and a warehouseman; the public is adequately protected by our laws on contract and on
quasi-delict. The public policy considerations in legally imposing upon a common carrier or a
warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly
provides labor in loading and stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise
or there is any doubt on which side the evidence preponderates the party having the burden of
proof fails upon that issue. That is to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its existence, or if it leaves the mind in
a state of perplexity, the party holding the affirmative as to such fact must fail.
We adopt the findings of the RTC, which are not disputed by Phoenix and McGee. The Court of
Appeals did not make any new findings of fact when it reversed the decision of the trial court.
The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau. It was
not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards,
used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials
meets industry standard.
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessels hold, prepared by Del Monte Produce and the officers of
M/V Mistrau. The loading and stowing was done under the direction and supervision of the ship
officers. The vessels officer would order the closing of the hatches only if the loading was done
correctly after a final inspection. The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to withstand the voyage
in open seas. They would order the stevedore to rectify any error in its loading and stowing. A
foremans report, as proof of work done on board the vessel, was prepared by the checkers of
Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied
that the cargoes were properly loaded.
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn and on the survey
report of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey
report, found that the cause of the damage was improper stowage due to the manner the
cargoes were arranged such that there were no spaces between cartons, the use of cardboards
as support system, and the use of small rope to tie the cartons together but not by the negligent
conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and
McGee in their Comment before us, the latter is merely a stevedoring company which was tasked
by Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte
Produce aboard the M/V Mistrau. How and where it should load and stow a shipment in a vessel is
wholly dependent on the shipper and the officers of the vessel. In other words, the work of the
stevedore was under the supervision of the shipper and officers of the vessel. Even the materials
used for stowage, such as ropes, pallets, and cardboards, are provided for by the vessel. Even
the survey report found that it was because of the boisterous stormy weather due to the typhoon
Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo
hold to collapse, shift and bruise in extensive extent. Even the deposition of Byeong was not
supported by the conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage occurred aboard
the carrying vessel during sea transit, being caused by ships heavy rolling and pitching under
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boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family, the
grant of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of petitioner. None of
the circumstances enumerated in ART. 2208 of the Civil Code exists. The present case is clearly
not an unfounded civil action against the plaintiff as there is no showing that it was instituted for
the mere purpose of vexation or injury. It is not sound public policy to set a premium to the right
to litigate where such right is exercised in good faith, even if erroneously. Likewise, the RTC erred
in awarding P83,945.80 actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as
other miscellaneous expenses, as he attended the trials coming all the way from Manila. But
there is no showing that Phoenix and McGee made a false claim against Mindanao Terminal
resulting in the protracted trial of the case necessitating the incurrence of expenditures.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No.
66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil
Case No. 25,311.97 is hereby REINSTATED MINUS the awards of P100,000.00 as attorneys
fees and P83,945.80 as actual damages.
ARTICLES 1755 TO 1763
THIRD DIVISION
G.R. No. 157658
October 15, 2007
PHILIPPINE NATIONAL RAILWAYS and VIRGILIO J. BORJA, vs. COURT OF APPEALS (2 nd DIV.),
CORAZON C. AMORES, MA. EMILIE A. MOJICA, CECILE C. SISON, DINO C. AMORES, LARISA C.
AMORES, ARMAND JINO C. AMORES and JOHN C. AMORES
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, seeking to annul and set aside the Decision of the Court of Appeals (CA)
in CA-G.R. CV No. 54906 which reversed the Decision of the Regional Trial Court (RTC) of Manila,
Branch 28, in Civil Case No. 92-61987.
The factual antecedents are as follows:
In the early afternoon of April 27, 1992, Jose Amores (Amores) was traversing the railroad tracks
in Kahilum II Street, Pandacan, Manila. Before crossing the railroad track, he stopped for a while
then proceeded accordingly. Unfortunately, just as Amores was at the interSEC., a Philippine
National Railways (PNR) train with locomotive number T-517 turned up and collided with the car.
At the time of the mishap, there was neither a signal nor a crossing bar at the interSEC. to warn
motorists of an approaching train. Aside from the railroad track, the only visible warning sign at
that time was the defective standard signboard "STOP, LOOK and LISTEN" wherein the sign
"Listen" was lacking while that of "Look" was bent. No whistle blow from the train was likewise
heard before it finally bumped the car of Amores. After impact, the car was dragged about ten
(10) meters beyond the center of the crossing. Amores died as a consequence thereof.
On July 22, 1992, the heirs of Amores, consisting of his surviving wife and six children, herein
respondents, filed a Complaint for Damages against petitioners PNR and Virgilio J. Borja (Borja),
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PNRs locomotive driver at the time of the incident, before the RTC of Manila. The case was
raffled to Branch 28 and was docketed as Civil Case No. 92-61987. In their complaint,
respondents averred that the trains speedometer was defective, and that the petitioners
negligence was the proximate cause of the mishap for their failure to take precautions to prevent
injury to persons and property despite the dense population in the vicinity. They then prayed for
actual and moral damages, as well as attorneys fees.
In their Answer, the petitioners denied the allegations, stating that the train was railroad-worthy
and without any defect. According to them, the proximate cause of the death of Amores was his
own carelessness and negligence, and Amores wantonly disregarded traffic rules and regulations
in crossing the railroad tracks and trying to beat the approaching train. They admitted that there
was no crossing bar at the site of the accident because it was merely a barangay road. PNR
stressed that it exercised the diligence of a good father of a family in the selection and
supervision of the locomotive driver and train engineer, Borja, and that the latter likewise used
extraordinary diligence and caution to avoid the accident. Petitioners further asserted that
respondents had the last clear chance to avoid the accident but recklessly failed to do so.
After trial on the merits, on August 22, 1996, the RTC rendered judgment in favor of the
petitioners, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing the complaint of the plaintiffs and
the defendants counterclaim.
The costs shall be halved and paid equally by the parties.
The counsel for the defendants is hereby ordered to inform this court who is the legal
representative of the deceased defendant, Virgilio Borja, within ten (10) days from receipt
of a copy of this decision.
SO ORDERED.
The RTC rationalized that the proximate cause of the collision was Amores fatal misjudgment
and the reckless course of action he took in crossing the railroad track even after seeing or
hearing the oncoming train.
On appeal, the CA reversed the RTC decision, as follows:
WHEREFORE, the assailed Decision of the Regional Trial Court of Manila, Branch 28 is
hereby REVERSED. The defendants PNR and the estate of Virgilio J. Borja are jointly and
severally liable to pay plaintiffs the following:
1) The amount of P122,300.00 for the cost of damage to the car; and,
2) The amount of P50,000 as moral damages.
For lack of official receipts for funeral expenses and specimen of the last pay slip of the
deceased, the claim for reimbursement of funeral expenses and claim for payment of
support is hereby DENIED for lack of basis. Costs against Defendants.
SO ORDERED.
In reversing the trial courts decision, the appellate court found the petitioners negligent. The
court based the petitioners negligence on the failure of PNR to install a semaphore or at the very
least, to post a flagman, considering that the crossing is located in a thickly populated area.
Moreover, the signboard "Stop, Look and Listen" was found insufficient because of its defective
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condition as described above. Lastly, no negligence could be attributed to Amores as he

exercised reasonable diligence in crossing the railroad track.
Aggrieved by this reversal, the petitioners filed the present petition for review on certiorari,
raising the following grounds:
I
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN RENDERING ITS DECISION
REVERSING THE DECISION OF THE REGIONAL TRIAL COURT OF MANILA BRANCH 28, IN NOT
TAKING INTO CONSIDERATION THE PROVISION OF SEC. 42, R.A. 4136 OF THE LAND
TRANSPORTATION AND TRAFFIC CODE.
II
THE DECISION OF THE COURT OF APPEALS IS CONTRARY TO THE EVIDENCE ON RECORD
ADDUCED IN THE TRIAL ON THE MERIT IN CIVIL CASE NO. 92-61987.
The petitioners insist that Amores must have heard the trains whistle and heeded the warning
but, noting that the train was still a distance away and moving slowly, he must have calculated
that he could beat it to the other side of the track before the train would arrive at the interSEC..
The petitioners likewise add that the train was railroad-worthy and that its defective
speedometer did not affect the trains operation. Lastly, they insist that evidence showed
sufficient warning signs strategically installed at the crossing to alert both motorists and
pedestrians.
Respondents, on the other hand, argue that the cause of the accident was petitioners
carelessness, imprudence and laxity in failing to provide a crossing bar and keeper at the
Kahilum II railway interSEC.. Considering that Kahilum II Street is in the middle of a thickly
populated squatters area, and many pedestrians cross the railroad track, notwithstanding the
fact that it is a public street and a main thoroughfare utilized in going to Herran Street, the
presence of adequate warning signals would have prevented the untimely death of Amores.
Another crucial point raised by the respondents is the manner in which Borja applied the brakes
of the train only when the locomotive was already very near Amores car, as admitted by witness
Querimit. Finally, respondents claim that Borjas failure to blow the locomotives horn, pursuant
to the usual practice of doing the same 100 meters before reaching the Kahilum II crossing point
is an earmark of recklessness on the part of the petitioners.
The petition must fail.
The only issue to be resolved in the present case is whether the appellate court was correct in
ascribing negligence on the part of the petitioners. It was ascertained beyond quandary that the
proximate cause of the collision is the negligence and imprudence of the petitioner PNR and its
locomotive driver, Borja, in operating the passenger train.
As the action is predicated on negligence, the relevant provision is ART. 2176 of the New Civil
Code, which states that:
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 was no pre-existing
contractual relation between the parties, is called quasi-delict and is governed by the
provisions of this chapter.
We have thoroughly reviewed the records of the case and we find no cogent reason to
reverse the appellate courts decision. Negligence has been defined as "the failure to
observe for the protection of the interests of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury."
Page 9 of 37

Using the aforementioned philosophy, it may be reliably concluded that there is no hard and fast
rule whereby such degree of care and vigilance is calibrated; it is dependent upon the
circumstances in which a person finds himself. All that the law requires is that it is perpetually
compelling upon a person to use that care and diligence expected of sensible men under
comparable circumstances.
We hold that the petitioners were negligent when the collision took place. The transcript of
stenographic notes reveals that the train was running at a fast speed because notwithstanding
the application of the ordinary and emergency brakes, the train still dragged the car some
distance away from the point of impact. Evidence likewise unveils the inadequate precautions
taken by petitioner PNR to forewarn the public of the impending danger. Aside from not having
any crossing bar, no flagman or guard to man the interSEC. at all times was posted on the day of
the incident. A reliable signaling device in good condition, not just a dilapidated "Stop, Look and
Listen" signage because of many years of neglect, is needed to give notice to the public. It is the
responsibility of the railroad company to use reasonable care to keep the signal devices in
working order. Failure to do so would be an indication of negligence.
As held in the case of Philippine National Railway vs. Brunty, it may broadly be stated that
railroad companies owe to the public a duty of exercising a reasonable degree of care to avoid
injury to persons and property at railroad crossings, which duties pertain both to the operation of
trains and to the maintenance of the crossings. Moreover, every corporation constructing or
operating a railway shall make and construct at all points where such railway crosses any public
road, good, sufficient, and safe crossings, and erect at such points, at sufficient elevation from
such road as to admit a free passage of vehicles of every kind, a sign with large and distinct
letters placed thereon, to give notice of the proximity of the railway, and warn persons of the
necessity of looking out for trains. The failure of the PNR to put a cross bar, or signal light,
flagman or switchman, or semaphore is evidence of negligence and disregard of the safety of the
public, even if there is no law or ordinance requiring it, because public safety demands that said
device or equipment be installed.
The petitioners insist that a train has a right-of-way in a railroad crossing under the existing laws.
They derive their theory from SEC. 42(d), ART. III of R.A. 4136, otherwise known as the Land
Transportation and Traffic Code, which states that:
The driver of a vehicle upon a highway shall bring to a full stop such vehicle before traversing
any "through highway" or railroad crossing: Provided, That when it is apparent that no hazard
exists, the vehicle may be slowed down to five miles per hour instead of bringing it to a full stop.
They claim that motorists are enjoined by law to stop, look and listen before crossing railroad
tracks and that a heavier responsibility rests upon the motorists in avoiding accidents at level
crossings.
It is true that one driving an automobile must use his faculties of seeing and hearing when
nearing a railroad crossing. However, the obligation to bring to a full stop vehicles moving in
public highways before traversing any "through street" only accrues from the time the said
"through street" or crossing is so designated and sign-posted. From the records of the case, it
can be inferred that Amores exercised all the necessary precautions required of him as to avoid
injury to himself and to others. The witnesses testimonies showed that Amores slackened his
speed, made a full stop, and then proceeded to cross the tracks when he saw that there was no
impending danger to his life. Under these circumstances, we are convinced that Amores did
everything, with absolute care and caution, to avoid the collision.
It is settled that every person or motorist crossing a railroad track should use ordinary prudence
and alertness to determine the proximity of a train before attempting to cross. We are persuaded
that the circumstances were beyond the control of Amores for no person would sacrifice his
Page 10 of 37

precious life if he had the slightest opportunity to evade the catastrophe. Besides, the authority
in this jurisdiction is that the failure of a railroad company to install a semaphore or at the very
least, to post a flagman or watchman to warn the public of the passing train amounts to
negligence.
In view of the foregoing, We will now discuss the liability of petitioner PNR. ART. 2180 of the New
Civil Code discusses the liability of the employer once negligence or fault on the part of the
employee has been established. The employer is actually liable on the assumption of juris
tantum that the employer failed to exercise diligentissimi patris families in the selection and
supervision of its employees. The liability is primary and can only be negated by showing due
diligence in the selection and supervision of the employee, a factual matter that has not been
demonstrated. Even the existence of hiring procedures and supervisory employees cannot be
incidentally invoked to overturn the presumption of negligence on the part of the employer.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated March 31, 2003
in CA-G.R. CV No. 54906 is hereby AFFIRMED.
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS
FIRST DIVISION
G.R. No. 161909
April 25, 2012
PHILTRANCO SERVICE ENTERPRISES, INC., vs. FELIX PARAS AND INLAND TRAILWAYS, INC., AND
HON. COURT OF APPEALS
DECISION
BERSAMIN, J.:
In an action for breach of contract of carriage commenced by a passenger against his common
carrier, the plaintiff can recover damages from a third-party defendant brought into the suit by
the common carrier upon a claim based on tort or quasi-delict. The liability of the third-party
defendant is independent from the liability of the common carrier to the passenger.
Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the
Court of Appeals (CA) of the decision of the Regional Trial Court (RTC) awarding moral, actual and
temperate damages, as well as attorneys fees and costs of suit, to respondent Felix Paras
(Paras), and temperate damages to respondent Inland Trailways, Inc. (Inland), respectively the
plaintiff and the defendant/third-party plaintiff in this action for breach of contract of carriage,
upon a finding that the negligence of the petitioner and its driver had caused the serious
physical injuries Paras sustained and the material damage Inlands bus suffered in a vehicular
accident.
Antecedents
The antecedent facts, as summarized by the CA, are as follows:
Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is
engaged in the buy and sell of fish products. Sometime on 08 February 1987, on his way home to
Manila from Bicol Region, he boarded a bus with Body No. 101 and Plate No. EVE 508, owned and
operated by Inland Trailways, Inc. (Inland for brevity) and driven by its driver Calvin Coner (Coner
for brevity).
At approximately 3:50 oclock in the morning of 09 February 1987, while the said bus was
travelling along Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus
with Plate No. EVB 259, owned and operated by Philtranco Service Enterprises, Inc. (Philtranco
for brevity). As a result of the strong and violent impact, the Inland bus was pushed forward and
smashed into a cargo truck parked along the outer right portion of the highway and the shoulder
thereof. Consequently, the said accident bought considerable damage to the vehicles involved
Page 11 of 37

and caused physical injuries to the passengers and crew of the two buses, including the death of
Coner who was the driver of the Inland Bus at the time of the incident.
Paras was not spared from the pernicious effects of the accident. After an emergency treatment
at the San Pablo Medical Center, San Pablo City, Laguna, Paras was taken to the National
Orthopedic Hospital. At the latter hospital, he was found and diagnosed by Dr. Antonio
Tanchuling, Jr. to be affected with the following injuries: a) contusion/hematoma; b) dislocation of
hip upon fracture of the fibula on the right leg; c) fractured small bone on the right leg; and d)
close fracture on the tibial plateau of the left leg. (Exh. "A", p. 157, record)
On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured
portions of his body. (Exhs. "A-2" and "A-3", pp. 159 and 160 respectively, record)
Unable to obtain sufficient financial assistance from Inland for the costs of his operations,
hospitalization, doctors fees and other miscellaneous expenses, on 31 July 1989, Paras filed a
complaint for damages based on breach of contract of carriage against Inland.
In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver
Coner had observed an utmost and extraordinary care and diligence to ensure the safety of its
passengers. In support of its disclaimer of responsibility, Inland invoked the Police Investigation
Report which established the fact that the Philtranco bus driver of [sic] Apolinar Miralles was the
one which violently bumped the rear portion of the Inland bus, and therefore, the direct and
proximate cause of Paras injuries.
On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco
and Apolinar Miralles (Third Party defendants). In this third-party complaint, Inland, sought for
exoneration of its liabilities to Paras, asserting that the latters cause of action should be directed
against Philtranco considering that the accident was caused by Miralles lack of care, negligence
and reckless imprudence. (pp. 50 to 56, records).
After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997, viz:
WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to
pay plaintiff jointly and severally, the following amounts:
1.P54,000.00 as actual damages;
2.P50,000.00 as moral damages;
3.P20,000.00 as attorneys fees and costs.
SO ORDERED.
All the parties appealed to the CA on different grounds.
On his part, Paras ascribed the following errors to the RTC, to wit:
I.
II.
III.

IV.

THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANT-APPELLANT

PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT PARAS.
THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC. TO BE
JOINTLY AND SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS.
THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS ADDITIONAL
ACTUAL DAMAGES SUFFERED BY APPELLANT PARAS AS HIS PHYSICAL DISABILITY IS
PERMANENT IN NATURE.
THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR OF
APPELLANT PARAS.
Page 12 of 37

On the other hand, Inland assigned the following errors to the RTC, namely:
I.

THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD
PARTY PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:

It is clear from the evidence that the plaintiff sustained injuries because of the reckless,
negligence, and lack of precaution of third party defendant Apolinar Miralles, an employee of
Philtranco.
II.

AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY

EVIDENCES ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE
THIRD PARTY PLAINTIFF.

Lastly, Philtranco stated that the RTC erred thus wise:

I.

II.

III.

IV.

THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER THAN
WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE GREATER
THAN WHAT WERE PROVED DURING THE TRIAL, HENCE, PERPETUATING UNJUST
ENRICHMENT.
THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A CAUSE OF
ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF GROSS BAD FAITH;
HENCE, CONTRARY TO THE ESTABLISHED DOCTRINE IN THE CASES OF PHIL. RABBIT
BUS LINES VS. ESGUERRA; SOBERANO VS. BENGUET AUTO LINE AND FLORES VS.
MIRANDA.
THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE AT
FAULT MERELY ON THE STRENGHT OF THE TESTIMONY OF THE POLICE INVESTIGATOR
WHICH IS IN TURN BASED ON THE STATEMENTS OF ALLEGED WITNESSES WHO WERE
NEVER PRESENTED ON THE WITNESS STAND.
THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE TESTIMONY
OF APPELLANTS WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF EXERCISE OF
DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF EMPLOYEES PURSUANT TO
ART. 2180, LAST PARAGRAPH, NEW CIVIL CODE.

On September 25, 2002, the CA promulgated its decision, disposing:

WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July
19(9)7 is perforce affirmed with the following modifications:
1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay
plaintiff-appellant Felix Paras jointly and severally the following amounts:
a) P1,397.95 as actual damages;
b) P50,000.00 as temperate damages;
c) P50,000.00 as moral damages; and
d) P20,000.00 as attorneys fees and costs of suit.
2. On the third party plaintiff-appellant Inlands claims, the third party defendant-appellants
Philtranco and Apolinar Miralles are hereby ordered to pay the former (Inland) jointly and
severally the amount of P250,000.00 as and by way of temperate damages.
Page 13 of 37

SO ORDERED.
The CA agreed with the RTCs finding that no trace of negligence at the time of the accident was
attributable to Inlands driver, rendering Inland not guilty of breach of contract of carriage; that
faulty brakes had caused Philtrancos bus to forcefully bump Inlands bus from behind, making it
hit the rear portion of a parked cargo truck; that the impact had resulted in considerable material
damage to the three vehicles; and that Paras and others had sustained various physical injuries.
Accordingly, the CA: (a) sustained the award of moral damages of P50,000.00 in favor of Paras
pursuant to Art. 2219 of the Civil Code based on quasi-delict committed by Philtranco and its
driver; (b) reduced the actual damages to be paid by Philtranco to Paras from P54,000.00 to
P1,397.95 because only the latter amount had been duly supported by receipts; (c) granted
temperate damages of P50,000.00 (in lieu of actual damages in view of the absence of
competent proof of actual damages for his hospitalization and therapy) to be paid by Philtranco
to Paras; and (d) awarded temperate damages of P250,000.00 under the same premise to be
paid by Philtranco to Inland for the material damage caused to Inlands bus.
Philtranco moved for reconsideration, but the CA denied its motion for reconsideration on January
21, 2004.
Issues
Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of
discretion amounting to lack of jurisdiction in awarding moral damages to Paras despite the fact
that the complaint had been anchored on breach of contract of carriage; and that the CA
committed a reversible error in substituting its own judgment by motu proprio awarding
temperate damages of P250,000.00 to Inland and P50,000.00 to Paras despite the clear fact that
temperate damages were not raised on appeal by Paras and Inland.
Ruling
The appeal lacks merit.
The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of
Philtranco and its driver being the direct cause of the physical injuries of Paras and the material
damage of Inland.
Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on
the liabilities of Philtranco and its driver.
1. Paras can recover moral damages in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages because his suit was based on
breach of contract of carriage, pursuant to which moral damages could be recovered only if he
had died, or if the common carrier had been guilty of fraud or bad faith. It argues that Paras had
suffered only physical injuries; that he had not adduced evidence of fraud or bad faith on the part
of the common carrier; and that, consequently, Paras could not recover moral damages directly
from it (Philtranco), considering that it was only being subrogated for Inland.
The Court cannot uphold the petitioners contention.
As a general rule, indeed, moral damages are not recoverable in an action predicated on a
breach of contract. This is because such action is not included in Art. 2219 of the Civil Code as
one of the actions in which moral damages may be recovered. By way of exception, moral
damages are recoverable in an action predicated on a breach of contract: (a) where the mishap
Page 14 of 37

results in the death of a passenger, as provided in Art. 1764, in relation to Art. 2206, (3), of the
Civil Code; and (b) where the common carrier has been guilty of fraud or bad faith, as provided in
Art. 2220 of the Civil Code.
Although this action does not fall under either of the exceptions, the award of moral damages to
Paras was nonetheless proper and valid. There is no question that Inland filed its third-party
complaint against Philtranco and its driver in order to establish in this action that they, instead of
Inland, should be directly liable to Paras for the physical injuries he had sustained because of
their negligence. To be precise, Philtranco and its driver were brought into the action on the
theory of liability that the proximate cause of the collision between Inlands bus and Philtrancos
bus had been "the negligent, reckless and imprudent manner defendant Apolinar Miralles drove
and operated his driven unit, the Philtranco Bus with Plate No. 259, owned and operated by thirdparty defendant Philtranco Service Enterprises, Inc." The apparent objective of Inland was not to
merely subrogate the third-party defendants for itself, as Philtranco appears to suggest, but,
rather, to obtain a different relief whereby the third-party defendants would be held directly, fully
and solely liable to Paras and Inland for whatever damages each had suffered from the
negligence committed by Philtranco and its driver. In other words, Philtranco and its driver were
charged here as joint tortfeasors who would be jointly and severally be liable to Paras and Inland.
Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was
correct. The device of the third-party action, also known as impleader, was in accord with Sec.
12, Rule 6 of the Revised Rules of Court, the rule then applicable, viz:
Sec. 12. Third-party complaint. A third-party complaint is a claim that a defending party
may, with leave of court, file against a person not a party to the action, called the thirdparty defendant, for contribution, indemnity, subrogation or any other relief, in respect of
his opponents claim.
Explaining the application of Sec. 12, Rule 6, supra, the Court said in Balbastro vs. Court of
Appeals, to wit:
Sec. 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a
lawsuit any person "not a party to the action . . . for contribution, indemnity, subrogation
or any other relief in respect of his opponent's claim." From its explicit language it does
not compel the defendant to bring the third-parties into the litigation, rather it simply
permits the inclusion of anyone who meets the standard set forth in the rule. The
secondary or derivative liability of the third-party is central whether the basis is
indemnity, subrogation, contribution, express or implied warranty or some other theory.
The impleader of new parties under this rule is proper only when a right to relief exists
under the applicable substantive law. This rule is merely a procedural mechanism, and
cannot be utilized unless there is some substantive basis under applicable law.
Apart from the requirement that the third-party complainant should assert a derivative or
secondary claim for relief from the third-party defendant there are other limitations on said
partys ability to implead. The rule requires that the third-party defendant is "not a party to the
action" for otherwise the proper procedure for asserting a claim against one who is already a
party to the suit is by means of counterclaim or cross-claim under Sec. 6 and 7 of Rule 6. In
addition to the aforecited requirement, the claim against the third-party defendant must be
based upon plaintiff's claim against the original defendant (third-party claimant). The crucial
characteristic of a claim under Sec. 12 of Rule 6, is that the original "defendant is attempting to
transfer to the third-party defendant the liability asserted against him by the original plaintiff."
Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded
must not yet be a party to the action; secondly, that the claim against the third-party defendant
Page 15 of 37

must belong to the original defendant; thirdly, the claim of the original defendant against the
third-party defendant must be based upon the plaintiffs claim against the original defendant;
and, fourthly, the defendant is attempting to transfer to the third-party defendant the liability
asserted against him by the original plaintiff.
As the foregoing indicates, the claim that the third-party complaint asserts against the thirdparty defendant must be predicated on substantive law. Here, the substantive law on which the
right of Inland to seek such other relief through its third-party complaint rested were Art. 2176
and Art. 2180 of the Civil Code, which read:
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. (1902a)
Article 2180. The obligation imposed by article 2176 is demandable not only for ones own
acts or omissions, but also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
xxx
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.
(1903a)
Paras cause of action against Inland (breach of contract of carriage) did not need to be the same
as the cause of action of Inland against Philtranco and its driver (tort or quasi-delict) in the
impleader. It is settled that a defendant in a contract action may join as third-party defendants
those who may be liable to him in tort for the plaintiffs claim against him, or even directly to the
plaintiff. Indeed, Prof. Wright, et al., commenting on the provision of the Federal Rules of
Procedure of the United States from which Sec. 12, supra, was derived, observed so, to wit:
The third-party claim need not be based on the same theory as the main claim. For
example, there are cases in which the third-party claim is based on an express indemnity
contract and the original complaint is framed in terms of negligence. Similarly, there need
not be any legal relationship between the third-party defendant and any of the other
parties to the action. Impleader also is proper even though the third partys liability is
contingent, and technically does not come into existence until the original defendants
liability has been established. In addition, the words is or may be liable in Rule 14(a)
make it clear that impleader is proper even though the third-party defendants liability is
not automatically established once the third-party plaintiffs liability to the original plaintiff
has been determined.
Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be
first declared and found liable to Paras for the breach of its contract of carriage with him. As the
Court has cogently discoursed in Samala vs. Judge Victor:
Appellants argue that since plaintiffs filed a complaint for damages against the defendants
on a breach of contract of carriage, they cannot recover from the third-party defendants
on a cause of action based on quasi-delict. The third party defendants, they allege, are
never parties liable with respect to plaintiff s claim although they are with respect to the
defendants for indemnification, subrogation, contribution or other reliefs. Consequently,
they are not directly liable to the plaintiffs. Their liability commences only when the
Page 16 of 37

defendants are adjudged liable and not when they are absolved from liability as in the
case at bar.
Quite apparent from these arguments is the misconception entertained by appellants with
respect to the nature and office of a third party complaint.
Sec. 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a "claim that a
defending party may, with leave of court, file against a person not a party to the action, called
the third-party defendant, for contribution, indemnification, subrogation, or any other relief, in
respect of his opponents claim." In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742
[1966], this Court had occasion to elucidate on the subjects covered by this Rule, thus:
... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F.
Supp. 177 (1943:)
From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like
the admiralty rule, covers two distinct subjects, the addition of parties defendant to the
main cause of action, and the bringing in of a third party for a defendants remedy over.
Xxx
If the third party complaint alleges facts showing a third partys direct liability to plaintiff
on the claim set out in plaintiffs petition, then third party shall make his defenses as
provided in Rule 12 and his counterclaims against plaintiff as provided in Rule 13. In the
case of alleged direct liability, no amendment (to the complaint) is necessary or required.
The subject-matter of the claim is contained in plaintiff's complaint, the ground of third
partys liability on that claim is alleged in third party complaint, and third partys defense
to set up in his answer to plaintiff's complaint. At that point and without amendment, the
plaintiff and third party are at issue as to their rights respecting the claim.
The provision in the rule that, The third-party defendant may assert any defense which the thirdparty plaintiff may assert to the plaintiffs claim, applies to the other subject, namely, the alleged
liability of third party defendant. The next sentence in the rule, The third-party defendant is
bound by the adjudication of the third party plaintiffs liability to the plaintiff, as well as of his own
to the plaintiff or to the third-party plaintiff applies to both subjects. If third party is brought in as
liable only to defendant and judgment is rendered adjudicating plaintiff's right to recover against
defendant and defendants rights to recover against third party, he is bound by both
adjudications.That part of the sentence refers to the second subject. If third party is brought in as
liable to plaintiff, then third party is bound by the adjudication as between him and plaintiff. That
refers to the first subject. If third party is brought in as liable to plaintiff and also over to
defendant, then third party is bound by both adjudications. xxx
Under this Rule, a person not a party to an action may be impleaded by the defendant either (a)
on an allegation of liability to the latter; (b) on the ground of direct liability to the plaintiff-; or, (c)
both (a) and (b). The situation in (a) is covered by the phrase "for contribution, indemnity or
subrogation;" while (b) and (c) are subsumed under the catch all "or any other relief, in respect
of his opponents claim."
The case at bar is one in which the third party defendants are brought into the action as directly
liable to the plaintiffs upon the allegation that "the primary and immediate cause as shown by
the police investigation of said vehicular collision between (sic) the above-mentioned three
vehicles was the recklessness and negligence and lack of imprudence (sic) of the third-party
defendant Virgilio (should be Leonardo) Esguerra y Ledesma then driver of the passenger bus."
The effects are that "plaintiff and third party are at issue as to their rights respecting the claim"
and "the third party is bound by the adjudication as between him and plaintiff." It is not
indispensable in the premises that the defendant be first adjudged liable to plaintiff before the
Page 17 of 37

third-party defendant may be held liable to the plaintiff, as precisely, the theory of defendant is
that it is the third party defendant, and not he, who is directly liable to plaintiff. The situation
contemplated by appellants would properly pertain to situation (a) above wherein the third party
defendant is being sued for contribution, indemnity or subrogation, or simply stated, for a
defendant's "remedy over".
It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite
his complaint being upon contractual breach, served the judicial policy of avoiding multiplicity of
suits and circuity of actions by disposing of the entire subject matter in a single litigation.
2. Award of temperate damages was in order
Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and
Inland had not raised the matter in the trial court and in their respective appeals; secondly, the
CA could not substitute the temperate damages granted to Paras if Paras could not properly
establish his actual damages despite evidence of his actual expenses being easily available to
him; and, thirdly, the CA gravely abused its discretion in granting motu proprio the temperate
damages of P250,000.00 to Inland although Inland had not claimed temperate damages in its
pleading or during trial and even on appeal.
The Court cannot side with Philtranco.
Actual damages, to be recoverable, must not only be capable of proof, but must actually be
proved with a reasonable degree of certainty. The reason is that the court "cannot simply rely on
speculation, conjecture or guesswork in determining the fact and amount of damages," but
"there must be competent proof of the actual amount of loss, credence can be given only to
claims which are duly supported by receipts."
The receipts formally submitted and offered by Paras were limited to the costs of medicines
purchased on various times in the period from February 1987 to July 1989 (Exhibits E to E-35,
inclusive) totaling only P1,397.95. The receipts by no means included hospital and medical
expenses, or the costs of at least two surgeries as well as rehabilitative therapy. Consequently,
the CA fixed actual damages only at that small sum of P1,397.95. On its part, Inland offered no
definite proof on the repairs done on its vehicle, or the extent of the material damage except the
testimony of its witness, Emerlinda Maravilla, to the effect that the bus had been damaged
beyond economic repair. The CA rejected Inlands showing of unrealized income worth
P3,945,858.50 for 30 months (based on alleged average weekly income of P239,143.02
multiplied by its guaranteed revenue amounting to 55% thereof, then spread over a period of 30
months, the equivalent to the remaining 40% of the vehicles un-depreciated or net book value),
finding such showing arbitrary, uncertain and speculative. As a result, the CA allowed no
compensation to Inland for unrealized income.
Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of
his actual expenses for the surgeries and rehabilitative therapy; and that Inland should not be
deprived of recourse to recover its loss of the economic value of its damaged vehicle. As the
records indicated, Paras was first rushed for emergency treatment to the San Pablo Medical
Center in San Pablo City, Laguna, and was later brought to the National Orthopedic Hospital in
Quezon City where he was diagnosed to have suffered a dislocated hip, fracture of the fibula on
the right leg, fracture of the small bone of the right leg, and closed fracture on the tibial plateau
of the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to repair the
fractures. Thus, the CA awarded to him temperate damages of P50,000.00 in the absence of
definite proof of his actual expenses towards that end. As to Inland, Maravillas testimony of the
bus having been damaged beyond economic repair showed a definitely substantial pecuniary
loss, for which the CA fixed temperate damages of P250,000.00. We cannot disturb the CAs
Page 18 of 37

determination, for we are in no position today to judge its reasonableness on account of the
lapse of a long time from when the accident occurred.
In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and
Inland were definitely shown to have sustained substantial pecuniary losses. It would really be a
travesty of justice were the CA now to be held bereft of the discretion to calculate moderate or
temperate damages, and thereby leave Paras and Inland without redress from the wrongful act of
Philtranco and its driver.
We are satisfied that the CA exerted effort and practiced great care to ensure that the causal link
between the physical injuries of Paras and the material loss of Inland, on the one hand, and the
negligence of Philtranco and its driver, on the other hand, existed in fact. It also rejected
arbitrary or speculative proof of loss. Clearly, the costs of Paras surgeries and consequential
rehabilitation, as well as the fact that repairing Inlands vehicle would no longer be economical
justly warranted the CA to calculate temperate damages of P50,000.00 and P250,000.00
respectively for Paras and Inland.
There is no question that Art. 2224 of the Civil Code expressly authorizes the courts to award
temperate damages despite the lack of certain proof of actual damages, to wit:
Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.
The rationale for Art. 2224 has been stated in Premiere Development Bank vs. Court of Appeals
in the following manner:
Even if not recoverable as compensatory damages, Panacor may still be awarded damages
in the concept of temperate or moderate damages. When the court finds that some
pecuniary loss has been suffered but the amount cannot, from the nature of the case, be
proved with certainty, temperate damages may be recovered. Temperate damages may
be allowed in cases where from the nature of the case, definite proof of pecuniary loss
cannot be adduced, although the court is convinced that the aggrieved party suffered
some pecuniary loss.
The Code Commission, in explaining the concept of temperate damages under Art. 2224, makes
the following comment:
In some States of the American Union, temperate damages are allowed. There are cases
where from the nature of the case, definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such loss. For instance, injury to ones
commercial credit or to the goodwill of a business firm is often hard to show with certainty
in terms of money. Should damages be denied for that reason? The judge should be
empowered to calculate moderate damages in such cases, rather than that the plaintiff
should suffer, without redress from the defendants wrongful act.
3. Paras loss of earning capacity must be compensated
In the body of its decision, the CA concluded that considering that Paras had a minimum monthly
income of P8,000.00 as a trader he was entitled to recover compensation for unearned income
during the 3-month period of his hospital confinement and the 6-month period of his recovery
and rehabilitation; and aggregated his unearned income for those periods to P72,000.00. Yet, the
CA omitted the unearned income from the dispositive portion.
Page 19 of 37

The omission should be rectified, for there was credible proof of Paras loss of income during his
disability. According to Article 2205, (1), of the Civil Code, damages may be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal injury. Indeed,
indemnification for damages comprehends not only the loss suffered (actual damages or
damnum emergens) but also the claimants lost profits (compensatory damages or lucrum
cessans). Even so, the formula that has gained acceptance over time has limited recovery to net
earning capacity; hence, the entire amount of P72,000.00 is not allowable. The premise is
obviously that net earning capacity is the persons capacity to acquire money, less the necessary
expense for his own living. To simplify the determination, therefore, the net earning capacity of
Paras during the 9-month period of his confinement, surgeries and consequential therapy is
pegged at only half of his unearned monthly gross income of P8,000.00 as a trader, or a total of
P36,000.00 for the 9-month period, the other half being treated as the necessary expense for his
own living in that period.
It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary
losses corresponding to Parass surgeries and rehabilitation and for the irreparability of Inlands
damaged bus) and the actual damages to compensate lost earnings and costs of medicines give
rise to no incompatibility. These damages cover distinct pecuniary losses suffered by Paras and
Inland, and do not infringe the statutory prohibition against recovering damages twice for the
same act or omission.
4. Increase in award of attorneys fees
Although it is a sound policy not to set a premium on the right to litigate, we consider the grant
to Paras and Inland of reasonable attorneys fees warranted. Their entitlement to attorneys fees
was by virtue of their having been compelled to litigate or to incur expenses to protect their
interests, as well as by virtue of the Court now further deeming attorneys fees to be just and
equitable.
In view of the lapse of a long time in the prosecution of the claim, the Court considers it
reasonable and proper to grant attorneys fees to each of Paras and Inland equivalent to 10% of
the total amounts hereby awarded to them, in lieu of only P20,000.00 for that purpose granted to
Paras.
5. Legal interest on the amounts awarded
Pursuant to Eastern Shipping Lines, Inc. vs. Court of Appeals, legal interest at the rate of 6% per
annum accrues on the amounts adjudged reckoned from July 18, 1997, the date when the RTC
rendered its judgment; and legal interest at the rate of 12% per annum shall be imposed from
the finality of the judgment until its full satisfaction, the interim period being regarded as the
equivalent of a forbearance of credit.
WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals
promulgated on September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC. and
APOLINAR MIRALLES to pay, jointly and severally, as follows:
1. To Felix Paras:
(a) P1,397.95, as reimbursement for the costs of medicines purchased between February 1987
and July 1989;
(b) P50,000.00 as temperate damages;
(c) P50,000.00 as moral damages;
(d) P36,000.00 for lost earnings;
(e) 10% of the total of items (a) to (d) hereof as attorneys fees; and
Page 20 of 37

(f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof until finality
of this decision, and 12% per annum thereafter until full payment.
2. To Inland Trailways, Inc.:
(a) P250,000.00 as temperate damages;
(b) 10% of item (a) hereof; and
(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this decision,
and 12% per annum thereafter until full payment.
3. The petitioner shall pay the costs of suit.
CARRIAGE OF GOODS BY SEA ACT
SECOND DIVISION
G.R. No. 168433
February 10, 2009
UCPB GENERAL INSURANCE CO., INC., vs.ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO
INTERMODAL SERVICES, INC., and PIMENTEL CUSTOMS BROKERAGE CO.,
DECISION
TINGA, J.:
UCPB General Insurance Co., Inc. (UCPB) assails the Decision of the Court of Appeals dated
October 29, 2004, which reversed the Decision dated November 29, 1999 of the Regional Trial
Court of Makati City, Branch 146, and its Resolution dated June 14, 2005, which denied UCPBs
motion for reconsideration.
The undisputed facts, culled from the assailed Decision, are as follows:
On June 18, 1991, three (3) units of waste water treatment plant with accessories were
purchased by San Miguel Corporation (SMC for brevity) from Super Max Engineering Enterprises,
Co., Ltd. of Taipei, Taiwan. The goods came from Charleston, U.S.A. and arrived at the port of
Manila on board MV "SCANDUTCH STAR". The same were then transported to Cebu on board MV
"ABOITIZ SUPERCON II". After its arrival at the port of Cebu and clearance from the Bureau of
Customs, the goods were delivered to and received by SMC at its plant site on August 2, 1991. It
was then discovered that one electrical motor of DBS Drive Unit Model DE-30-7 was damaged.
Pursuant to an insurance agreement, plaintiff-appellee paid SMC the amount of P1,703,381.40
representing the value of the damaged unit. In turn, SMC executed a Subrogation Form dated
March 31, 1992 in favor of plaintiff-appellee.
Consequently, plaintiff-appellee filed a Complaint on July 21, 1992 as subrogee of SMC seeking to
recover from defendants the amount it had paid SMC.
On September 20, 1994, plaintiff-appellee moved to admit its Amended Complaint whereby it
impleaded East Asiatic Co. Ltd. (EAST for brevity) as among the defendants for being the
"general agent" of DAMCO. In its Order dated September 23, 1994, the lower court admitted the
said amended complaint.
Upon plaintiff-appellees motion, defendant DAMCO was declared in default by the lower court in
its Order dated January 6, 1995.
In the meantime, on January 25, 1995, defendant EAST filed a Motion for Preliminary Hearing on
its affirmative defenses seeking the dismissal of the complaint against it on the ground of
prescription, which motion was however denied by the court a quo in its Order dated September
1, 1995. Such denial was elevated by defendant EAST to this Court through a Petition for
Certiorari on October 30, 1995 in CA G.R. SP No. 38840. Eventually, this Court issued its Decision
dated February 14, 1996 setting aside the lower courts assailed order of denial and further
Page 21 of 37

ordering the dismissal of the complaint against defendant EAST. Plaintiff-appellee moved for
reconsideration thereof but the same was denied by this Court in its Resolution dated November
8, 1996. As per Entry of Judgment, this Courts decision ordering the dismissal of the complaint
against defendant EAST became final and executory on December 5, 1996.
Accordingly, the court a quo noted the dismissal of the complaint against defendant EAST in its
Order dated December 5, 1997. Thus, trial ensued with respect to the remaining defendants.
On November 29, 1999, the lower court rendered its assailed Decision, the dispositive portion of
which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
declaring DAMCO Intermodal Systems, Inc., Eagle Express Lines, Inc. and defendant
Aboitiz Shipping solidarily liable to plaintiff-subrogee for the damaged shipment and orders
them to pay plaintiff jointly and severally the sum of P1,703,381.40.
No costs.
SO ORDERED.
Not convinced, defendants-appellants EAGLE and ABOITIZ now come to this Court through their
respective appeals x x x
The appellate court, as previously mentioned, reversed the decision of the trial court and ruled
that UCPBs right of action against respondents did not accrue because UCPB failed to file a
formal notice of claim within 24 hours from (SMCs) receipt of the damaged merchandise as
required under Art. 366 of the Code of Commerce. According to the Court of Appeals, the filing of
a claim within the time limitation in Art. 366 is a condition precedent to the accrual of a right of
action against the carrier for the damages caused to the merchandise.
In its Memorandum dated February 8, 2007, UCPB asserts that the claim requirement under Art.
366 of the Code of Commerce does not apply to this case because the damage to the
merchandise had already been known to the carrier. Interestingly, UCPB makes this revelation: "x
x x damage to the cargo was found upon discharge from the foreign carrier onto the International
Container Terminal Services, Inc. (ICTSI) in the presence of the carriers representative who
signed the Request for Bad Order Survey and the Turn Over of Bad Order Cargoes. On
transshipment, the cargo was already damaged when loaded on board the inter-island carrier."
This knowledge, UCPB argues, dispenses with the need to give the carrier a formal notice of
claim. Incidentally, the carriers representative mentioned by UCPB as present at the time the
merchandise was unloaded was in fact a representative of respondent Eagle Express Lines (Eagle
Express).
UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be
given if the condition of the cargo has been the subject of joint inspection such as, in this case,
the inspection in the presence of the Eagle Express representative at the time the cargo was
opened at the ICTSI.
UCPB further claims that the issue of the applicability of Art. 366 of the Code of Commerce was
never raised before the trial court and should, therefore, not have been considered by the Court
of Appeals.
Eagle Express, in its Memorandum dated February 7, 2007, asserts that it cannot be held liable
for the damage to the merchandise as it acted merely as a freight forwarders agent in the
transaction. It allegedly facilitated the transshipment of the cargo from Manila to Cebu but
represented the interest of the cargo owner, and not the carriers. The only reason why the name
Page 22 of 37

of the Eagle Express representative appeared on the Permit to Deliver Imported Goods was that
the form did not have a space for the freight forwarders agent, but only for the agent of the
shipping line. Moreover, UCPB had previously judicially admitted that upon verification from the
Bureau of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding whom the original
complaint was dismissed on the ground of prescription, which was the real agent of DAMCO
Intermodal Services, Inc. (DAMCO), the ship owner.
Eagle Express argues that the applicability of Art. 366 of the Code of Commerce was properly
raised as an issue before the trial court as it mentioned this issue as a defense in its Answer to
UCPBs Amended Complaint. Hence, UCPBs contention that the question was raised for the first
time on appeal is incorrect.
Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out, in its Memorandum dated
March 29, 2007, that it obviously cannot be held liable for the damage to the cargo which, by
UCPBs admission, was incurred not during transshipment to Cebu on board one of Aboitizs
vessels, but was already existent at the time of unloading in Manila. Aboitiz also argues that Art.
366 of the Code of Commerce is applicable and serves as a condition precedent to the accrual of
UCPBs cause of action against it.
The Memorandum11 dated June 3, 2008, filed by Pimentel Customs Brokerage Co. (Pimentel
Customs), is also a reiteration of the applicability of Art. 366 of the Code of Commerce.
It should be stated at the outset that the issue of whether a claim should have been made by
SMC, or UCPB as SMCs subrogee, within the 24-hour period prescribed by Art. 366 of the Code of
Commerce was squarely raised before the trial court.
In its Answer to Amended Complaint dated May 10, 1993, Eagle Express averred, thus:
The amended complaint states no cause of action under the provisions of the Code of Commerce
and the terms of the bill of lading; consignee made no claim against herein defendant within
twenty four (24) hours following the receipt of the alleged cargo regarding the condition in which
said cargo was delivered; however, assuming arguendo that the damage or loss, if any, could not
be ascertained from the outside part of the shipment, consignee never made any claim against
herein defendant at the time of receipt of said cargo; herein defendant learned of the alleged
claim only upon receipt of the complaint.
Likewise, in its Answer dated September 21, 1992, Aboitiz raised the defense that UCPB did not
file a claim with it and that the complaint states no cause of action.
UCPB obviously made a gross misrepresentation to the Court when it claimed that the issue
regarding the applicability of the Code of Commerce, particularly the 24-hour formal claim rule,
was not raised as an issue before the trial court. The appellate court, therefore, correctly looked
into the validity of the arguments raised by Eagle Express, Aboitiz and Pimentel Customs on this
point after the trial court had so ill-advisedly centered its decision merely on the matter of
extraordinary diligence.
Interestingly enough, UCPB itself has revealed that when the shipment was discharged and
opened at the ICTSI in Manila in the presence of an Eagle Express representative, the cargo had
already been found damaged. In fact, a request for bad order survey was then made and a
turnover survey of bad order cargoes was issued, pursuant to the procedure in the discharge of
bad order cargo. The shipment was then repacked and transshipped from Manila to Cebu on
board MV Aboitiz Supercon II. When the cargo was finally received by SMC at its Mandaue City
warehouse, it was found in bad order, thereby confirming the damage already uncovered in
Manila.
Page 23 of 37

In charging Aboitiz with liability for the damaged cargo, the trial court condoned UCPBs wrongful
suit against Aboitiz to whom the damage could not have been attributable since there was no
evidence presented that the cargo was further damaged during its transshipment to Cebu. Even
by the exercise of extraordinary diligence, Aboitiz could not have undone the damage to the
cargo that had already been there when the same was shipped on board its vessel.
That said, it is nonetheless necessary to ascertain whether any of the remaining parties may still
be held liable by UCPB. The provisions of the Code of Commerce, which apply to overland, river
and maritime transportation, come into play.
Art. 366 of the Code of Commerce states:
Art. 366. Within twenty-four hours following the receipt of the merchandise, the claim
against the carrier for damage or average which may be found therein upon opening the
packages, may be made, provided that the indications of the damage or average which
gives rise to the claim cannot be ascertained from the outside part of such packages, in
which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid,
no claim shall be admitted against the carrier with regard to the condition in which the
goods transported were delivered.
The law clearly requires that the claim for damage or average must be made within 24 hours
from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from
the outside packaging of the cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation, petitioner, as
subrogee of Plastic Group Phil., Inc. (PGP), filed suit against respondent therein for the damage
found on a shipment of chemicals loaded on board respondents barge. Respondent claimed that
no timely notice in accordance with Art. 366 of the Code of Commerce was made by petitioner
because an employee of PGP merely made a phone call to respondents Vice President, informing
the latter of the contamination of the cargo. The Court ruled that the notice of claim was not
timely made or relayed to respondent in accordance with Art. 366 of the Code of Commerce.
The requirement to give notice of loss or damage to the goods is not an empty formalism. The
fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability,
but reasonably to inform it that the shipment has been damaged and that it is charged with
liability therefor, and to give it an opportunity to examine the nature and extent of the injury.
This protects the carrier by affording it an opportunity to make an investigation of a claim while
the matter is still fresh and easily investigated so as to safeguard itself from false and fraudulent
claims.
We have construed the 24-hour claim requirement as a condition precedent to the accrual of a
right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee
must allege and prove the fulfillment of the condition. Otherwise, no right of action against the
carrier can accrue in favor of the former.
The shipment in this case was received by SMC on August 2, 1991. However, as found by the
Court of Appeals, the claims were dated October 30, 1991, more than three (3) months from
receipt of the shipment and, at that, even after the extent of the loss had already been
determined by SMCs surveyor. The claim was, therefore, clearly filed beyond the 24-hour time
frame prescribed by Art. 366 of the Code of Commerce.
But what of the damage already discovered in the presence of Eagle Expresss representative at
the time the shipment was discharged in Manila? The Request for Bad Order Survey and Turn
Page 24 of 37

Over Survey of Bad Order Cargoes, respectively dated June 17, 1999 and June 28, 1991, evince
the fact that the damage to the cargo was already made known to Eagle Express and, possibly,
SMC, as of those dates.
Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of Commerce but
prescribes a period of three (3) days within which notice of claim must be given if the loss or
damage is not apparent. It states:
Sec. 3(6). Unless notice of loss or damage and the general nature of such loss or damage
be given in writing to the carrier or his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the
carrier of the goods as descibed in the bill of lading. If the loss or damage is not apparent,
the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt of the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
UCPB seizes upon the last paragraph which dispenses with the written notice if the state of the
goods has been the subject of a joint survey which, in this case, was the opening of the shipment
in the presence of an Eagle Express representative. It should be noted at this point that the
applicability of the above-quoted provision of the COGSA was not raised as an issue by UCPB
before the trial court and was only cited by UCPB in its Memorandum in this case.
UCPB, however, is ambivalent as to which party Eagle Express represented in the transaction. By
its own manifestation, East Asiatic, and not Eagle Express, acted as the agent through which
summons
and court notices may be served on DAMCO. It would be unjust to hold that Eagle Expresss
knowledge of the damage to the cargo is such that it served to preclude or dispense with the 24hour notice to the carrier required by Art. 366 of the Code of Commerce. Neither did the
inspection of the cargo in which Eagle Expresss representative had participated lead to the
waiver of the written notice under the Sec. 3(6) of the COGSA. Eagle Express, after all, had acted
as the agent of the freight consolidator, not that of the carrier to whom the notice should have
been made.
At any rate, the notion that the request for bad order survey and turn over survey of bad cargoes
signed by Eagle Expresss representative is construable as compliant with the notice requirement
under Art. 366 of the Code of Commerce was foreclosed by the dismissal of the complaint
against DAMCOs representative, East Asiatic.
As regards respondent Pimentel Customs, it is sufficient to acknowledge that it had no
participation in the physical handling, loading and delivery of the damaged cargo and should,
therefore, be absolved of liability.
Finally, UCPBs misrepresentation that the applicability of the Code of Commerce was not raised
as an issue before the trial court warrants the assessment of double costs of suit against it.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
68168, dated October 29, 2004 and its Resolution dated June 14, 2005 are AFFIRMED. Double
costs against petitioner.
SO ORDERED.
Page 25 of 37

PUBLIC SERVICE
FIRST DIVISION
G.R. No. 165881
April 19, 2006
OSCAR VILLAMARIA, JR. vs. COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court
assailing the Decision and Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which
set aside the Resolution of the National Labor Relations Commission (NLRC) in NCR-30-08-0324700, which in turn affirmed the Decision of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged
in assembling passenger jeepneys with a public utility franchise to operate along the BaclaranSucat route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of
which he operated by employing drivers on a "boundary basis." One of those drivers was
respondent Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted
P450.00 a day to Villamaria as boundary and kept the residue of his daily earnings as
compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the
jeepney to Bustamante under the "boundary-hulog scheme," where Bustamante would remit to
Villarama P550.00 a day for a period of four years; Bustamante would then become the owner of
the vehicle and continue to drive the same under Villamarias franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.
On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan
sa Pamamagitan ng Boundary-Hulog" over the passenger jeepney with Plate No. PVU-660,
Chassis No. EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante
failed to pay the boundary-hulog for three days, Villamaria Motors would hold on to the vehicle
until Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed
to remit the daily boundary-hulog for a period of one week, the Kasunduan would cease to have
legal effect and Bustamante would have to return the vehicle to Villamaria Motors.
Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior
authority from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to
transport passengers only and not for other purposes. He was also required to display an
identification card in front of the windshield of the vehicle; in case of failure to do so, any fine
that may be imposed by government authorities would be charged against his account.
Bustamante further obliged himself to pay for the cost of replacing any parts of the vehicle that
would be lost or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing repairs. Bustamante was
not allowed to wear slippers, short pants or undershirts while driving. He was required to be
polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in
case the vehicle was leased for two or more days and was required to attend any meetings which
may be called from time to time. Aside from the boundary-hulog, Bustamante was also obliged to
pay for the annual registration fees of the vehicle and the premium for the vehicles
comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations
imposed by Villamaria for the upkeep and maintenance of the jeepney.
Bustamante continued driving the jeepney under the supervision and control of Villamaria. As
agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the
vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria
allowed him to continue driving the jeepney.
Page 26 of 37

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria
Motors failed to pay their respective boundary-hulog. This prompted Villamaria to serve a
"Paalala," reminding them that under the Kasunduan, failure to pay the daily boundary-hulog for
one week, would mean their respective jeepneys would be returned to him without any
complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation.
On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter
from driving the vehicle.
On August 15, 2000, Bustamante filed a Complaint for Illegal Dismissal against Villamaria and his
wife Teresita. In his Position Paper, Bustamante alleged that he was employed by Villamaria in
July 1996 under the boundary system, where he was required to remit P450.00 a day. After one
year of continuously working for them, the spouses Villamaria presented the Kasunduan for his
signature, with the assurance that he (Bustamante) would own the jeepney by March 2001 after
paying P550.00 in daily installments and that he would thereafter continue driving the vehicle
along the same route under the same franchise. He further narrated that in July 2000, he
informed the Villamaria spouses that the surplus engine of the jeepney needed to be replaced,
and was assured that it would be done. However, he was later arrested and his drivers license
was confiscated because apparently, the replacement engine that was installed was taken from a
stolen vehicle. Due to negotiations with the apprehending authorities, the jeepney was not
impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he was no
longer allowed to drive the vehicle since then unless he paid them P70,000.00.
Bustamante prayed that judgment be rendered in his favor, thus:
WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be
rendered ordering the respondents, jointly and severally, the following:
1. Reinstate complainant to his former position without loss of seniority rights and execute
a Deed of Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660;
2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other
benefits computed from July 24, 2000 up to the time of his actual reinstatement;
3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the
expenses incurred by the complainant in the repair and maintenance of the subject jeep;
4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per
day counted from August 7, 1997 up to June 2000 or a total of P91,200.00;
5. To pay moral and exemplary damages of not less than P200,000.00;
6. Attorneys fee[s] of not less than 10% of the monetary award.
Other just and equitable reliefs under the premises are also being prayed for.
In their Position Paper, the spouses Villamaria admitted the existence of the Kasunduan, but
alleged that Bustamante failed to pay the P10,000.00 downpayment and the vehicles annual
registration fees. They further alleged that Bustamante eventually failed to remit the requisite
boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of
complying with his obligations, Bustamante stopped making his remittances despite his daily
trips and even brought the jeepney to the province without permission. Worse, the jeepney
figured in an accident and its license plate was confiscated; Bustamante even abandoned the
vehicle in a gasoline station in Sucat, Paraaque City for two weeks. When the security guard at
the gasoline station requested that the vehicle be retrieved and Teresita Villamaria asked
Bustamante for the keys, Bustamante told her: "Di kunin ninyo." When the vehicle was finally
retrieved, the tires were worn, the alternator was gone, and the battery was no longer working.
Citing the cases of Cathedral School of Technology v. NLRC and Canlubang Security Agency
Corporation v. NLRC, the spouses Villamaria argued that Bustamante was not illegally dismissed
Page 27 of 37

since the Kasunduan executed on August 7, 1997 transformed the employer-employee

relationship into that of vendor-vendee. Hence, the spouses concluded, there was no legal basis
to hold them liable for illegal dismissal. They prayed that the case be dismissed for lack of
jurisdiction and patent lack of merit.
In his Reply, Bustamante claimed that Villamaria exercised control and supervision over the
conduct of his employment. He maintained that the rulings of the Court in National Labor Union
vs. Dinglasan, Magboo vs. Bernardo, and Citizen's League of Free Workers vs. Abbas are
germane to the issue as they define the nature of the owner/operator-driver relationship under
the boundary system. He further reiterated that it was the Villamaria spouses who presented the
Kasunduan to him and that he conformed thereto only upon their representation that he would
own the vehicle after four years. Moreover, it appeared that the Paalala was duly received by
him, as he, together with other drivers, was made to affix his signature on a blank piece of paper
purporting to be an "attendance sheet."
On March 15, 2002, the Labor Arbiter rendered judgment in favor of the spouses Villamaria and
ordered the complaint dismissed on the following ratiocination:
Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove
their claim that complainant violated the terms of their contract and afterwards
abandoned the vehicle assigned to him. As against the foregoing, [the] complaints (sic)
mere allegations to the contrary cannot prevail.
Not having been illegally dismissed, complainant is not entitled to damages and attorney's
fees.
Bustamante appealed the decision to the NLRC, insisting that the Kasunduan did not extinguish
the employer-employee relationship between him and Villamaria. While he did not receive fixed
wages, he kept only the excess of the boundary-hulog which he was required to remit daily to
Villamaria under the agreement. Bustamante maintained that he remained an employee because
he was engaged to perform activities which were necessary or desirable to Villamarias trade or
business.
The NLRC rendered judgment dismissing the appeal for lack of merit, thus:
WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons
not stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being
none over the subject matter of the controversy.
The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and
Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the
complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on
May 30, 2003.
Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred
I.
II.

IN DISMISSING PETITIONERS APPEAL "FOR REASON NOT STATED IN THE LABOR

ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED
THAT THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE
PRIVATE RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE
MANTLE OF OUR LABOR LAWS.

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria
continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over
his complaint. He further alleged that it is common knowledge that operators of passenger
Page 28 of 37

jeepneys (including taxis) pay their drivers not on a regular monthly basis but on commission or
boundary basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed
from employment without any lawful or just cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of their employeremployee relationship. He further pointed out that the Dinglasan case pertains to the boundary
system and not the boundary-hulog system, hence inapplicable in the instant case. He argued
that upon the execution of the Kasunduan, the juridical tie between him and Bustamante was
transformed into a vendor-vendee relationship. Noting that he was engaged in the manufacture
and sale of jeepneys and not in the business of transporting passengers for consideration,
Villamaria contended that the daily fees which Bustmante paid were actually periodic
installments for the the vehicle and were not the same fees as understood in the boundary
system. He added that the boundary-hulog plan was basically a scheme to help the driver-buyer
earn money and eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further
asserted that the apparently restrictive conditions in the Kasunduan did not mean that the
means and method of driver-buyers conduct was controlled, but were mere ways to preserve the
vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase
price, while Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain conditions on the
buyer should be respected until full ownership of the property is vested on the latter. Villamaria
insisted that the parallel circumstances obtaining in Singer Sewing Machine Company vs. Drilon
has analogous application to the instant issue.
In its Decision dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo
of the decision reads:
UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must
be, as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of
petitioner:
1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
separation pay computed from the time of his employment up to the time of termination
based on the prevailing minimum wage at the time of termination; and,
2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
back wages computed from the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.
Without Costs.
SO ORDERED.
The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes complaint.
Under the Kasunduan, the relationship between him and Villamaria was dual: that of vendorvendee and employer-employee. The CA ratiocinated that Villamarias exercise of control over
Bustamantes conduct in operating the jeepney is inconsistent with the formers claim that he
was not engaged in the transportation business. There was no evidence that petitioner was
allowed to let some other person drive the jeepney.
The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did
not mean that Villamaria could not exercise it. It explained that the existence of an employment
relationship did not depend on how the worker was paid but on the presence or absence of
control over the means and method of the employees work. In this case, Villamarias directives
(to drive carefully, wear an identification card, don decent attire, park the vehicle in his garage,
and to inform him about provincial trips, etc.) was a means to control the way in which
Bustamante was to go about his work. In view of Villamarias supervision and control as
employer, the fact that the "boundary" represented installment payments of the purchase price
on the jeepney did not remove the parties employer-employee relationship.
Page 29 of 37

While the appellate court recognized that a weeks default in paying the boundary-hulog
constituted an additional cause for terminating Bustamantes employment, it held that the latter
was illegally dismissed. According to the CA, assuming that Bustamante failed to make the
required payments as claimed by Villamaria, the latter nevertheless failed to take steps to
recover the unit and waited for Bustamante to abandon it. It also pointed out that Villamaria
neither submitted any police report to support his claim that the vehicle figured in a mishap nor
presented the affidavit of the gas station guard to substantiate the claim that Bustamante
abandoned the unit.
Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17,
2004, a motion for reconsideration thereof. The CA denied the motion in a Resolution dated
November 2, 2004, and Villamaria received a copy thereof on November 8, 2004.
Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under
Rule 65 of the Rules of Court, alleging that the CA committed grave abuse of its discretion
amounting to excess or lack of jurisdiction in reversing the decision of the Labor Arbiter and the
NLRC. He claims that the CA erred in ruling that the juridical relationship between him and
respondent under the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan clearly state that he and respondent
Bustamante had entered into a conditional deed of sale over the jeepney; as such, their
employer-employee relationship had been transformed into that of vendor-vendee. Petitioner
insists that he had the right to reserve his title on the jeepney until after the purchase price
thereof had been paid in full.
In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was
an appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a
special civil action of certiorari under Rule 65. He argues that petitioner failed to establish that
the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in its
decision, as the said ruling is in accord with law and the evidence on record.
Respondent further asserts that the Kasunduan presented to him by petitioner which provides for
a boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines.
Respondent insists that his juridical relationship with petitioner is that of employer-employee
because he was engaged to perform activities which were necessary or desirable in the usual
business of petitioner, his employer.
In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his
favor; hence, it behooves the Court to resolve the merits of his petition.
We agree with respondents contention that the remedy of petitioner from the CA decision was to
file a petition for review on certiorari under Rule 45 of the Rules of Court and not the independent
action of certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution
denying his motion for the reconsideration within which to file the petition under Rule 45. But
instead of doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which
did not, however, suspend the running of the 15-day reglementary period; consequently, the CA
decision became final and executory upon the lapse of the reglementary period for appeal. Thus,
on this procedural lapse, the instant petition stands to be dismissed.
It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court
is proscribed by the remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio
Memorial College, Inc. vs. Court of Appeals:

Page 30 of 37

We agree that the remedy of the aggrieved party from a decision or final resolution of the
CA is to file a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, on questions of facts or issues of law within fifteen days from notice of the said
resolution. Otherwise, the decision of the CA shall become final and executory. The remedy
under Rule 45 of the Rules of Court is a mode of appeal to this Court from the decision of
the CA. It is a continuation of the appellate process over the original case. A review is not a
matter of right but is a matter of judicial discretion. The aggrieved party may, however,
assail the decision of the CA via a petition for certiorari under Rule 65 of the Rules of Court
within sixty days from notice of the decision of the CA or its resolution denying the motion
for reconsideration of the same. This is based on the premise that in issuing the assailed
decision and resolution, the CA acted with grave abuse of discretion, amounting to excess
or lack of jurisdiction and there is no plain, speedy and adequate remedy in the ordinary
course of law. A remedy is considered plain, speedy and adequate if it will promptly relieve
the petitioner from the injurious effect of the judgment and the acts of the lower court.
The aggrieved party is proscribed from filing a petition for certiorari if appeal is available,
for the remedies of appeal and certiorari are mutually exclusive and not alternative or
successive. The aggrieved party is, likewise, barred from filing a petition for certiorari if the
remedy of appeal is lost through his negligence. A petition for certiorari is an original
action and does not interrupt the course of the principal case unless a temporary
restraining order or a writ of preliminary injunction has been issued against the public
respondent from further proceeding. A petition for certiorari must be based on
jurisdictional grounds because, as long as the respondent court acted within its
jurisdiction, any error committed by it will amount to nothing more than an error of
judgment which may be corrected or reviewed only by appeal.
However, we have also ruled that a petition for certiorari under Rule 65 may be considered as
filed under Rule 45, conformably with the principle that rules of procedure are to be construed
liberally, provided that the petition is filed within the reglementary period under Section 2, Rule
45 of the Rules of Court, and where valid and compelling circumstances warrant that the petition
be resolved on its merits. In this case, the petition was filed within the reglementary period and
petitioner has raised an issue of substance: whether the existence of a boundary-hulog
agreement negates the employer-employee relationship between the vendor and vendee, and,
as a corollary, whether the Labor Arbiter has jurisdiction over a complaint for illegal dismissal in
such case.
We resolve these issues in the affirmative.
The rule is that, the nature of an action and the subject matter thereof, as well as, which court or
agency of the government has jurisdiction over the same, are determined by the material
allegations of the complaint in relation to the law involved and the character of the reliefs prayed
for, whether or not the complainant/plaintiff is entitled to any or all of such reliefs. A prayer or
demand for relief is not part of the petition of the cause of action; nor does it enlarge the cause
of action stated or change the legal effect of what is alleged. In determining which body has
jurisdiction over a case, the better policy is to consider not only the status or relationship of the
parties but also the nature of the action that is the subject of their controversy.
Art. 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction
only over the following:
x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have
original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision without extension, even in the
Page 31 of 37

absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wage, rates of pay, hours of work, and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
5. Cases arising from violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relationship, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by
Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining
agreements, and those arising from the interpretation or enforcement of company
personnel policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided in said agreements.
In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional
requisite. The jurisdiction of Labor Arbiters and the NLRC under Art. 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship which can only be resolved
by reference to the Labor Code, other labor statutes or their collective bargaining agreement.
Not every dispute between an employer and employee involves matters that only the Labor
Arbiter and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers.
Actions between employers and employees where the employer-employee relationship is merely
incidental is within the exclusive original jurisdiction of the regular courts.When the principal
relief is to be granted under labor legislation or a collective bargaining agreement, the case falls
within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a claim for
damages might be asserted as an incident to such claim.
We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employeremployee relationship of the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union vs. Dinglasan that the jeepney
owner/operator-driver relationship under the boundary system is that of employer-employee and
not lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo vs.
Bernardo and Lantaco, Sr. vs. Llamas, and was analogously applied to govern the relationships
between auto-calesa owner/operator and driver, bus owner/operator and conductor, and taxi
owner/operator and driver.
The boundary system is a scheme by an owner/operator engaged in transporting passengers as
a common carrier to primarily govern the compensation of the driver, that is, the latters daily
earnings are remitted to the owner/operator less the excess of the boundary which represents
the drivers compensation. Under this system, the owner/operator exercises control and
supervision over the driver. It is unlike in lease of chattels where the lessor loses complete
control over the chattel leased but the lessee is still ultimately responsible for the consequences
Page 32 of 37

of its use. The management of the business is still in the hands of the owner/operator, who,
being the holder of the certificate of public convenience, must see to it that the driver follows the
route prescribed by the franchising and regulatory authority, and the rules promulgated with
regard to the business operations. The fact that the driver does not receive fixed wages but only
the excess of the "boundary" given to the owner/operator is not sufficient to change the
relationship between them. Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the owner/operator.
Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondents partial payment (hulog) of
the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the
daily remittances also had a dual purpose: that of petitioners boundary and respondents partial
payment (hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The
well-settled rule is that an obligation is not novated by an instrument that expressly recognizes
the old one, changes only the terms of payment, and adds other obligations not incompatible
with the old provisions or where the new contract merely supplements the previous one. The two
obligations of the respondent to remit to petitioner the boundary-hulog can stand together.
In resolving an issue based on contract, this Court must first examine the contract itself, keeping
in mind that when the terms of the agreement are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations shall prevail. The intention of the
contracting parties should be ascertained by looking at the words used to project their intention,
that is, all the words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. 49 The parts and clauses must be
interpreted in relation to one another to give effect to the whole. The legal effect of a contract is
to be determined from the whole read together.
Under the Kasunduan, petitioner retained supervision and control over the conduct of the
respondent as driver of the jeepney, thus:

1.
2.

3.

4.
5.

6.

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang
mga sumusunod:
Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan
ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.
Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa
paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na
pamamaraan.
Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga
bagay na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG
PANIG.
Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.
Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap
ng windshield upang sa pamamagitan nito ay madaliang malaman kung ang
nagmamaneho ay awtorisado ng VILLAMARIA MOTORS o hindi.
Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling
mahuli ang sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman
kasalanan o kapabayaan.

Page 33 of 37

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan

ng nasira o nawala ito dahil sa kanyang kapabayaan.
8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan.
9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG
UNANG PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa
VILLAMARIA MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.
10.Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na
ang nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang
nagmamaneho ay laging nasa maayos ang kasuotan upang igalang ng mga pasahero.
11.Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng
magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali
man may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring
kasangkutan.
12.Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG
PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may
karapatang mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng
P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.
13.Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG
sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG.
14.Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive
insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa
TAUHAN NG UNANG PANIG.
15.Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang
pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito
upang maipaabot ang anumang mungkahi sa ikasusulong ng samahan.
16.Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na
magkakaroon ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging
hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at
ikakatibay ng Samahan.
17.Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi
kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.
18.Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga
bago pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.
19.Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang
araw sa lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS
upang maiwasan ang mga anumang suliranin.
20.Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang
sasakyan upang maiwasan ang aksidente.
21.Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA
MOTORS mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na
iparating ito kung [kani-kanino] lamang upang maiwasan ang anumang usapin. Magsadya
agad sa opisina ng VILLAMARIA MOTORS.
Page 34 of 37

22.

Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at
buong sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan at gagamitin lamang ito sa paghahanapbuhay at wala nang iba pa.

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into
a contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and
that petitioner would thereafter become its owner. A contract is one of conditional sale,
oftentimes referred to as contract to sell, if the ownership or title over the property sold is
retained by the vendor, and is not passed to the vendee unless and until there is full payment of
the purchase price and/or upon faithful compliance with the other terms and conditions that may
lawfully be stipulated. Such payment or satisfaction of other preconditions, as the case may be,
is a positive suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to convey title from
acquiring binding force. Stated differently, the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event so
that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. The vendor may extrajudicially terminate the operation of the
contract, refuse conveyance, and retain the sums or installments already received, where such
rights are expressly provided for.
Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its
material possession was vested in respondent as its driver. In case respondent failed to make his
P550.00 daily installment payment for a week, the agreement would be of no force and effect
and respondent would have to return the jeepney to petitioner; the employer-employee
relationship would likewise be terminated unless petitioner would allow respondent to continue
driving the jeepney on a boundary basis of P550.00 daily despite the termination of their vendorvendee relationship.
The juridical relationship of employer-employee between petitioner and respondent was not
negated by the foregoing stipulation in the Kasunduan, considering that petitioner retained
control of respondents conduct as driver of the vehicle. As correctly ruled by the CA:
The exercise of control by private respondent over petitioners conduct in operating the jeepney
he was driving is inconsistent with private respondents claim that he is, or was, not engaged in
the transportation business; that, even if petitioner was allowed to let some other person drive
the unit, it was not shown that he did so; that the existence of an employment relation is not
dependent on how the worker is paid but on the presence or absence of control over the means
and method of the work; that the amount earned in excess of the "boundary hulog" is equivalent
to wages; and that the fact that the power of dismissal was not mentioned in the Kasunduan did
not mean that private respondent never exercised such power, or could not exercise such power.
Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification
card, or to don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform
Villamaria Motors about the fact that the unit would be going out to the province for two days of
more, or to drive the unit carefully, etc. necessarily related to control over the means by which
the petitioner was to go about his work; that the ruling applicable here is not Singer Sewing
Machine but National Labor Union since the latter case involved jeepney owners/operators and
jeepney drivers, and that the fact that the "boundary" here represented installment payment of
the purchase price on the jeepney did not withdraw the relationship from that of employeremployee, in view of the overt presence of supervision and control by the employer.
Neither is such juridical relationship negated by petitioners claim that the terms and conditions
in the Kasunduan relative to respondents behavior and deportment as driver was for his and
respondents benefit: to insure that respondent would be able to pay the requisite daily
Page 35 of 37

installment of P550.00, and that the vehicle would still be in good condition despite the lapse of
four years. What is primordial is that petitioner retained control over the conduct of the
respondent as driver of the jeepney.
Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to
exercise supervision and control over the respondent, by seeing to it that the route provided in
his franchise, and the rules and regulations of the Land Transportation Regulatory Board are duly
complied with. Moreover, in a business establishment, an identification card is usually provided
not just as a security measure but to mainly identify the holder thereof as a bona fide employee
of the firm who issues it.
As respondents employer, it was the burden of petitioner to prove that respondents termination
from employment was for a lawful or just cause, or, at the very least, that respondent failed to
make his daily remittances of P550.00 as boundary. However, petitioner failed to do so. As
correctly ruled by the appellate court:
It is basic of course that termination of employment must be effected in accordance with
law. The just and authorized causes for termination of employment are enumerated under
Articles 282, 283 and 284 of the Labor Code.
Parenthetically, given the peculiarity of the situation of the parties here, the default in the
remittance of the boundary hulog for one week or longer may be considered an additional cause
for termination of employment. The reason is because the Kasunduan would be of no force and
effect in the event that the purchaser failed to remit the boundary hulog for one week. The
Kasunduan in this case pertinently stipulates (SEE NO. 13 supra).
Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal
of an employee is for a just cause. The failure of the employer to discharge this burden means
that the dismissal is not justified and that the employee is entitled to reinstatement and back
wages.
In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged
that petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of
the unit; that petitioner also stopped remitting the "boundary hulog," prompting him (private
respondent) to issue a "Paalala," which petitioner however ignored; that petitioner even brought
the unit to his (petitioners) province without informing him (private respondent) about it; and
that petitioner eventually abandoned the vehicle at a gasoline station after figuring in an
accident. But private respondent failed to substantiate these allegations with solid, sufficient
proof. Notably, private respondents allegation viz, that he retrieved the vehicle from the gas
station, where petitioner abandoned it, contradicted his statement in the Paalala that he would
enforce the provision (in the Kasunduan) to the effect that default in the remittance of the
boundary hulog for one week would result in the forfeiture of the unit. The Paalala reads as
follows:
"Sa lahat ng mga kumukuha ng sasakyan
"Sa pamamagitan ng BOUNDARY HULOG
"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang
paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob
ng isang linggo ay kusa ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan
ng wala ng paghahabol pa.

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"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad

ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat na tuparin natin ang
nakalagay sa kasunduan upang maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo
makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na
hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang hindi
ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso. "Sumasainyo
"Attendance: 8/27/99
"(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR."
If it were true that petitioner did not remit the boundary hulog for one week or more, why did
private respondent not forthwith take steps to recover the unit, and why did he have to wait for
petitioner to abandon it?
On another point, private respondent did not submit any police report to support his claim that
petitioner really figured in a vehicular mishap. Neither did he present the affidavit of the guard
from the gas station to substantiate his claim that petitioner abandoned the unit there.
Petitioners claim that he opted not to terminate the employment of respondent because of
magnanimity is negated by his (petitioners) own evidence that he took the jeepney from the
respondent only on July 24, 2000.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in
CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.
SO ORDERED.

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