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1. G.R. No.

95582 October 7, 1991


DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY, FERNANDO CUDLAMAT,
MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA
CUDIAMAT, all Heirs of the late Pedrito Cudiamat represented by Inocencia Cudiamat, respondents.
REGALADO, J.:p
On May 13, 1985, private respondents filed a complaint 1 for damages against petitioners for the death of Pedrito
Cudiamat as a result of a vehicular accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan,
Benguet. Among others, it was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a
passenger bus belonging to petitioner corporation in a reckless and imprudent manner and without due regard to
traffic rules and regulations and safety to persons and property, it ran over its passenger, Pedrito Cudiamat. However,
instead of bringing Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and without regard
to the welfare of the victim, first brought his other passengers and cargo to their respective destinations before
banging said victim to the Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and continued to observe the extraordinary diligence
required in the operation of the transportation company and the supervision of the employees, even as they add that
they are not absolute insurers of the safety of the public at large. Further, it was alleged that it was the victim's own
carelessness and negligence which gave rise to the subject incident, hence they prayed for the dismissal of the
complaint plus an award of damages in their favor by way of a counterclaim.
On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners, with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat was
negligent, which negligence was the proximate cause of his death. Nonetheless, defendants in equity,
are hereby ordered to pay the heirs of Pedrito Cudiamat the sum of P10,000.00 which approximates
the amount defendants initially offered said heirs for the amicable settlement of the case. No costs.
SO ORDERED. 2
Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a decision 3 in CA-G.R. CV
No. 19504 promulgated on August 14, 1990, set aside the decision of the lower court, and ordered petitioners to pay
private respondents:
1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of the victim Pedrito
Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;
3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and compensatory
damages;
4. The costs of this suit. 4
Petitioners' motion for reconsideration was denied by the Court of Appeals in its resolution dated October 4,
1990,5 hence this petition with the central issue herein being whether respondent court erred in reversing the
decision of the trial court and in finding petitioners negligent and liable for the damages claimed.
It is an established principle that the factual findings of the Court of Appeals as a rule are final and may not be
reviewed by this Court on appeal. However, this is subject to settled exceptions, one of which is when the findings of
the appellate court are contrary to those of the trial court, in which case a reexamination of the facts and evidence
may be undertaken. 6
In the case at bar, the trial court and the Court of Appeal have discordant positions as to who between the petitioners
an the victim is guilty of negligence. Perforce, we have had to conduct an evaluation of the evidence in this case for
the prope calibration of their conflicting factual findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following findings:
This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a moving vehicle,
especially with one of his hands holding an umbrella. And, without having given the driver or the
conductor any indication that he wishes to board the bus. But defendants can also be found wanting
of the necessary diligence. In this connection, it is safe to assume that when the deceased Cudiamat
attempted to board defendants' bus, the vehicle's door was open instead of being closed. This should
be so, for it is hard to believe that one would even attempt to board a vehicle (i)n motion if the door of
said vehicle is closed. Here lies the defendant's lack of diligence. Under such circumstances, equity
demands that there must be something given to the heirs of the victim to assuage their feelings. This,
also considering that initially, defendant common carrier had made overtures to amicably settle the
case. It did offer a certain monetary consideration to the victim's heirs. 7
However, respondent court, in arriving at a different opinion, declares that:

From the testimony of appellees'own witness in the person of Vitaliano Safarita, it is evident that the
subject bus was at full stop when the victim Pedrito Cudiamat boarded the same as it was precisely
on this instance where a certain Miss Abenoja alighted from the bus. Moreover, contrary to the
assertion of the appellees, the victim did indicate his intention to board the bus as can be seen from
the testimony of the said witness when he declared that Pedrito Cudiamat was no longer walking and
made a sign to board the bus when the latter was still at a distance from him. It was at the instance
when Pedrito Cudiamat was closing his umbrella at the platform of the bus when the latter made a
sudden jerk movement (as) the driver commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the appellee-driver in prematurely
stepping on the accelerator and in not waiting for the passenger to first secure his seat especially so
when we take into account that the platform of the bus was at the time slippery and wet because of a
drizzle. The defendants-appellees utterly failed to observe their duty and obligation as common
carrier to the end that they should observe extra-ordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them according to the circumstances of each case
(Article 1733, New Civil Code). 8
After a careful review of the evidence on record, we find no reason to disturb the above holding of the Court of
Appeals. Its aforesaid findings are supported by the testimony of petitioners' own witnesses. One of them, Virginia
Abalos, testified on cross-examination as follows:
Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the
incident, there is a crossing?
A The way going to the mines but it is not being pass(ed) by the bus.
Q And the incident happened before bunkhouse 56, is that not correct?
A It happened between 54 and 53 bunkhouses. 9
The bus conductor, Martin Anglog, also declared:
Q When you arrived at Lepanto on March 25, 1985, will you please inform this
Honorable Court if there was anv unusual incident that occurred?
A When we delivered a baggage at Marivic because a person alighted there between
Bunkhouse 53 and 54.
Q What happened when you delivered this passenger at this particular place in
Lepanto?
A When we reached the place, a passenger alighted and I signalled my driver. When
we stopped we went out because I saw an umbrella about a split second and I
signalled again the driver, so the driver stopped and we went down and we saw
Pedrito Cudiamat asking for help because he was lying down.
Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying
down from the bus how far was he?
A It is about two to three meters.
Q On what direction of the bus was he found about three meters from the bus, was it
at the front or at the back?
A At the back, sir. 10 (Emphasis supplied.)
The foregoing testimonies show that the place of the accident and the place where one of the passengers alighted
were both between Bunkhouses 53 and 54, hence the finding of the Court of Appeals that the bus was at full stop
when the victim boarded the same is correct. They further confirm the conclusion that the victim fell from the
platform of the bus when it suddenly accelerated forward and was run over by the rear right tires of the vehicle, as
shown by the physical evidence on where he was thereafter found in relation to the bus when it stopped. Under such
circumstances, it cannot be said that the deceased was guilty of negligence.
The contention of petitioners that the driver and the conductor had no knowledge that the victim would ride on the
bus, since the latter had supposedly not manifested his intention to board the same, does not merit consideration.
When the bus is not in motion there is no necessity for a person who wants to ride the same to signal his intention to
board. A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the
duty of the driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing
the peril to a passenger while he was attempting to board the same. The premature acceleration of the bus in this
case was a breach of such duty.
It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus,
to stop their conveyances a reasonable length of time in order to afford passengers an opportunity to board and
enter, and they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or
jerking of their conveyances while they are doing so.

Further, even assuming that the bus was moving, the act of the victim in boarding the same cannot be considered
negligent under the circumstances. As clearly explained in the testimony of the aforestated witness for petitioners,
Virginia Abalos, th bus had "just started" and "was still in slow motion" at the point where the victim had boarded
and was on its platform.
It is not negligence per se, or as a matter of law, for one attempt to board a train or streetcar which is moving
slowly. An ordinarily prudent person would have made the attempt board the moving conveyance under the same or
similar circumstances. The fact that passengers board and alight from slowly moving vehicle is a matter of common
experience both the driver and conductor in this case could not have been unaware of such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is
entitled all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty
which the carrier passengers owes to its patrons extends to persons boarding cars as well as to those alighting
therefrom.
Common carriers, from the nature of their business and reasons of public policy, are bound to observe extraordina
diligence for the safety of the passengers transported by the according to all the circumstances of each case. A
common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence very cautious persons, with a due regard for all the circumstances.
It has also been repeatedly held that in an action based on a contract of carriage, the court need not make an express
finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought by
the passenger. By contract of carriage, the carrier assumes the express obligation to transport the passenger to his
destination safely and observe extraordinary diligence with a due regard for all the circumstances, and any injury
that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. This is an
exception to the general rule that negligence must be proved, and it is therefore incumbent upon the carrier to prove
that it has exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code.
Moreover, the circumstances under which the driver and the conductor failed to bring the gravely injured victim
immediately to the hospital for medical treatment is a patent and incontrovertible proof of their negligence. It defies
understanding and can even be stigmatized as callous indifference. The evidence shows that after the accident the
bus could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted to first proceed to
Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the serious condition of the victim. The
vacuous reason given by petitioners that it was the wife of the deceased who caused the delay was tersely and
correctly confuted by respondent court:
... The pretension of the appellees that the delay was due to the fact that they had to wait for about
twenty minutes for Inocencia Cudiamat to get dressed deserves scant consideration. It is rather
scandalous and deplorable for a wife whose husband is at the verge of dying to have the luxury of
dressing herself up for about twenty minutes before attending to help her distressed and helpless
husband. 19
Further, it cannot be said that the main intention of petitioner Lardizabal in going to Bunk 70 was to inform the
victim's family of the mishap, since it was not said bus driver nor the conductor but the companion of the victim who
informed his family thereof. 20 In fact, it was only after the refrigerator was unloaded that one of the passengers
thought of sending somebody to the house of the victim, as shown by the testimony of Virginia Abalos again, to wit:
Q Why, what happened to your refrigerator at that particular time?
A I asked them to bring it down because that is the nearest place to our house and
when I went down and asked somebody to bring down the refrigerator, I also asked
somebody to call the family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?
A Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of
Mr. Cudiamat.
Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A No sir. 21
With respect to the award of damages, an oversight was, however, committed by respondent Court of Appeals in
computing the actual damages based on the gross income of the victim. The rule is that the amount recoverable by
the heirs of a victim of a tort is not the loss of the entire earnings, but rather the loss of that portion of the earnings
which the beneficiary would have received. In other words, only net earnings, not gross earnings, are to be
considered, that is, the total of the earnings less expenses necessary in the creation of such earnings or income and
minus living and other incidental expenses. 22
We are of the opinion that the deductible living and other expense of the deceased may fairly and reasonably be fixed
at P500.00 a month or P6,000.00 a year. In adjudicating the actual or compensatory damages, respondent court
found that the deceased was 48 years old, in good health with a remaining productive life expectancy of 12 years,
and then earning P24,000.00 a year. Using the gross annual income as the basis, and multiplying the same by 12
years, it accordingly awarded P288,000. Applying the aforestated rule on computation based on the net earnings,

said award must be, as it hereby is, rectified and reduced to P216,000.00. However, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000.00. 23
WHEREFORE, subject to the above modifications, the challenged judgment and resolution of respondent Court of
Appeals are hereby AFFIRMED in all other respects.
SO ORDERED.
2. G.R. No. L-47822 December 22, 1988
PEDRO
DE
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

GUZMAN, petitioner,

Vicente D. Millora for petitioner.


Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for
resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than
regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk
Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of
Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or
before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his
trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board
the other truck which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since
the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by
armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and
holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability
on the ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
transporting
return
loads
of
freight
"as
a
casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way
of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set
forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a
periodic
or
occasional
rather
than
regular
or
scheduled
manner,
and
even
though
private
respondent'sprincipal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound
public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and protection of those who utilize their services and the law
cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of
care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3)
Act
or
omission
of
the
shipper
or
owner
of
the
goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the
common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they
appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as required in
Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case
the hijacking of the carrier's truck does not fall within any of the five (5) categories of exempting causes listed
in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the
provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have been

at fault or to have acted negligently. This presumption, however, may be overthrown by proof of extraordinary
diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in
the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his
helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in
the vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given
additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745
provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or
its employees;
(6) that the common carrier's liability for acts committed by thieves, or of
robbers who donot act with grave or irresistible threat, violence or force, is dispensed
with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle, ship,
airplane or other equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to diminish
such responsibility even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact
acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's
cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac,
Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando
Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and
carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty
filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows
that the accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers
were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and
his helper, detaining them for several days and later releasing them in another province (in Zambales). The hijacked
truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of
robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable
for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable
for the value of the undelivered merchandise which was lost because of an event entirely beyond private
respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals
dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
3.

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS, HONORABLE


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

This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in
CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case
No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and
operate oil pipelines. The original pipeline concession was granted in 1967 [1] and renewed by the Energy Regulatory
Board in 1992.[2]

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas
City. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. [3] The
respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four
installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount
of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent
portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the
Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via
pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts
under Section 133 of the Local Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131,
Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on contractors and other
independent contractors' under Section 143, Paragraph (e) of the Local Government Code does not include the power
to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for
the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount
of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be
considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local
Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint [6] for tax refund
with prayer for a writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her
capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the
business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to
impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and
151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131
(h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid. [7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section
133 (j) of the Local Government Code as said exemption applies only to "transportation contractors and persons
engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines
are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or
manner by which a product is delivered to its destination. [8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A) whose concession
was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant
any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such
being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to
overburden the riding public or commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single specific or "special customer"
under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local
governments than the previous enactments, to make them economically and financially viable
to serve the people and discharge their functions with a concomitant obligation to accept
certain devolution of powers, x x x So, consistent with this policy even franchise grantees are
taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code." [9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we
referred the case to the respondent Court of Appeals for consideration and adjudication. [10] On November 29, 1995,
the respondent court rendered a decision [11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's
motion for reconsideration was denied on July 18, 1996. [12]

Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996.
Petitioner moved for a reconsideration which was granted by this Court in a Resolution [14] of January 20,
1997.Thus, the petition was reinstated.
[13]

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common
carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the
business of transporting persons or property from place to place, for compensation, offering his services to the public
generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods for person generally as a business and
not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his established
roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
a 'sideline'). Article 1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the 'general public,' i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article 1877
deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of
'public service,' under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government
Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by
land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction
as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for
transport, and to charge without discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof
provides:

"that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be
a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83,
it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt
from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this
Code."
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are
illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on
the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the local government units. May we know the reason why the
transportation business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It
states that local government units may not impose taxes on the business of transportation, except as otherwise
provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the
power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross
annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on
the carrier business. Local government units may impose taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this
tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local government unit the
imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's
tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the
National Internal Revenue Code.[19] To tax petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated
November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

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


PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private one as to
negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974 aboard
the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai,
Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by
the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform
General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo,
Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-printed agreement.
Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th
of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party which
reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo
Bureau inspector or substitute appointed by charterers for his account certifying the vessel's
readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at the
vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of the
inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel
hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The
hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use of
the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the charterpartly (which provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of the
discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the
consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks were
made to pass through a weighing scale where they were individually weighed for the purpose of ascertaining the net
weight of the cargo. The port area was windy, certain portions of the route to the warehouse were sandy and the
weather was variable, raining occasionally while the discharge was in progress. 8 The petitioner's warehouse was
made of corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and
unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th). 10 A
private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to determine the
"outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after discharge. 11 The survey
report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T
and that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were
contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been
polluted
with
sand,
rust
and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the resident
agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods shipped and
the diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim, and that
this "request" was denied by them because they "had nothing to do with the discharge of the shipment." 14Hence, on
18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The defendant carrier
argued that the strict public policy governing common carriers does not apply to them because they have become
private carriers by reason of the provisions of the charter-party. The court a quo however sustained the claim of the
plaintiff against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of
loss or damage of the goods it contracts to transport, all that a shipper has to do in a suit to recover
for loss or damage is to show receipt by the carrier of the goods and to delivery by it of less than
what it received. After that, the burden of proving that the loss or damage was due to any of the
causes which exempt him from liability is shipted to the carrier, common or private he may be. Even
if the provisions of the charter-party aforequoted are deemed valid, and the defendants considered
private carriers, it was still incumbent upon them to prove that the shortage or contamination
sustained by the cargo is attributable to the fault or negligence on the part of the shipper or
consignee in the loading, stowing, trimming and discharge of the cargo. This they failed to do. By this

omission, coupled with their failure to destroy the presumption of negligence against them, the
defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the value
of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American Steamship
Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK
was a private carrier and not a common carrier by reason of the time charterer-party. Accordingly, the Civil Code
provisions on common carriers which set forth a presumption of negligence do not find application in the case at bar.
Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce
sufficient evidence to prove the negligence of the defendant carrier as alleged in its complaint. It is
an old and well settled rule that if the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant
is under no obligation to prove his exception or defense (Moran, Commentaries on the Rules of Court,
Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of
action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was under the
impression that it did not have to establish defendant's negligence. Be that as it may, contrary to the
trial court's finding, the record of the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals. Petitioner
theorizes that the Home Insurance case has no bearing on the present controversy because the issue raised therein
is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss or damage to goods
cause by want of due deligence on its part or that of its manager to make the vessel seaworthy in all respects, and
not whether the presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain with the
shipowner, absent any stipulation to the contrary, such shipowner should made liable for the negligence of the
captain and crew. In fine, PPI faults the appellate court in not applying the presumption of negligence against
respondent carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on the part
of the carrier, when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a
charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had exercised that
degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it fitting
to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or other
vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular
voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment
which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for
others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer
with a transfer to him of its entire command and possession and consequent control over its navigation, including the
master and the crew, who are his servants. Contract of affreightment may either be time charter, wherein the vessel
is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time
or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master and
the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition
extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or
transporting passengers or both for compensation as a public employment and not as a casual occupation. The
distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation,
although involving the carriage of goods for a fee, the person or corporation offering such service is a private
carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should
observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private carriers, however,
the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction or
deterioration of the goods, common carriers are presumed to have been at fault or to have acted negligently, and the
burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to private carriers, for
whosoever alleges damage to or deterioration of the goods carried has the onus of proving that the cause was the
negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship
captain, its officers and compliment were under the employ of the shipowner and therefore continued to be under its
direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with
the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is evident
in the present case considering that the steering of the ship, the manning of the decks, the determination of the
course of the voyage and other technical incidents of maritime navigation were all consigned to the officers and crew
who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a timecharter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or
demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although
her holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charter-party
exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a special
charter on common carriers. At any rate, the rule in the United States that a ship chartered by a single shipper to
carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that
the growing concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more
exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used
to convey the goods of one and of several persons. Where the ship herself is let to a charterer, so that
he takes over the charge and control of her, the case is different; the shipowner is not then a carrier.
But where her services only are let, the same grounds for imposing a strict responsibility exist,
whether he is employed by one or many. The master and the crew are in each case his servants, the
freighter in each case is usually without any representative on board the ship; the same opportunities
for fraud or collusion occur; and the same difficulty in discovering the truth as to what has taken
place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its consequent loss or damage while the same was in the possession,
actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has
exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due to
fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima faciepresumption
of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the Philippine
Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was loaded,
the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the loading of the cargo in
bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with three (3)
layers of serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed
while the ship was in transit as the weight of the steel covers made it impossible for a person to open without the use
of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of
spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum" docked at
its berthing place, representatives of the consignee boarded, and in the presence of a representative of the
shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected
the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates
who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the
showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was confirmed by
respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses
ample evidence showing that defendant carrier was not negligent in performing its obligations.
Particularly, the following testimonies of plaintiff-appellee's own witnesses clearly show absence of
negligence by the defendant carrier; that the hull of the vessel at the time of the discharge of the
cargo was sealed and nobody could open the same except in the presence of the owner of the cargo
and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was
made of steel and it was overlaid with tarpaulins, three layers of tarpaulins and therefore their
contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that to open these hatches,
the seals would have to be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16)
(emphasis supplied).
The period during which private respondent was to observe the degree of diligence required of it as a public carrier
began from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly inspected
and passed scrutiny by the shipper, up to and until the vessel reached its destination and its hull was reexamined by
the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the parties in the
Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading,
stowing, trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense to the
carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage only when the
stowing is done by stevedores employed by him, and therefore under his control and supervision, not when the same
is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or
deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the containers.
The Code of Commerce also provides that all losses and deterioration which the goods may suffer during the

transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for the
account and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the precautions which usage has
established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the expected
risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea
as a chemical compound consisting mostly of ammonia and carbon monoxide compounds which are used as fertilizer.
Urea also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do
not normally evaporate even on a long voyage, provided that the temperature inside the hull does not exceed eighty
(80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a clamped
shell, losses due to spillage during such operation amounting to one percent (1%) against the bill of lading is deemed
"normal" or "tolerable." The primary cause of these spillages is the clamped shell which does not seal very tightly.
Also, the wind tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water, either
fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still remains potent and
usable although no longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the vessel's
holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly closed and
firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there
was loss or contamination of the cargo, it was more likely to have occurred while the same was being transported
from the ship to the dump trucks and finally to the consignee's warehouse. This may be gleaned from the testimony
of the marine and cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged
"bar order cargo" as contained in their report to PPI was just an approximation or estimate made by them after the
fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained from
time to time at the harbor area while the cargo was being discharged according to the supply officer of PPI, who also
testified that it was windy at the waterfront and along the shoreline where the dump trucks passed enroute to the
consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the
risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was the case at
bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently
proved the inherent character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was adduced by the
petitioner showing that the carrier was remise in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial
court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional Trial
Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
5. G.R. No. 148496

March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL
SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming the decision 2of
the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay respondent, as subrogee, the
amount of P93,112.00 with legal interest, representing the value of damaged cargo handled by petitioner, 25%
thereof as attorney's fees, and the cost of the suit.1wphi1.nt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole proprietorship
customs broker. At the time material to this case, petitioner entered into a contract with San Miguel Corporation
(SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port
Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was
insured by respondent UCPB General Insurance Co., Inc.

On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board "M/V Hayakawa
Maru" and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port
Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from
the arrastre operator and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods were
inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were
"wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn,
respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City,
which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the
shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants.
Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F") with entries appearing
therein, classified as "TED" and "TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be
tearrage at the end and tearrage at the middle of the subject damaged cargoes respectively, coupled with the
Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact of the damaged condition of the subject
cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not liable.
Defendant by reason of the nature of [her] business should have devised ways and means in order to prevent
the damage to the cargoes which it is under obligation to take custody of and to forthwith deliver to the
consignee. Defendant did not present any evidence on what precaution [she] performed to prevent [the] said
incident, hence the presumption is that the moment the defendant accepts the cargo [she] shall perform such
extraordinary diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost, destroyed
or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they have observed the extraordinary diligence required by law. The burden of the plaintiff,
therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the carrier to prove that he has exercised the extraordinary diligence
required by law. Thus, it has been held that the mere proof of delivery of goods in good order to a carrier, and
of their arrival at the place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or some other circumstances
inconsistent with its liability." (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989
Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is supposed [to]
exercise [the] extraordinary diligence required by law, hence the extraordinary responsibility lasts from the
time the goods are unconditionally placed in the possession of and received by the carrier for transportation
until the same are delivered actually or constructively by the carrier to the consignee or to the person who
has the right to receive the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts -1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE
NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY
MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD
ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common carrier,
although both the trial court and the Court of Appeals held otherwise, then she is indeed not liable beyond what

ordinary diligence in the vigilance over the goods transported by her, would require. 6 Consequently, any damage to
the cargo she agrees to transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common
carrier but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her
services out to the public but only offers the same to select parties with whom she may contract in the conduct of her
business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar contention and held
the party to be a common carrier, thus The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their
services to the public."
The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article 1732 also
carefully avoids making any distinction between a person or enterprise offering transportation service on
aregular or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis.Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits business only from a
narrowsegment of the general population. We think that Article 1732 deliberately refrained from making
such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, "public service" includes:
" x x x every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations
and other similar public services. x x x" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an
integral part of her business. To uphold petitioner's contention would be to deprive those with whom she contracts
the protection which the law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance over goods" was
explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest
skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the "spoilage or wettage"
took place while the goods were in the custody of either the carrying vessel "M/V Hayakawa Maru," which
transported the cargo to Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly kept
them in open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers
were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880

rain gutter deformed/cracked

ICSU-363461-3

left side rubber gasket on door distorted/partly loose

PERU-204209-4

with pinholes on roof panel right portion

TOLU-213674-3

wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0

with dent/crack on roof panel

ICSU-412105-0

rubber gasket on left side/door panel partly detached loosened. 10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no personal
knowledge on whether the container vans were first stored in petitioner's warehouse prior to their delivery to the
consignee. She likewise claims that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMC's warehouse in Ermita, Manila, which is a mere thirtyminute drive from the Port Area where the cargo came from. Thus, the damage to the cargo could not have taken
place while these were in her custody.11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors indicates that when the
shipper transferred the cargo in question to the arrastre operator, these were covered by clean Equipment
Interchange Report (EIR) and, when petitioner's employees withdrew the cargo from the arrastre operator, they did
so without exception or protest either with regard to the condition of container vans or their contents. The Survey
Report pertinently reads -Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13 South
Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered by clean
EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were deemed to
have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by Transorient Container
Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera Compound,
Romualdez Street, Ermita, Manila from July 23/25, 1990. 12
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre,
Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports
(EIRs). Had there been any damage to the shipment, there would have been a report to that effect made by
the arrastre operator. The cargoes were withdrawn by the defendant-appellant from the arrastre still in good
order and condition as the same were received by the former without exception, that is, without any report of
damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendantappellant would report it immediately to the consignee or make an exception on the delivery receipt or note
the same in the Warehouse Entry Slip (WES). None of these took place. To put it simply, the defendantappellant received the shipment in good order and condition and delivered the same to the consignee
damaged. We can only conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it
shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No
proof was proffered to rebut this legal presumption and the presumption of negligence attached to a common
carrier in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as she immediately
delivered the containers to SMC's compound, suffice it to say that to prove the exercise of extraordinary diligence,
petitioner must do more than merely show the possibility that some other party could be responsible for the damage.
It must prove that it used "all reasonable means to ascertain the nature and characteristic of goods tendered for
[transport] and that [it] exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides -Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are
known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom.14 In this case, petitioner accepted the cargo without exception despite the apparent defects in some of the
container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the carriage of
goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art.
173515 holds.

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.
6. G.R. No. 111127. July 26, 1996
FABRE vs. COURT OF APPEALS
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals [1] in CA-GR No. 28245, dated
September 30, 1992, which affirmed with modification the decision of the Regional Trial Court of Makati, Branch 58,
ordering petitioners jointly and severally to pay damages to private respondent Amyline Antonio, and its resolution
which denied petitioners motion for reconsideration for lack of merit.
Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the bus
principally in connection with a bus service for school children which they operated in Manila.The couple had a
driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for two weeks. His job was to take school
children to and from the St. Scholasticas College in Malate, Manila.
On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF) arranged with
petitioners for the transportation of 33 members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of P3,000.00.
The group was scheduled to leave on November 2, 1984, at 5:00 oclock in the afternoon. However, as several
members of the party were late, the bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA
until 8:00 oclock in the evening. Petitioner Porfirio Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was under
repair, so that petitioner Cabil, who was unfamiliar with the area (it being his first trip to La Union), was forced to
take a detour through the town of Ba-ay in Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a
sharp curve on the highway, running on a south to east direction, which he described as siete. The road was slippery
because it was raining, causing the bus, which was running at the speed of 50 kilometers per hour, to skid to the left
road shoulder. The bus hit the left traffic steel brace and sign along the road and rammed the fence of one Jesus
Escano, then turned over and landed on its left side, coming to a full stop only after a series of impacts. The bus
came to rest off the road. A coconut tree which it had hit fell on it and smashed its front portion.
Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus and
pinned down by a wooden seat which came off after being unscrewed. It took three persons to safely remove her
from this position. She was in great pain and could not move.
The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he was not familiar
with the area and he could not have seen the curve despite the care he took in driving the bus, because it was dark
and there was no sign on the road. He said that he saw the curve when he was already within 15 to 30 meters of
it. He allegedly slowed down to 30 kilometers per hour, but it was too late.
The Lingayen police investigated the incident the next day, November 3, 1984. On the basis of their finding they
filed a criminal complaint against the driver, Porfirio Cabil. The case was later filed with the Lingayen Regional Trial
Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the latters fence. On the basis of Escanos
affidavit of desistance the case against petitioners Fabre was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila. As a result of
the accident, she is now suffering from paraplegia and is permanently paralyzed from the waist down. During the
trial she described the operations she underwent and adduced evidence regarding the cost of her treatment and
therapy. Immediately after the accident, she was taken to the Nazareth Hospital in Ba-ay, Lingayen. As this hospital
was not adequately equipped, she was transferred to the Sto. Nio Hospital, also in the town of Ba-ay, where she was
given sedatives. An x-ray was taken and the damage to her spine was determined to be too severe to be treated
there. She was therefore brought to Manila, first to the Philippine General Hospital and later to the Makati Medical
Center where she underwent an operation to correct the dislocation of her spine.
In its decision dated April 17, 1989, the trial court found that:
No convincing evidence was shown that the minibus was properly checked for travel to a long distance trip and that
the driver was properly screened and tested before being admitted for employment. Indeed, all the evidence
presented have shown the negligent act of the defendants which ultimately resulted to the accident subject of this
case.
Accordingly, it gave judgment for private respondents holding:
Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio were the only ones
who adduced evidence in support of their claim for damages, the Court is therefore not in a position to award
damages to the other plaintiffs.
WHEREFORE, premises considered, the Court hereby renders judgment against defendants Mr. & Mrs. Engracio
Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil Code of the Philippines and said
defendants are ordered to pay jointly and severally to the plaintiffs the following amount:
1) P93,657.11 as compensatory and actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorneys fees;


6) Costs of suit.
SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but dismissed it
with respect to the other plaintiffs on the ground that they failed to prove their respective claims.The Court of
Appeals modified the award of damages as follows:
1) P93,657.11 as actual damages;
2) P600,000.00 as compensatory damages;
3) P50,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) P10,000.00 as attorneys fees; and
6) Costs of suit.
The Court of Appeals sustained the trial courts finding that petitioner Cabil failed to exercise due care and
precaution in the operation of his vehicle considering the time and the place of the accident. The Court of Appeals
held that the Fabres were themselves presumptively negligent. Hence, this petition. Petitioners raise the following
issues:
I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.
II. WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES SUFFERED BY PRIVATE
RESPONDENTS.
III. WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP TO WHAT EXTENT.
Petitioners challenge the propriety of the award of compensatory damages in the amount of P600,000.00. It is
insisted that, on the assumption that petitioners are liable, an award of P600,000.00 is unconscionable and highly
speculative. Amyline Antonio testified that she was a casual employee of a company called Suaco, earning P1,650.00
a month, and a dealer of Avon products, earning an average of P1,000.00 monthly. Petitioners contend that as casual
employees do not have security of tenure, the award of P600,000.00, considering Amyline Antonios earnings, is
without factual basis as there is no assurance that she would be regularly earning these amounts.
With the exception of the award of damages, the petition is devoid of merit.
First, it is unnecessary for our purpose to determine whether to decide this case on the theory that petitioners
are liable for breach of contract of carriage or culpa contractual or on the theory of quasi delictor culpa aquiliana as
both the Regional Trial Court and the Court of Appeals held, for although the relation of passenger and carrier is
contractual both in origin and nature, nevertheless the act that breaks the contract may be also a tort. [2] In either
case, the question is whether the bus driver, petitioner Porfirio Cabil, was negligent.
The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned the bus, failed to
exercise the diligence of a good father of the family in the selection and supervision of their employee is fully
supported by the evidence on record. These factual findings of the two courts we regard as final and conclusive,
supported as they are by the evidence. Indeed, it was admitted by Cabil that on the night in question, it was raining,
and, as a consequence, the road was slippery, and it was dark. He averred these facts to justify his failure to see that
there lay a sharp curve ahead. However, it is undisputed that Cabil drove his bus at the speed of 50 kilometers per
hour and only slowed down when he noticed the curve some 15 to 30 meters ahead. [3] By then it was too late for him
to avoid falling off the road. Given the conditions of the road and considering that the trip was Cabils first one outside
of Manila, Cabil should have driven his vehicle at a moderate speed. There is testimony[4] that the vehicles passing on
that portion of the road should only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was
running at a very high speed.
Considering the foregoing the fact that it was raining and the road was slippery, that it was dark, that he drove
his bus at 50 kilometers an hour when even on a good day the normal speed was only 20 kilometers an hour, and that
he was unfamiliar with the terrain, Cabil was grossly negligent and should be held liable for the injuries suffered by
private respondent Amyline Antonio.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his
employers, the Fabres, were themselves negligent in the selection and supervision of their employee.
Due diligence in selection of employees is not satisfied by finding that the applicant possessed a professional
drivers license. The employer should also examine the applicant for his qualifications, experience and record of
service.[5] Due diligence in supervision, on the other hand, requires the formulation of rules and regulations for the
guidance of employees and the issuance of proper instructions as well as actual implementation and monitoring of
consistent compliance with the rules.[6]
In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did not consider the fact
that Cabil had been driving for school children only, from their homes to the St. Scholasticas College in Metro
Manila.[7] They had hired him only after a two-week apprenticeship. They had tested him for certain matters, such as
whether he could remember the names of the children he would be taking to school, which were irrelevant to his
qualification to drive on a long distance travel, especially considering that the trip to La Union was his first. The
existence of hiring procedures and supervisory policies cannot be casually invoked to overturn the presumption of
negligence on the part of an employer.[8]
Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the
congregations delayed meeting) could have averted the mishap and (2) under the contract, the WWCF was directly
responsible for the conduct of the trip. Neither of these contentions hold water. The hour of departure had not been

fixed. Even if it had been, the delay did not bear directly on the cause of the accident. With respect to the second
contention, it was held in an early case that:
[A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to be
conveyed, but exercises no other control over the conduct of the driver, is not responsible for acts of negligence of
the latter or prevented from recovering for injuries suffered from a collision between the automobile and a train,
caused by the negligence either of the locomotive engineer or the automobile driver. [9]
As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be
engaged in the business of public transportation for the provisions of the Civil Code on common carriers to apply to
them. As this Court has held:[10]
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.
The above article makes no distinction between one whose principal business activity is the carrying of persons
or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the general public, i.e., the general community
or population, and one who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such distinctions.
As common carriers, the Fabres were bound to exercise extraordinary diligence for the safe transportation of the
passengers to their destination. This duty of care is not excused by proof that they exercised the diligence of a good
father of the family in the selection and supervision of their employee. As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers through the negligence or wilful acts of the
formers employees, although such employees may have acted beyond the scope of their authority or in violation of
the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their employees.
The same circumstances detailed above, supporting the finding of the trial court and of the appellate court that
petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify finding them guilty of breach of contract
of carriage under Arts. 1733, 1755 and 1759 of the Civil Code.
Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think the Court of Appeals
erred in increasing the amount of compensatory damages because private respondents did not question this award as
inadequate.[11] To the contrary, the award of P500,000.00 for compensatory damages which the Regional Trial Court
made is reasonable considering the contingent nature of her income as a casual employee of a company and as
distributor of beauty products and the fact that the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had expressed willingness to employ her again.
With respect to the other awards, while the decisions of the trial court and the Court of Appeals do not
sufficiently indicate the factual and legal basis for them, we find that they are nevertheless supported by evidence in
the records of this case. Viewed as an action for quasi delict, this case falls squarely within the purview of Art.
2219(2) providing for the payment of moral damages in cases of quasi delict. On the theory that petitioners are liable
for breach of contract of carriage, the award of moral damages is authorized by Art. 1764, in relation to Art. 2220,
since Cabils gross negligence amounted to bad faith. [12]Amyline Antonios testimony, as well as the testimonies of her
father and co-passengers, fully establish the physical suffering and mental anguish she endured as a result of the
injuries caused by petitioners negligence.
The award of exemplary damages and attorneys fees was also properly made. However, for the same reason that
it was error for the appellate court to increase the award of compensatory damages, we hold that it was also error
for it to increase the award of moral damages and reduce the award of attorneys fees, inasmuch as private
respondents, in whose favor the awards were made, have not appealed. [13]
As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict or on
that of breach of contract. The question is whether, as the two courts below held, petitioners, who are the owners
and driver of the bus, may be made to respond jointly and severally to private respondent. We hold that they may
be. In Dangwa Trans. Co. Inc. v. Court of Appeals,[14] on facts similar to those in this case, this Court held the bus
company and the driver jointly and severally liable for damages for injuries suffered by a passenger. Again,
in Bachelor Express, Inc. v. Court of Appeals[15] a driver found negligent in failing to stop the bus in order to let off
passengers when a fellow passenger ran amuck, as a result of which the passengers jumped out of the speeding bus
and suffered injuries, was held also jointly and severally liable with the bus company to the injured passengers.
The same rule of liability was applied in situations where the negligence of the driver of the bus on which
plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle, thus
causing an accident. In Anuran v. Buo,[16] Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court,
[17]
and Metro Manila Transit Corporation v. Court of Appeals,[18] the bus company, its driver, the operator of the other
vehicle and the driver of the vehicle were jointly and severally held liable to the injured passenger or the latters
heirs. The basis of this allocation of liability was explained inViluan v. Court of Appeals,[19] thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the
bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles
are jointly and severally liable for damages. Some members of the Court, though, are of the view that under the
circumstances they are liable on quasi-delict.[20]

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals [21] this Court exonerated the jeepney driver
from liability to the injured passengers and their families while holding the owners of the jeepney jointly and
severally liable, but that is because that case was expressly tried and decided exclusively on the theory of culpa
contractual. As this Court there explained:
The trial court was therefore right in finding that Manalo [the driver] and spouses Mangune and Carreon [the
jeepney owners] were negligent. However, its ruling that spouses Mangune and Carreon are jointly and severally
liable with Manalo is erroneous. The driver cannot be held jointly and severally liable with the carrier in case of
breach of the contract of carriage. The rationale behind this is readily discernible. Firstly, the contract of carriage is
between the carrier and the passenger, and in the event of contractual liability, the carrier is exclusively responsible
therefore to the passenger, even if such breach be due to the negligence of his driver (see Viluan v. The Court of
Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA 742) . . .[22]
As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim against
the carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was
permitted for them to allege alternative causes of action and join as many parties as may be liable on such causes of
action[23] so long as private respondent and her co-plaintiffs do not recover twice for the same injury. What is clear
from the cases is the intent of the plaintiff there to recover from both the carrier and the driver, thus justifying the
holding that the carrier and the driver were jointly and severally liable because their separate and distinct acts
concurred to produce the same injury.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to the award of
damages. Petitioners are ORDERED to PAY jointly and severally the private respondent Amyline Antonio the following
amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorneys fees; and
6) costs of suit.
SO ORDERED.
7. G.R. No. 114222 April 6, 1995
TATAD vs. HON. JESUS B. GARCIA, JR
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and
enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To
Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are
suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of
the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation,
Ltd. is a private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan
Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA
Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the
congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC
Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President
Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects
through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January
22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the
Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991.

The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991.
Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong,
Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten
foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd.
and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia
Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol
Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical
Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10
percent; (b) Management/Organizational capability 30 percent; and (c) Financial capability 30 percent; and (d)
Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and
Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five
applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic],
except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal
Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified in the
Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was
replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and
June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the
EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the contract pursuant to
paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to
proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation,
Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light
Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos,
informed Secretary Prado that the President could not grant the requested approval for the following reasons: (1)
that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law
authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings was not the
public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT
Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that
congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had not yet
been granted at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the
agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact
the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to the
provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991 which
necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22 April 1992
Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify
their respective rights and responsibilities" and to submit [the] Supplemental Agreement to the President, of the
Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a
Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal
Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be
achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on
the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon
City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will
also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail
transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or
approximately three years from the implementation date of the contract inclusive of mobilization, site works, initial
and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and
viability thereof, private respondent shall deliver the use and possession of the completed portion to DOTC which
shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 6162, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The
rentals shall be determined by an independent and internationally accredited inspection firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be
recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III

(Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment
of the rentals, ownership of the project shall be transferred to the latter for a consideration of only U.S. $1.00
(Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector,
and for Other Purposes" was signed into law by the President. The law was published in two newspapers of general
circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes
BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT
OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN
CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED
NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND,
HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND,
HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS
OF THE BOT LAW AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 1516).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private
respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos and are not
disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT
Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the
Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however,
countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay
Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold
the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental
Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic corporations, not foreign corporations like private
respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme
under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public
bidding which is the only mode of awarding infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded
by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of
Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private
respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for said
use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public
utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling
stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed
to operate these facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a
public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service
Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not
require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate
them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive character or for a longer period than fifty
years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and
equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected
to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II
Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and
used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a
public utility includes the transportation of passengers from one point to another point, their loading and unloading
at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A..
Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d.
722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities
thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public
utility without owning the facilities used to serve the public. The devotion of property to serve the public may be
done by the owner or by the person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public
can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not
enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this
incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately
deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same
as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC
(Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of
providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security;
and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised and Restated
Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and
repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as

supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of
theoretical and live training of DOTC operational personnel which includes actual driving of light rail vehicles under
simulated operating conditions, control of operations, dealing with emergencies, collection, counting and securing
cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will
work under the direction and control of private respondent only during training (Revised and Restated Agreement,
Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III and
upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking
training of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words,
by the end of the three-year construction period and upon commencement of normal revenue operation, DOTC shall
be able to operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of
replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return
thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For
this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or
death which may be claimed in the operation or implementation of the system, except losses, damages, injury or
death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the
defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p.
68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no
dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from
the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232
SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office
(PCSO) was actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the
Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to
operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the
same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the
construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming
indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery
system. In effect, the PCSO leased out its franchise to PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R.
Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W.
900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L.
Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under
contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d
984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one
operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for
a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law
and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and the operation
and maintenance thereof. The contractor operates the facility over a fixed term during which it is
allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the
contractor to recover its operating and maintenance expenses and its investment in the project plus a
reasonable rate of return thereon. The contractor transfers the facility to the government agency or
local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years.
For the construction stage, the contractor may obtain financing from foreign and/or domestic sources
and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the
ownership structure of the contractor of an infrastructure facility whose operation requires a public
utility franchise must be in accordance with the Constitution: Provided, however, That in the case of
corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder
in the corporate investors shall be the basis for the computation of Filipino equity in the said
corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor shall be
employed or hired in the different phases of the construction where Filipino skills are available:
Provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine
government financing institutions shall not exceed twenty percent (20%) of the total cost of the
infrastructure facility or project: Provided, finally, That financing from foreign sources shall not
require a guarantee by the Government or by government-owned or controlled corporations. The
build-operate-and-transfer scheme shall include a supply-and-operate situation which is a contractual
agreement whereby the supplier of equipment and machinery for a given infrastructure facility, if the
interest of the Government so requires, operates the facility providing in the process technology
transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the
construction including financing, of a given infrastructure facility, and its turnover after completion to

the government agency or local government unit concerned which shall pay the contractor its total
investment expended on the project, plus a reasonable rate of return thereon. This arrangement may
be employed in the construction of any infrastructure project including critical facilities which for
security or strategic reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period
during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon.
After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the
government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the
ownership and operation thereof are turned over to the government. The government, in turn, shall pay the
contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be effected
through amortization payments by the government infrastructure agency or local government unit concerned, this
shall be made in accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec.
6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in
the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the
government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation
within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points
and details for the multifarious and complex situations that may be encountered in enforcing the law (Director of
Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina,
29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing
it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according
to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit
(Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made
to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to,
rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental
Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a
certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the
Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate
that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of
an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The
EDSA LRT III Project is a high priority project certified by Congress and the National Economic and Development
Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside
the application of the Uniform Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provisions purports to give the obligee the right to
require payment in gold or in a particular kind of coin or currency other than Philippine currency or
in an amount of money of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such provision shall be contained in, or made with
respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic projects for agricultural, industrial and power
development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private
sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial development
opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior
award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have
been rigged from the very beginning to do away with the usual open international public bidding where qualified
internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a
public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless
exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential
Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads
as follows:
Bidding. Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract
only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or
contractors, or where there is conclusive evidence that greater economy and efficiency would be
achieved through this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and Communications, the
Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less
than P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the
project cost is P1 Million or more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts
may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts
while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector participation in
government infrastructure projects. The two laws are not inconsistent with each other but are inpari materia and
should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the
competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan
Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205
SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary
Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA,"
there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the
terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the prequalification process would just be an idle
ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector participation,
the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized
to finance and construct an infrastructure or development facility and upon its completion turns it
over to the government agency or local government unit concerned on a lease arrangement for a
fixed period after which ownership of the facility is automatically transferred to the government unit
concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one
complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is
subsequently found by the agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for prequalification but only one meets
the prequalification requirements, after which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which is found by the
agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may
appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in case of national projects or
to the Department of the Interior and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days
from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has
now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government
infrastructure agencies, government-owned and controlled corporations and local government units to enter into
contract with any duly prequalified proponent for the financing, construction, operation and maintenance of any
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO

(Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO


(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2
thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum
government regulations and procedures and specific government undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and
alleged procedural lapses private respondent and DOTC may have engendered and committed in entering into the
questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court
of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43
[1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental
rates are excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of
the best terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25
years, exclusive rights over the depot and the air space above the stations for development into commercial premises
for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in
consideration of these development rights, private respondent shall pay DOTC in Philippine currency guaranteed
revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11;Rollo, p. 93). In the
event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls
from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental Agreement,
Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the commercial spaces shall
revert to DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper
administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the
performance of their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe
Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176
SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary to
rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties
to each other. The matter of valuation is an esoteric field which is better left to the experts and which this Court is
not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the
profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters
into a contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental
function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive
branch of government in the promotion, development and regulation of dependable and coordinated networks of
transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation
and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department,
DOTC in particular that has the power, authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a
contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the President,
205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
8. G.R. No. L-8095

March 31, 1915

F.C. FISHER
vs.
YANGCO STEAMSHIP COMPANY
The real question involved in these proceedings is whether the refusal of the owners and officers of a steam vessel,
duly licensed to engage in the coastwise trade of the Philippine Islands and engaged in that trade as a common
carrier, to accept for carriage "dynamite, powder or other explosives" from any and all shippers who may offer such
explosives for carriage can be held to be a lawful act without regard to any question as to the conditions under which
such explosives are offered to carriage, or as to the suitableness of the vessel for the transportation of such
explosives, or as to the possibility that the refusal to accept such articles of commerce in a particular case may have
the effect of subjecting any person or locality or the traffic in such explosives to an undue, unreasonable or
unnecessary prejudice or discrimination.
Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship Company, the owner
of a large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine Islands; that on
or about June 10, 1912, the directors of the company adopted a resolution which was thereafter ratified and affirmed
by the shareholders of the company, "expressly declaring and providing that the classes of merchandise to be carried
by the company in its business as a common carrier do not include dynamite, powder or other explosives, and

expressly prohibiting the officers, agents and servants of the company from offering to carry, accepting for carriage
said dynamite, powder or other explosives;" that thereafter the respondent Acting Collector of Customs demanded
and required of the company the acceptance and carriage of such explosives; that he has refused and suspended the
issuance of the necessary clearance documents of the vessels of the company unless and until the company consents
to accept such explosives for carriage; that plaintiff is advised and believes that should the company decline to
accept such explosives for carriage, the respondent Attorney-General of the Philippine Islands and the respondent
prosecuting attorney of the city of Manila intend to institute proceedings under the penal provisions of sections 4, 5,
and 6 of Act No. 98 of the Philippine Commission against the company, its managers, agents and servants, to enforce
the requirements of the Acting Collector of Customs as to the acceptance of such explosives for carriage; that
notwithstanding the demands of the plaintiff stockholder, the manager, agents and servants of the company decline
and refuse to cease the carriage of such explosives, on the ground that by reason of the severity of the penalties with
which they are threatened upon failure to carry such explosives, they cannot subject themselves to "the ruinous
consequences which would inevitably result" from failure on their part to obey the demands and requirements of the
Acting Collector of Customs as to the acceptance for carriage of explosives; that plaintiff believes that the Acting
Collector of Customs erroneously construes the provisions of Act No. 98 in holding that they require the company to
accept such explosives for carriage notwithstanding the above mentioned resolution of the directors and
stockholders of the company, and that if the Act does in fact require the company to carry such explosives it is to that
extent unconstitutional and void; that notwithstanding this belief of complainant as to the true meaning of the Act,
the questions involved cannot be raised by the refusal of the company or its agents to comply with the demands of
the Acting Collector of Customs, without the risk of irreparable loss and damage resulting from his refusal to
facilitate the documentation of the company's vessels, and without assuming the company to test the questions
involved by refusing to accept such explosives for carriage.
The prayer of the complaint is as follows:
Wherefore your petitioner prays to this honorable court as follows:
First. That to the due hearing of the above entitled action be issued a writ of prohibition perpetually
restraining the respondent Yangco Steamship Company, its appraisers, agents, servants or other
representatives from accepting to carry and from carrying, in steamers of said company dynamite, powder or
other explosive substance, in accordance with the resolution of the board of directors and of the shareholders
of said company.
Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S. Stanley as Acting
Collector of Customs of the Philippine Islands, his successors, deputies, servants or other representatives,
from obligating the said Yangco Steamship Company, by any means whatever, to carry dynamite, powder or
other explosive substance.
Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio Villamor as AttorneyGeneral of the Philippine Islands, and W.H. Bishop as prosecuting attorney of the city of Manila, their
deputies representatives or employees, from accusing the said Yangco Steamship Company, its officers,
agents or servants, of the violation of Act No. 98 by reason of the failure or omission of the said company to
accept for carriage out to carry dynamite powder or other explosive.
Fourth. That the petitioner be granted such other remedy as may be meet and proper.
To this complaint the respondents demurred, and we are of opinion that the demurrer must be sustained, on the
ground that the complaint does not set forth facts sufficient to constitute a cause of action.
It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company from accepting for
carriage on any of its vessels, dynamite, powder or other explosives, under any conditions whatsoever; to prohibit the
Collector of Customs and the prosecuting officers of the government from all attempts to compel the company to
accept such explosives for carriage on any of its vessels under any conditions whatsoever; and to prohibit these
officials from any attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the company or its
officers so to do; and this without regard to the conditions as to safety and so forth under which such explosives are
offered for carriage, and without regard also to any question as to the suitableness for the transportation of such
explosives of the particular vessel upon which the shipper offers them for carriage; and further without regard to any
question as to whether such conduct on the part of the steamship company and its officers involves in any instance
an undue, unnecessary or unreasonable discrimination to the prejudice of any person, locality or particular kind of
traffic.
There are no allegations in the complaint that for some special and sufficient reasons all or indeed any of the
company's vessels are unsuitable for the business of transporting explosives; or that shippers have declined or will in
future decline to comply with such reasonable regulations and to take such reasonable precautions as may be
necessary and proper to secure the safety of the vessels of the company in transporting such explosives. Indeed the
contention of petitioner is that a common carrier in the Philippine Islands may decline to accept for carriage any
shipment of merchandise of a class which it expressly or impliedly declines to accept from all shippers alike, because
as he contends "the duty of a common carrier to carry for all who offer arises from the public profession he has
made, and limited by it."
In support of this contention counsel cites for a number of English and American authorities, discussing and applying
the doctrine of the common law with reference to common carriers. But it is unnecessary now to decide whether, in
the absence of statute, the principles on which the American and English cases were decided would be applicable in
this jurisdiction. The duties and liabilities of common carriers in this jurisdiction are defined and fully set forth in Act
No. 98 of the Philippine Commission, and until and unless that statute be declared invalid or unconstitutional, we are
bound by its provisions.
Sections 2, 3 and 4 of the Act are as follows:

SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of passengers or property
as above set forth to make or give any unnecessary or unreasonable preference or advantage to any
particular person, company, firm, corporation or locality, or any particular kind of traffic in any respect
whatsoever, or to subject any particular person, company, firm, corporation or locality, or any particular kind
of traffic, to undue or unreasonable prejudice or discrimination whatsoever, and such unjust preference or
discrimination is also hereby prohibited and declared to be unlawful.
SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid shall, under any
pretense whatsoever, fail or refuse to receive for carriage, and as promptly as it is able to do so without
discrimination, to carry any person or property offering for carriage, and in the order in which such persons
or property are offered for carriage, nor shall any such common carrier enter into any arrangement, contract
or agreement with any other person or corporation whereby the latter is given an exclusive or preferential or
monopolize the carriage any class or kind of property to the exclusion or partial exclusion of any other person
or persons, and the entering into any such arrangement, contract or agreement, under any form or pretense
whatsoever, is hereby prohibited and declared to be unlawful.
SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in the
transportation of passengers or property as hereinbefore set forth is hereby declared to be punishable by a
fine not exceeding five thousand dollars money of the United States, or by imprisonment not exceeding two
years, or both, within the discretion of the court.
The validity of this Act has been questioned on various grounds, and it is vigorously contended that in so far as it
imposes any obligation on a common carrier to accept for carriage merchandise of a class which he makes no public
profession to carry, or which he has expressly or impliedly announced his intention to decline to accept for carriage
from all shippers alike, it is ultra vires, unconstitutional and void.
We may dismiss without extended discussion any argument or contention as to the invalidity of the statute based on
alleged absurdities inherent in its provisions or on alleged unreasonable or impossible requirements which may be
read into it by a strained construction of its terms.
We agree with counsel for petitioner that the provision of the Act which prescribes that, "No common carrier ... shall,
under any pretense whatsoever, fail or refuse to receive for carriage ... to carry any person or property offering for
carriage," is not to be construed in its literal sense and without regard to the context, so as to impose an imperative
duty on all common carriers to accept for carriage, and to carry all and any kind of freight which may be offered for
carriage without regard to the facilities which they may have at their disposal. The legislator could not have intended
and did not intend to prescribe that a common carrier running passenger automobiles for hire must transport coal in
his machines; nor that the owner of a tank steamer, expressly constructed in small watertight compartments for the
carriage of crude oil must accept common carrier must accept and carry contraband articles, such as opium,
morphine, cocaine, or the like, the mere possession of which is declared to be a criminal offense; nor that common
carriers must accept eggs offered for transportation in paper parcels or any merchandise whatever do defectively
packed as to entail upon the company unreasonable and unnecessary care or risks.
Read in connection with its context this, as well as all the other mandatory and prohibitory provisions of the statute,
was clearly intended merely to forbid failures or refusals to receive persons or property for carriage involving any
"unnecessary or unreasonable preference or advantage to any particular person, company, firm, corporation, or
locality, or any particular kind of traffic in any respect whatsoever," or which would "subject any particular person,
company, firm, corporation or locality, or any particular kind of traffic to any undue or unreasonable prejudice or
discrimination whatsoever."
The question, then, of construing and applying the statute, in cases of alleged violations of its provisions, always
involves a consideration as to whether the acts complained of had the effect of making or giving an "unreasonable or
unnecessary preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person,
locality, or particular kind of traffic to any undue or unreasonable prejudice or discrimination. It is very clear
therefore that the language of the statute itself refutes any contention as to its invalidity based on the alleged
unreasonableness of its mandatory or prohibitory provisions.
So also we may dismiss without much discussion the contentions as to the invalidity of the statute, which are based
on the alleged excessive severity of the penalties prescribed for violation of its provisions. Upon general principles it
is peculiarly and exclusively within the province of the legislator to prescribe the pains and penalties which may be
imposed upon persons convicted of violations of the laws in force within his territorial jurisdiction. With the exercise
of his discretion in this regard where it is alleged that excessive fines or cruel and unusual punishments have been
prescribed, and even in such cases the courts will not presume to interfere in the absence of the clearest and most
convincing argument and proof in support of such contentions. (Weems vs.United States, 217 U.S., 349; U.S. vs. Pico,
18 Phil. Rep., 386.) We need hardly add that there is no ground upon which to rest a contention that the penalties
prescribed in the statute under consideration are either excessive or cruel and unusual, in the sense in which these
terms are used in the organic legislation in force in the Philippine Islands.
But it is contended that on account of the penalties prescribed the statute should be held invalid upon the principles
announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard (183 U.S., 79, 102); Mercantile Trust
Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs.Mayer (416 Fed., 150).
We are satisfied however that the reasoning of those cases is not applicable to the statute under consideration. The
principles announced in those decisions are fairly indicated in the following citations found in petitioner's brief:
But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute, so burdens any
challenge thereof in the courts that the party affected is necessarily constrained to submit rather than take the
chances of the penalties imposed, then it becomes a serious question whether the party is not deprived of the equal
protection of the laws. (Cotting vs. Goddard, 183 U. S., 79, 102.)

It may therefore be said that when the penalties for disobedience are by fines so enormous and imprisonment
so severe as to intimidate the company and its officers from resorting to the courts to test the validity of the
legislation, the result is the same as if the law in terms prohibited the company from seeking judicial
construction of laws which deeply affect its rights.
It is urged that there is no principle upon which to base the claim that a person is entitled to disobey a
statute at least once, for the purpose of testing its validity, without subjecting himself to the penalties for
disobedience provided by the statute in case it is valid. This is not an accurate statement of the case.
Ordinarily a law creating offenses in the nature of misdemeanors or felonies relates to a subject over which
the jurisdiction of the legislature is complete in any event. In the case, however, of the establishment of
certain rates without any hearing, the validity of such rates necessarily depends upon whether they are high
enough to permit at least some return upon the investment (how much it is not now necessary to state), and
an inquiry as to that fact is a proper subject of judicial investigation. If it turns out that the rates are too low
for that purpose, then they are illegal. Now, to impose upon a party interested the burden of obtaining a
judicial decision of such a question (no prior hearing having been given) only upon the condition that, if
unsuccessful, he must suffer imprisonment and pay fines, as provided in these acts, is, in effect, to close up
all approaches to the courts, and thus prevent any hearing upon the question whether the rates as provided
by the acts are not too low, and therefore invalid. The distinction is obvious between a case where the validity
of the act depends upon the existence of a fact which can be determined only after investigation of a very
complicated and technical character, and the ordinary case of a statute upon a subject requiring no such
investigation, and over which the jurisdiction of the legislature is complete in any event.
We hold, therefore, that the provisions of the acts relating to the enforcement of the rates, either for freight
or passengers, by imposing such enormous fines and possible imprisonment as a result of an unsuccessful
effort to test the validity of the laws themselves, are unconstitutional on their face, without regard to the
question of the insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147, 148.)
An examination of the general provisions of our statute, of the circumstances under which it was enacted, the
mischief which it sought to remedy and of the nature of the penalties prescribed for violations of its terms convinces
us that, unlike the statutes under consideration in the above cited cases, its enactment involved no attempt to
prevent common carriers "from resorting to the courts to test the validity of the legislation;" no "effort to prevent any
inquiry" as to its validity. It imposes no arbitrary obligation upon the company to do or to refrain from doing
anything. It makes no attempt to compel such carriers to do business at a fixed or arbitrarily designated rate, at the
risk of separate criminal prosecutions for every demand of a higher or a different rate. Its penalties can be imposed
only upon proof of "unreasonable," "unnecessary" and "unjust" discriminations, and range from a maximum which is
certainly not excessive for willful, deliberate and contumacious violations of its provisions by a great and powerful
corporation, to a minimum which may be a merely nominal fine. With so wide a range of discretion for a contention
on the part of any common carrier that it or its officers are "intimidated from resorting to the courts to test the
validity" of the provisions of the statute prohibiting such "unreasonable," "unnecessary" and "unjust" discriminations,
or to test in any particular case whether a given course of conduct does in fact involve such discrimination. We will
presume, for the purpose of declaring the statute invalid, that there is so real a danger that the Courts of First
Instance and this court on appeal will abuse the discretion thus conferred upon us, as to intimidate any common
carrier, acting in good faith, from resorting to the courts to test the validity of the statute. Legislative enactments,
penalizing unreasonable discriminations, unreasonable restraints of trade, and unreasonable conduct in various
forms of human activity are so familiar and have been so frequently sustained in the courts, as to render extended
discussion unnecessary to refute any contention as to the invalidity of the statute under consideration, merely it
imposes upon the carrier the obligation of adopting one of various courses of conduct open to it, at the risk of
incurring a prescribed penalty in the event that the course of conduct actually adopted by it should be held to have
involved an unreasonable, unnecessary or unjust discrimination. Applying the test announced in Ex
parte Young, supra, it will be seen that the validity of the Act does not depend upon "the existence of a fact which can
be determined only after investigation of a very complicated and technical character," and that "the jurisdiction of
the legislature" over the subject with which the statute deals "is complete in any event." There can be no real
question as to the plenary power of the legislature to prohibit and to penalize the making of undue, unreasonable and
unjust discriminations by common carriers to the prejudice of any person, locality or particular kind of traffic.
(See Munn vs. Illinois, 94 U.S., 113, and other cases hereinafter cited in support of this proposition.)
Counsel for petitioner contends also that the statute, if construed so as to deny the right of the steamship company to
elect at will whether or not it will engage in a particular business, such as that of carrying explosives, is
unconstitutional "because it is a confiscation of property, a taking of the carrier's property without due process of
law," and because it deprives him of his liberty by compelling him to engage in business against his will. The
argument continues as follows:
To require of a carrier, as a condition to his continuing in said business, that he must carry anything and
every thing is to render useless the facilities he may have for the carriage of certain lines of freight. It would
be almost as complete a confiscation of such facilities as if the same were destroyed. Their value as a means
of livelihood would be utterly taken away. The law is a prohibition to him to continue in business; the
alternative is to get out or to go into some other business the same alternative as was offered in the case of
the Chicago & N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on as follows:
"Whatever of force there may be in such arguments, as applied to mere personal property capable of
removal and use elsewhere, or in other business, it is wholly without force as against railroad
corporations, so large a proportion of whose investment is in the soil and fixtures appertaining
thereto, which cannot be removed. For a government, whether that government be a single sovereign
or one of the majority, to say to an individual who has invested his means in so laudable an enterprise
as the construction of a railroad, one which tends so much to the wealth and prosperity of the
community, that, if he finds that the rates imposed will cause him to do business at a loss, he may quit
business, and abandon that road, is the very irony of despotism. Apples of Sodom were fruit of joy in
comparison. Reading, as I do, in the preamble of the Federal Constitution, that it was ordained to
"establish justice," I can never believe that it is within the property of an individual invested in and
used for a purpose in which even the Argus eyes of the police power can see nothing injurious to

public morals, public health, or the general welfare. I read also in the first section of the bill of rights
of this state that "all men are by nature free and equal, and have certain inalienable rights, among
which are those of enjoying and defending life and liberty, acquiring, possessing, and protecting
property, and pursuing and obtaining safety and happiness;" and I know that, while that remains as
the supreme law of the state, no legislature can directly or indirectly lay its withering or destroying
hand on a single dollar invested in the legitimate business of transportation." (Chicago & N.W.
Ry. vs. Dey, 35 Fed. Rep., 866, 880.)
It is manifest, however, that this contention is directed against a construction of the statute, which, as we have said,
is not warranted by its terms. As we have already indicated, the statute does not "require of a carrier, as a condition
to his continuing in said business, that he must carry anything and everything," and thereby "render useless the
facilities he may have for the carriage of certain lines of freight." It merely forbids failures or refusals to receive
persons or property for carriage which have the effect of giving an "unreasonable or unnecessary preference or
advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality or particular kind
of traffic to any undue or unreasonable prejudice or discrimination.
Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair, reasonable and valid
exercise of government," and that "it is necessary and proper that such discrimination be prohibited and prevented,"
but he contends that "on the other hand there is no reasonable warrant nor valid excuse for depriving a person of his
liberty by requiring him to engage in business against his will. If he has a rolling boat, unsuitable and unprofitable
for passenger trade, he may devote it to lumber carrying. To prohibit him from using it unless it is fitted out with
doctors and stewards and staterooms to carry passengers would be an invalid confiscation of this property. A carrier
may limit his business to the branches thereof that suit his convenience. If his wagon be old, or the route dangerous,
he may avoid liability for loss of passengers' lives and limbs by carrying freight only. If his vehicles require expensive
pneumatic tires, unsuitable for freight transportation, ha may nevertheless carry passengers. The only limitation
upon his action that it is competent for the governing authority to impose is to require him to treat all alike. His
limitations must apply to all, and they must be established limitations. He cannot refuse to carry a case of red jusi on
the ground that he has carried for others only jusi that he was green, or blue, or black. But he can refuse to carry
red jusi, if he has publicly professed such a limitation upon his business and held himself out as unwilling to carry the
same for anyone."
To this it is sufficient answer to say that there is nothing in the statute which would deprive any person of his liberty
"by requiring him to engage in business against his will." The prohibitions of the statute against undue, unnecessary
or unreasonable regulations which the legislator has seen fit to prescribe for the conduct of the business in which the
carrier is engaged of his own free will and accord. In so far as the self-imposed limitations by the carrier upon the
business conducted by him, in the various examples given by counsel, do not involve an unreasonable or unnecessary
discrimination the statute would not control his action in any wise whatever. It operates only in cases involving such
unreasonable or unnecessary preferences or discriminations. Thus in the hypothetical case suggested by the
petitioner, a carrier engaged in the carriage of green, blue or black jusi, and duly equipped therefor would manifestly
be guilty of "giving an unnecessary and unreasonable preference to a particular kind of traffic" and of subjecting to
"an undue and reasonable prejudice a particular kind of traffic," should he decline to carry red jusi, to the prejudice
of a particular shipper or of those engaged in the manufacture of that kind of jusi, basing his refusal on the ground of
"mere whim or caprice" or of mere personal convenience. So a public carrier of passengers would not be permitted
under this statute to absolve himself from liability for a refusal to carry a Chinaman, a Spaniard, an American, a
Filipino, or a mestizo by proof that from "mere whim or caprice or personal scruple," or to suit his own convenience,
or in the hope of increasing his business and thus making larger profits, he had publicly announced his intention not
to carry one or other of these classes of passengers.
The nature of the business of a common carrier as a public employment is such that it is clearly within the power of
the state to impose such just and reasonable regulations thereon in the interest of the public as the legislator may
deem proper. Of course such regulations must not have the effect of depriving an owner of his property without due
process of law, nor of confiscating or appropriating private property without just compensation, nor of limiting or
prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise. But aside from
such constitutional limitations, the determination of the nature and extent of the regulations which should be
prescribed rests in the hands of the legislator.
Common carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their
business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey Steam Nav.
Co. vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so
far beyond question that it is well settled that the power of the state to exercise legislative control over railroad
companies and other carriers "in all respects necessary to protect the public against danger, injustice and
oppression" may be exercised through boards of commissioners. (New York etc. R. Co. vs. Bristol, 151 U.S., 556, 571;
Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)
Regulations limiting of passengers the number of passengers that may be carried in a particular vehicle or steam
vessel, or forbidding the loading of a vessel beyond a certain point, or prescribing the number and qualifications of
the personnel in the employ of a common carrier, or forbidding unjust discrimination as to rates, all tend to limit and
restrict his liberty and to control to some degree the free exercise of his discretion in the conduct of his business. But
since the Granger cases were decided by the Supreme Court of the United States no one questions the power of the
legislator to prescribe such reasonable regulations upon property clothed with a public interest as he may deem
expedient or necessary to protect the public against danger, injustice or oppression. (Munn vs.Illinois, 94 U.S., 113,
130; Chicago etc. R. Co. vs. Cutts, 94 U.S., 155; Budd vs. New York, 143 U.S., 517; Cottingvs. Goddard, 183 U.S., 79.)
The right to enter the public employment as a common carrier and to offer one's services to the public for hire does
not carry with it the right to conduct that business as one pleases, without regard to the interest of the public and
free from such reasonable and just regulations as may be prescribed for the protection of the public from the
reckless or careless indifference of the carrier as to the public welfare and for the prevention of unjust and
unreasonable discrimination of any kind whatsoever in the performance of the carrier's duties as a servant of the
public.

Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S., 517, 533.)
When private property is "affected with a public interest it ceases to be juris privati only." Property becomes clothed
with a public interest when used in a manner to make it of public consequence and affect the community at large.
"When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the
public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of
the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as he maintains the
use he must submit to control." (Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs.Smith, 128 U.S., 174;
Budd vs. New York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)
Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under
pretense of regulating fares and freight the state can not require a railroad corporation to carry persons or property
without reward. Nor can it do that which in law amounts to a taking of private property for public use without just
compensation, or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern
R. Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations established and
palpably unreasonable as to make their enforcement equivalent to the taking of property for public use without such
compensation as under all the circumstances is just both to the owner and to the public, that is, judicial interference
should never occur unless the case presents, clearly and beyond all doubt, such a flagrant attack upon the rights of
property under the guise of regulations as to compel the court to say that the regulation in question will have the
effect to deny just compensation for private property taken for the public use. (Chicago etc. R. Co. vs. Wellman, 143
U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge Co. vs.Henderson City, 173 U.S., 592, 614.)
Under the common law of England it was early recognized that common carriers owe to the public the duty of
carrying indifferently for all who may employ them, and in the order in which application is made, and without
discrimination as to terms. True, they were allowed to restrict their business so as to exclude particular classes of
goods, but as to the kinds of property which the carrier was in the habit of carrying in the prosecution of his business
he was bound to serve all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc.
Ry. Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that these common law rules
are themselves regulations controlling, limiting and prescribing the conditions under which common carriers were
permitted to conduct their business. (Munn vs. Illinois, 94 U. S., 113, 133.)
It was found, in the course of time, that the correction of abuses which had grown up with the enormously increasing
business of common carriers necessitated the adoption of statutory regulations controlling the business of common
carriers, and imposing severe and drastic penalties for violations of their terms. In England, the Railway Clauses
Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of those
Acts much additional legislation has been adopted tending to limit and control the conduct of their business by
common carriers. In the United States, the business of common carriers has been subjected to a great variety of
statutory regulations. Among others Congress enacted "The Interstate Commerce Act" (1887) and its amendments,
and the Elkins Act as amended (1906); and most if not all of the States of the Union have adopted similar legislation
regulating the business of common carriers within their respective jurisdictions. Unending litigation has arisen under
these statutes and their amendments, but nowhere has the right of the state to prescribe just and reasonable
regulations controlling and limiting the conduct of the business of common carriers in the public interest and for the
general welfare been successfully challenged, though of course there has been wide divergence of opinion as to the
reasonableness, the validity and legality of many of the regulations actually adopted.
The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or unreasonable
discriminations by common carriers may be maintained upon the same reasoning which justified the enactment by
the Parliament of England and the Congress of the United States of the above mentioned statutes prohibiting and
penalizing the granting of certain preferences and discriminations in those countries. As we have said before, we find
nothing confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the business of
common carriers. Correctly construed they do not force him to engage in any business his will or to make use of his
facilities in a manner or for a purpose for which they are not reasonably adapted. It is only when he offers his
facilities as a common carrier to the public for hire, that the statute steps in and prescribes that he must treat all
alike, that he may not pick and choose which customer he will serve, and, specifically, that he shall not make any
undue or unreasonable preferences or discriminations whatsoever to the prejudice not only of any person or locality
but also of any particular kind of traffic.
The legislator having enacted a regulation prohibiting common carriers from giving unnecessary or unreasonable
preferences or advantages to any particular kind of traffic or subjecting any particular kind of traffic to any undue or
unreasonable prejudice or discrimination whatsoever, it is clear that whatever may have been the rule at the common
law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to
the prejudice of the traffic in those goods, unless it appears that for some sufficient reason the discrimination against
the traffic in such goods is reasonable and necessary. Mere whim or prejudice will not suffice. The grounds for the
discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all circumstances of the case.
The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of the defendant
steamship company to accept for carriage on any of its vessels "dynamite, gunpowder or other explosives" would in
no instance involve a violation of the provisions of this statute. There can be little doubt, however, that cases may and
will arise wherein the refusal of a vessel "engaged in the coastwise trade of the Philippine Islands as a common
carrier" to accept such explosives for carriage would subject some person, company, firm or corporation, or locality,
or particular kind of traffic to a certain prejudice or discrimination. Indeed it cannot be doubted that the refusal of a
"steamship company, the owner of a large number of vessels" engaged in that trade to receive for carriage any such
explosives on any of its vessels would subject the traffic in such explosives to a manifest prejudice and
discrimination. The only question to be determined therefore is whether such prejudice or discrimination might in
any case prove to be undue, unnecessary or unreasonable.
This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged in the complaint are
not sufficient to sustain a finding in favor of the contentions of the petitioner. It is not alleged in the complaint that

"dynamite, gunpowder and other explosives" can in no event be transported with reasonable safety on board steam
vessels engaged in the business of common carriers. It is not alleged that all, or indeed any of the defendant
steamship company's vessels are unsuited for the carriage of such explosives. It is not alleged that the nature of the
business in which the steamship company is engaged is such as to preclude a finding that a refusal to accept such
explosives on any of its vessels would subject the traffic in such explosives to an undue and unreasonable prejudice
and discrimination.
Plaintiff's contention in this regard is as follows:
In the present case, the respondent company has expressly and publicly renounced the carriage of
explosives, and expressly excluded the same terms from the business it conducts. This in itself were
sufficient, even though such exclusion of explosives were based on no other ground than the mere whim,
caprice or personal scruple of the carrier. It is unnecessary, however, to indulge in academic discussion of a
moot question, for the decision not a carry explosives rests on substantial grounds which are self-evident.
We think however that the answer to the question whether such a refusal to carry explosives involves an unnecessary
or unreasonable preference or advantage to any person, locality or particular kind of traffic or subjects any person,
locality or particular to traffic to an undue or unreasonable prejudice and discrimination is by no means "selfevident," and that it is a question of fact to be determined by the particular circumstances of each case.
The words "dynamite, powder or other explosives" are broad enough to include matches, and other articles of like
nature, and may fairly be held to include also kerosene oil, gasoline and similar products of a highly inflammable and
explosive character. Many of these articles of merchandise are in the nature of necessities in any country open to
modern progress and advancement. We are not fully advised as to the methods of transportation by which they are
made commercially available throughout the world, but certain it is that dynamite, gunpowder, matches, kerosene oil
and gasoline are transported on many vessels sailing the high seas. Indeed it is a matter of common knowledge that
common carriers throughout the world transport enormous quantities of these explosives, on both land and sea, and
there can be little doubt that a general refusal of the common carriers in any country to accept such explosives for
carriage would involve many persons, firms and enterprises in utter ruin, and would disastrously affect the interests
of the public and the general welfare of the community.
It would be going to far to say that a refusal by a steam vessel engaged in the business of transporting general
merchandise as a common carrier to accept for carriage a shipment of matches, solely on the ground of the dangers
incident to the explosive quality of this class of merchandise, would not subject the traffic in matches to an
unnecessary, undue or unreasonable prejudice and discrimination without proof that for some special reason the
particular vessel is not fitted to carry articles of that nature. There may be and doubtless are some vessels engaged
in business as common carriers of merchandise, which for lack of suitable deck space or storage rooms might be
justified in declining to carry kerosene oil, gasoline, and similar products, even when offered for carriage securely
packed in cases; and few vessels are equipped to transport those products in bulk. But in any case of a refusal to
carry such products which would subject any person, locality or the traffic in such products would be necessary to
hear evidence before making an affirmative finding that such prejudice or discrimination was or was not unnecessary,
undue or unreasonable. The making of such a finding would involve a consideration of the suitability of the vessel for
the transportation of such products ; the reasonable possibility of danger or disaster resulting from their
transportation in the form and under the conditions in which they are offered for carriage; the general nature of the
business done by the carrier and, in a word, all the attendant circumstances which might affect the question of the
reasonable necessity for the refusal by the carrier to undertake the transportation of this class of merchandise.
But it is contended that whatever the rule may be as to other explosives, the exceptional power and violence of
dynamite and gunpowder in explosion will always furnish the owner of a vessel with a reasonable excuse for his
failure or refusal to accept them for carriage or to carry them on board his boat. We think however that even as to
dynamite and gunpowder we would not be justified in making such a holding unaided by evidence sustaining the
proposition that these articles can never be carried with reasonable safety on any vessel engaged in the business of a
common carrier. It is said that dynamite is so erratic an uncontrollable in its action that it is impossible to assert that
it can be handled with safety in any given case. On the other hand it is contended that while this may be true of some
kinds of dynamite, it is a fact that dynamite can be and is manufactured so as to eliminate any real danger from
explosion during transportation. These are of course questions of fact upon which we are not qualified to pass
judgment without the assistance of expert witnesses who have made special studies as to the chemical composition
and reactions of the different kinds of dynamite, or attained a thorough knowledge of its properties as a result of
wide experience in its manufacture and transportation.
As we construe the Philippine statute, the mere fact that violent and destructive explosions can be obtained by the
use of dynamite under certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly
licensed as a common carrier of merchandise, to accept it for carriage, if it can be proven that in the condition in
which it is offered for carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel or
those on board his vessel will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the
nature of his business as a common carrier engaged in the coastwise trade in the Philippine Islands, and his duty as a
servant of the public engaged in a public employment. So also, if by the exercise of due diligence and the taking of
unreasonable precautions the danger of explosions can be practically eliminated, the carrier would not be justified in
subjecting the traffic in this commodity to prejudice or discrimination by proof that there would be a possibility of
danger from explosion when no such precautions are taken.
The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of the
people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use throughout the
Philippines, they must be transported by water from port to port in the various islands which make up the
Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged as a common carrier of
merchandise in the coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage
would constitute a violation of the prohibitions against discriminations penalized under the statute, unless it can be
shown by affirmative evidence that there is so real and substantial a danger of disaster necessarily involved in the

carriage of any or all of these articles of merchandise as to render such refusal a due or a necessary or a reasonable
exercise of prudence and discretion on the part of the shipowner.
The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer must be sustained
on the ground that the facts alleged do not constitute a cause of action.
A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As to all of these
questions we expressly reserve our opinion, believing as we do that in sustaining the demurrer on the grounds
indicated in this opinion we are able to dispose of the real issue involved in the proceedings without entering upon
the discussion of the nice questions which it might have been necessary to pass upon had it appeared that the facts
alleged in the complaint constitute a cause of action.
We think, however, that we should not finally dispose of the case without indicating that since the institution of these
proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board of Public Utility Commissioners and for
other purposes) may have materially modified the right to institute and maintain such proceedings in this
jurisdiction. But the demurrer having been formallly submitted for judgment before the enactment of these statutes,
counsel have not been heard in this connection. We therefore refrain from any comment upon any questions which
might be raised as to whether or not there may be another adequate and appropriate remedy for the alleged wrong
set forth in the complaint. Our disposition of the question raised by the demurrer renders that unnecessary at this
time, though it may not be improper to observe that a careful examination of those acts confirms us in the holding
upon which we base our ruling on this demurrer, that is to say "That whatever may have been the rule at the common
law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to
the prejudice of the traffic in those goods, unless it appears that for some sufficient reason the discrimination against
the traffic in such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of the
discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all the circumstances of the case."
Unless an amended complaint be filed in the meantime, let judgment be entered ten days hereafter sustaining the
demurrer and dismissing the complaint with costs against the complainant, and twenty days thereafter let the record
be filed in the archives of original actions in this court. So ordered.
9. G.R. No. 131621. September 28, 1999
LOADSTAR SHIPPING vs. COURT OF APPEALS
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997
decision[1] of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 [2] of the
Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private
respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the
complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its resolution of 19 November
1997,[3] denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the vessel) the following
goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including
TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit,
Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its
shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid
P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel
was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MICs claim from
LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed that the sinking of
its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the
matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on
that fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR
retained control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in
determining the rights and liabilities of the parties.

3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been
seaworthy, it could have withstood the natural and inevitable action of the sea on 20 November 1984,
when the condition of the sea was moderate. The vessel sank, not because of force majeure, but because
it was not seaworthy. LOADSTARS allegation that the sinking was probably due to the convergence of
the winds, as stated by a PAGASA expert, was not duly proven at the trial. The limited liability rule,
therefore, is not applicable considering that, in this case, there was an actual finding of negligence on
the part of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions
bind only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latters rights as against the carrier, LOADSTAR. [6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached their
destination. LOADSTARs defense of diligence of a good father of a family in the training and selection of
its crew is unavailing because this is not a proper or complete defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered
on board a ship in good order and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both allege and prove that the goods were
damaged by reason of some fact which legally exempts him from liability. Transportation of the
merchandise at the risk and venture of the shipper means that the latter bears the risk of loss or
deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless
otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued a
certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only one
shipper, one consignee for a special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not timely raised below;
hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for
delivery to one consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading
in this case made no mention of any charter party but only a statement that the vessel was a general cargo
carrier.Neither was there any special arrangement between LOADSTAR and the shipper regarding the shipment of
the cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been
negligent, and the burden of proving otherwise devolved upon MIC. [8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the
vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety
engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the
time was experienced, licensed and unquestionably competent. With all these precautions, there could be no other
conclusion except that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessels
seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force
majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was
fine until the next day when the vessel sank due to strong waves. MICs witness, Gracelia Tapel, fully established the
existence of two typhoons, WELFRING and YOLING, inside the Philippine area of responsibility. In fact, on 20
November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified
that the convergence of winds brought about by these two typhoons strengthened wind velocity in the area, naturally
producing strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what
transpired in this case, is valid. Since the cargo was being shipped at owners risk, LOADSTAR was not liable for any
loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading
apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the
Supreme Courts ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc., [9] and National
Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc. [10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been instituted beyond the
period stated in the bills of lading for instituting the same suits based upon claims arising from shortage, damage, or
non-delivery of shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank
on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due
to force majeure, because the same concurred with LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed
waived.
Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR was at fault or
negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its
knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier
be issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of
the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship
Agencies, Inc.,[11] where this Court held that a common carrier transporting special cargo or chartering the vessel to
a special person becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in
the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if the strict
policy governing common carriers is upheld. Such policy has no force where the public at large is not involved, as in
the case of a ship totally chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and
Industrial Supply, Inc. v. Court of Appeals [12] and National Steel Corp. v. Court of Appeals, [13] both of which upheld
the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the factual
settings are different. The records do not disclose that the M/V Cherokee, on the date in question, undertook to carry
a special cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to
show any special arrangement, but only a general provision to the effect that the M/V Cherokee was a general cargo
carrier.[14] Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier
under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, [15] the Court juxtaposed the
statutory definition of common carriers with the peculiar circumstances of that case, viz.:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline. Article 1732
also carefully avoids making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the general public, i.e., the general community
or population, and one who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making such distinctions.
xxx
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely
back-hauled goods for other merchants from Manila to Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private
respondents principal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that that fee frequently fell below commercial
freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound
public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory
requirements.The business of a common carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and protection of those who utilize their services and the law
cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy when it embarked on
its voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers
and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. [16]
Neither do we agree with LOADSTARs argument that the limited liability theory should be applied in this
case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or
agent.[17] LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel
to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be
deemed as force majeure, inasmuch as the wind condition in the area where it sank was determined to be
moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind the limited liability
doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter
disregard of this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., [18] andNational
Union Fire Insurance v. Stolt-Nielsen Phils., Inc. [19] It was ruled in these two cases that after paying the claim of the
insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is,
it can recover only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of

loss or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as
subrogee is necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the cases
relied on by LOADSTAR involved a limitation on the carriers liability to an amount fixed in the bill of lading which the
parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the other
hand, the stipulation in the case at bar effectively reduces the common carriers liability for the loss or destruction of
the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or
damage to shipments made at owners risk. Such stipulation is obviously null and void for being contrary to public
policy.[20] It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any
and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified
limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost
uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable.[21]
Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all
the rights which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MICs cause of
action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit may
be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the good.
[22]
In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the
one-year period is null and void;[23] it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of
Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
SO ORDERED.
10. G.R. No. L-25599

April 4, 1968

HOME INSURANCE COMPANY,


vs.
AMERICAN STEAMSHIP AGENCIES, INC.
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of
Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated January
17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home
Insurance Company for $202,505, arrived in Manila on March 7, 1963 and was discharged into the lighters of Luzon
Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery Inc., there were shortages
amounting to P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance
Company and the American Steamship Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 the insurance value
of the loss, as full settlement of the claim. Having been refused reimbursement by both the Luzon Stevedoring
Corporation and American Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed
against them on March 6, 1964 before the Court of First Instance of Manila a complaint for recovery of P14,870.71
with legal interest, plus attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity
and quality that it had received the same from the carrier. It also claimed that plaintiff's claim had prescribed under
Article 366 of the Code of Commerce stating that the claim must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter party referred to in
the bills of lading, the charterer, not the shipowner, was responsible for any loss or damage of the cargo.
Furthermore, it claimed to have exercised due diligence in stowing the goods and that as a mere forwarding agent, it
was not responsible for losses or damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation, having
found the latter to have merely delivered what it received from the carrier in the same condition and quality, and
ordered American Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees.
Said court cited the following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable
because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor of
third persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public policy
under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or negligent
under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot by contract
exempt themselves from liability resulting from their negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad order at the place of
destination, the carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth for
determination this legal issue: Is the stipulation in the charter party of the owner's non-liability valid so as to absolve
the American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading
shall be governed by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading
prevail over all the agreements. 2 On the of the bills are stamped "Freight prepaid as per charter party. Subject to all
terms, conditions and exceptions of charter party dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship were not entirely
transferred to the charterer,4 the vessel was chartered to its full and complete capacity (Exh. 3). Furthermore, the,
charter had the option to go north or south or vice-versa,5 loading, stowing and discharging at its risk and
expense.6 Accordingly, the charter party contract is one of affreightment over the whole vessel rather than a demise.
As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused
by personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to
secure that she be properly manned, equipped and supplied or by the personal act or default of the owner or its
manager. Said paragraph, however, exempts the owner of the vessel from any loss or damage or delay arising from
any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner
on board, for whose acts the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the Code of
Commerce making the ship agent civilly liable for indemnities suffered by third persons arising from acts or
omissions of the captain in the care of the goods and Article 1744 of the Civil Code under which a stipulation
between the common carrier and the shipper or owner limiting the liability of the former for loss or destruction of
the goods to a degree less than extraordinary diligence is valid provided it be reasonable, just and not contrary to
public policy. The release from liability in this case was held unreasonable and contrary to the public policy on
common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law. 7 Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes
a private carrier.8 As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent
is not against public policy,9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would be void only if the strict public policy governing common
carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally
chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper,
is in fact and legal contemplation merely a receipt and a document of title not a contract, for the contract is the
charter party.10 The consignee may not claim ignorance of said charter party because the bills of lading expressly
referred to the same. Accordingly, the consignees under the bills of lading must likewise abide by the terms of the
charter party. And as stated, recovery cannot be had thereunder, for loss or damage to the cargo, against the
shipowners, unless the same is due to personal acts or negligence of said owner or its manager, as distinguished
from its other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff. No
costs. So ordered.
11. G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO vs. PANTRANCO
The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the
highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service
or coastwise or interisland shipping service along its authorized route as an incident to its franchise without the need
of filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the
land transportation business with PUB service for passengers and freight and various certificates for public
conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March
27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to
lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from
Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross
San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due
course to the request on the basis of the following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo;
MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes
where these are adequately serviced by existing/authorized operators.

2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel
acquisitions intended for operations therein are necessarily limited to those intended for replacement
purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the
Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to
carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City
invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a ferry
service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the
purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is
merely a necessary and incidental service to its main service and obligation of transporting its passengers from Pasay
City to Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public
convenience to operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and
freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C.
Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1, 1981 at
10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be
cited to show cause why its CPC should not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of
the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by
ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or
not a bus company with an existing CPC between Pasay City and Tacloban City may still be required to secure
another certificate in order to operate a ferry service between two terminals of a small body of water. On October 20,
1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators
to secure a separate CPC to operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a certificate of public convenience is expected to
provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co.
vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58
SO 543) It is the right of the public which has accepted the service of a public utility operator to
demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to its
Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of
public convenience to provide adequate and convenient service to its riders. Requiring said bus
company to obtain another certificate to operate such ferry service when it merely forms a part
and constitutes an improvement of its existing transportation service would simply be duplicitous
and superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to
operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:
Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be
amended to embody the grant of authority to operate a private ferry boat service as one of the
conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the
exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the
public for hire other than its own passengers, it must apply for a separate certificate of public
convenience as a public ferry boat service, separate and distinct from its land transport systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision
and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking
the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following
issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES
OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A
COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIOAMENDED
RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A
SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON ALLEN, SAMAR EVEN AS THERE
MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD
THEREFORE, ASSUMING AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981,
THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF
ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR
CONTINUATION OF THE HIGHWAY IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND
ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES,
RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S
VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING
FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR
CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE
FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO


AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION
AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO
SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO
ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR
FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE GRANTED
UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY
TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY
"SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND
CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'?11
By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:
a. the decision did not conform to the procedures laid down by law for an amendment of the original
certificate of public convenience, and the authority to operate a private ferry boat service to
PANTRANCO was issued without ascertaining the established essential requisites for such grant,
hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said
route contravenes existing government policies relative to the rationalization of operations of all
water transport utilities;
c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation;
d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens
PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service cnstitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the respondent Board
which would more than amply justify review of the questioned decision by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the
authority originally granted PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the highway from one side of the water over
which passes to the other side for transportation of passengers or of travellers with their teams
vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev.
Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially
constructed boat to carry passengers and property across rivers or bodies of water from a place in
one shore to a point conveniently opposite on the other shore and continuation of the highway
making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P.
Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of
the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry
service maybe a public ferry or a private ferry. A public ferry service is one which all the public have
the right to resort to and for which a regular fare is established and the ferryman is a common carrier
be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth
v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though
he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public at
its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and
Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay
City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien
(Samar). It is a private carrier because it will be used exclusively to transport its own buses,
passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its
own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire
or for compensation to the general public. Legally therefore, Pantranco has the right to operate the
ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice
versa for the exclusive use of its own buses, passengers and freight trucks without the need of
applying for a separate certificate of public convenience or provisional authority. Since its operation
is an integral part of its land transport system, its original certificate of public convenience should be
amended to include the operation of such ferryboat for its own exclusive use
In Javellana 14 this Court recited the following definition of ferry :

The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the
connection of highways located on the opposite banks of a stream or other body of water. The term
necessarily implies transportation for a short distance, almost invariably between two points, which
is unrelated to other transportation .(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by the state or its
authorized mandatories to continue by means of boats, an interrupted land highway over the
interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been
defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or
stream or some other body of water, with no essential difference from a bridge franchise except as to
the mode of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of
water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co.,
192 U.S. 454, 48 L. ed. 518; etc.)
The term ferry is often employed to denote the right or franchise granted by the state or its
authorized mandatories to continue by means of boats, an interrupted land highway over the
interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano
Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay.(U.S.
vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a
franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea,
from one vill to another, or to connect a continuous line of road leading from township or vill to
another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of
waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is
sometimes used to designate very extensive reaches of waters within the projecting capes or points
or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The
distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb
and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms of
the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease 2
Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran
vs. Elizaga 17this Court considered as ferry service such water service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by
holding that:
We are not unmindful of the reasons adduced by the Commission in considering the motorboat
service between Calapan and Batangas as ferry; but from our consideration of the law as it stands,
particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the
Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the
Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we have the impression
andwe are inclined to believe that the Legislature intended ferry to mean the service either by barges
or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in some cases to connect two points on
opposite shores of an arm of the sea such as bay or lake which does not involve too great a distance
or too long a time to navigate But where the line or service involves crossing the open sea like the
body of water between the province of Batangas and the island of Mindoro which the oppositors
describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with
big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable
to regard said line or service as more properly belonging to interisland or coastwise trade. According
to the finding of the Commission itself the distance between Calapan is about 24 nautical miles or
about 44.5 kilometers. We do not believe that this is the short distance contemplated by the
Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries
between two municipalities or provinces. If we are to grant that water transportation between
Calapan and Batangas is ferry service, then there would be no reason for not considering the same
service between the different islands of the Philippines, such as Boac Marinduque and Batangas;
Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao,
Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the coastwise trade,
thus:
A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade
in that the latter is intended for the transportation of passengers and/or freight for hire or
compensation between ports or places in the Philippines without definite routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the
William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga,
every week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry

service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back,
twice a week. Certainly, it has a definite route. But that service is not ferry service, but rather
interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to consider steamboat or
motorboat service between the different islands, involving more or less great distance and over more
or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service.
Anyway, whether said service between the different islands is regarded as ferry service or coastwise
trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result
will be the same as far as the Commission is concerned. " 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that
Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on
the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific
Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe
negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according
to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be
choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such
steamboats or vessels as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from
Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no
circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat
service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small
body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are
separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should
secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the
provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the
guise that it is a mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a
common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO
does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets
whenever they board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in
issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see
any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in
passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has
been submitted. 21 What is even more difficult to comprehend is that while in one breath respondent PANTRANCO
claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does
not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the
transportation of its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is
to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its
passengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and
the cargo owners cannot be allowed.
What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service
between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the vessel M/V
"Black Double 22 in accordance with the procedure provided for by law for such application for a certificate of public
convenience. 23 However when its request was denied as the said routes "are adequately serviced by
existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same. Obviously to
go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private
ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident
to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not
secure a separate certificate of public convenience. 25 Based on this representation, no less than the Secretary of
Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned
decision of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a
situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a
coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the
operation of the said service as a common carrier, it must comply with the usual requirements of filing an application,
payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be
heard, among others, as provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT)
of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying the motions
for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent
PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland
services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience
(CPC) in accordance with the requirements of the law, with costs against respondent PANTRANCO.
SO ORDERED.
12. G.R. No. L-28673 October 23, 1984
SAMAR MINING vs. NORDEUTSCHER LLOYD

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila,
finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue
raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading
covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1)
crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant
NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the
aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and
condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the
consignee at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed
a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the
former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in
AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by
enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only the
defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which
should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only
proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the
goods; and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a
contract, it is the law between the parties thereto 3 who are bound by its terms and conditions 4 provided that these
are not contrary to law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was
received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the
freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the
carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from
ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of
discharge of goods The stipulation is plainly indicated on the face of the bill which contains the following phrase
printed below the space provided for the port of discharge from ship", thus: t.hqw
if goods are to be transshipped at port of discharge, show destination under the column for
"description of contents" 7
As instructed above, the following words appeared typewritten under the column for "description of contents": t.
hqw
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the
custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations
contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the
goods from Manila to their port of destination-Davao. The word "transship" means: t.hqw
to transfer for further transportation from one ship or conveyance to another

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are
spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: t.hqw
The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring
before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be
discharged, transshipped or forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at
carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the
carrier or master may, without notice, forward the whole or any part of the goods before or after
loading at the original port of shipment, ... This carrier, in making arrangements for any
transshipping or forwarding vessels or means of transportation not operated by this carrier shall be
considered solely the forwarding agent of the shipper and without any other responsibility
whatsoever even though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of
the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor
responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or
delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the
same in full and good condition unto the custody of AMCYL at the port of discharge from ship Manila, and

therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had
ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for
loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy
not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned.
As if to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations
before Us, provides: t.hqw
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while
the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation or forwarding of
goods not used or operated by the carrier, shall be considered solely the agent of the shipper and
consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained
their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded
that: t.hqw
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo
is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City.
Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier
ceased the moment the goods were unloaded in Manila and in the matter of transshipment, appellee
acted merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity
with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of
Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss
or damage to the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign
country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code,
the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16 A
careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our
attention to Article 1736 thereof, which reads: t.hqw
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation until
the same are delivered, actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.hqw
Article 1738. The extraordinary liability of the common carrier continues to be operative even during
the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter
to remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation
where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The
subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a
third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article,
the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery
of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery
has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by him to receive the goods as his representative for the
purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods
when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its
duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied
and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the
moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of
agent of the consignee. Thus, the character of appellant's possession also changes, from possession in its own name
as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in effect,

actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such
delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards. This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is
true that the transshipment of the goods, which was the object of the agency, was not fully performed. However,
appellant had commenced said performance, the completion of which was aborted by circumstances beyond its
control. An agent who carries out the orders and instructions of the principal without being guilty of negligence,
deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the
agency, 21 This can be gleaned from the following provisions of the New Civil Code on the obligations of the
agent: t.hqw
Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the
damages which, through his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and
those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing
so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the person appointed was
notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be
judged with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted
as appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful
stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers,
agency and contracts, they incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.
No costs.
13. G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES vs. INTERMEDIATE APPELLATE COURT

These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of
the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern
Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to
Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming
Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of
goods were insured against marine risk for their stated value with respondent Development Insurance and Surety
Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying
instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated
value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The
respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and
were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short),
having been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the
recovery of the amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX
(Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event,
hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of
P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner
Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the
recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case
No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner
Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an
exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss
of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
$46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On
appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's
judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation
of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G.
R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration,
however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their
respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the
Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then
pending resolution with the First Division. The same was granted; the Resolution of the Second Division of
September 25, 1985 was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a
charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are
represented by various counsel representing various consignees or insurance companies. The
common defendant in these cases is petitioner herein, being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading
are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be
received in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a
party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common carriers
or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common carrier in case of
their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines,
the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by
said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each
case. 8 Common carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster
or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must
be so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category
of an act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by
the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code
provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at
fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods
have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner
Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court,
concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf
the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and
hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire must have
started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released and the
crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea water:
that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over
the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by
the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches, no regular inspection was made as to
their condition during the voyage. Consequently, the crew could not have even explain what could
have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire.
The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of
it under Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only
cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or
after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein
that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting
from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of
the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire
must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in
the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its
servants were negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when
loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of
the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or
in connection with the transportation of goods in an amount exceeding $500 per package lawful
money of the United States, or in case of goods not shipped in packages, per customary freight unit,
or the equivalent of that sum in other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in bill of lading. This declaration if embodied in
the bill of lading shall be prima facie evidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not
be less than the figure above named. In no event shall the carrier be Liable for more than the amount
of damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per
package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is
suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory
provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in
the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of
lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the
carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods.
Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of
payment of the value of the goods lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the
amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would
result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more
than the amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"),
which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent
Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1
(US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for
those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to
DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per
package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the
Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to
NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and
explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was
correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation of the
carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping
unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the
shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor
covering, which had been shipped in vessel supplied containers. The U.S. District Court for the Southern District of
New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals,
Second Division, modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by the
carrier and the number of such units is disclosed in the shipping documents, each of those units and
not the container constitutes the "package" referred to in liability limitation provision of Carriage of
Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrierfurnished containers whose contents are disclosed should be treated as packages, the interest in
securing international uniformity would suggest that they should not be so treated. Carriage of Goods
by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a
package is inconsistent with the congressional purpose of establishing a reasonable minimum level of
liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there is, nonetheless,
much to commend it. It gives needed recognition to the responsibility of the courts to
construe and apply the statute as enacted, however great might be the temptation to
"modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake the surgery.
There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford
that technological advancements, whether or not forseeable by the COGSA

promulgators, do not warrant a distortion or artificial construction of the statutory


term "package." A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages at least where, as here, they were carrier
owned and supplied would amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing
his goods can rightly be considered "packages" standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would liken
these containers to detachable stowage compartments of the ship. They simply serve
to divide the ship's overall cargo stowage space into smaller, more serviceable loci.
Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring
practices and materials analogous to those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F
2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in
Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of
polyester goods are packed into cardboard cartons which are then placed in containers, the cartons
and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which
were then placed by the shipper into a carrier- furnished container. The number of cartons was
disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the
cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier
could limit its liability to $500 per container if the bill of lading failed to disclose the number of
cartons or units within the container, or if the parties indicated, in clear and unambiguous language,
an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and
Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in
Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons
or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that
the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of
liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually,
however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for
Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the
dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of
Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty
to pack and carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning
that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the
containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any
ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies with
even greater force in a contract of adhesion where a contract is already prepared and the other party merely adheres
to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in
Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this
point, the Trial Court found:

xxx xxx xxx


Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27,
1978, when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial
conference was conducted for the last time, the defendant had more than nine months to prepare its
evidence. Its belated notice to take deposition on written interrogatories of its witnesses in Japan,
served upon the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the witnesses
would be dispensed with if by next time it had not yet been obtained, only proves the lack of merit of
the defendant's motion for postponement, for which reason it deserves no sympathy from the Court in
that regard. The defendant has told the Court since February 16, 1979, that it was going to take the
deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its failure to adduce
evidence in support of its defenses.
xxx xxx xxx

22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was
denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due
process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the
Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in
favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00
would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the
Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of
calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date
of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
14. G.R. No. L-30212 September 30, 1987
BIENVENIDO GELISAN vs. BENITO ALDAY

Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, as amended by its
resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday, plaintiff-appellant, vs. Roberto
Espiritu and Bienvenido Gelisan, defendants-appellees," which ordered the herein petitioner Bienvenido Gelisan to
pay, jointly and severally, with Roberto Espiritu, the respondent Benito Alday the amount of P5,397.30, with. legal
interest thereon from the filing of the complaint, and the costs of suit; and for the said Roberto Espiritu to pay or
refund the petitioner Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday
by virtue of the judgment.
The uncontroverted facts of the case are, as follows:
Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-2377. On January
31, 1962, defendant Bienvenido Gelisan and Roberto Espiritu entered into a contract marked Exhibit
3-Gelisan under which Espiritu hired the same freight truck of Gelisan for the purpose of hauling
rice, sugar, flour and fertilizer at an agreed price of P18.00 per trip within the limits of the City of
Manila provided the loads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and
pay all losses and damages attending the carriage of the goods to be hauled by him. The truck was
taken by a driver of Roberto Espiritu on February 1, 1962. Plaintiff Benito Alday, a trucking operator,
and who owns about 15 freight trucks, had known the defendant Roberto Espiritu since 1948 as a
truck operator. Plaintiff had a contract to haul the fertilizers of the Atlas Fertilizer Corporation from
Pier 4, North Harbor, to its Warehouse in Mandaluyong. Alday met Espiritu at the gate of Pier 4 and
the latter offered the use of his truck with the driver and helper at 9 centavos per bag of fertilizer.
The offer was accepted by plaintiff Alday and he instructed his checker Celso Henson to let Roberto
Espiritu haul the fertilizer. Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer
was delivered to the driver and helper of Espiritu with the necessary way bill receipts, Exhibits A and
B. Espiritu, however, did not deliver the fertilizer to the Atlas Fertolizer bodega at Mandaluyong. The
signatures appearing in the way bill receipts Exhibits A and B of the Alday Transportation admittedly
not the signature of any representative or employee of the Atlas Fertilizer Corporation. Roberto
Espiritu could not be found, and plaintiff reported the loss to the Manila Police Department. Roberto
Espiritu was later arrested and booked for theft. ...
Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he notified the Manila
Police Department, and it was impounded by the police. It was claimed by Bienvenido Gelisan from
the Police Department after he had been notified by his employees that the truck had been
impounded by the police; but as he could not produce at the time the registration papers, the police

would not release the truck to Gelisan. As a result of the impounding of the truck according to
Gelisan, ... and that for the release of the truck he paid the premium of P300 to the surety company.1
Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33, to Atlas
Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint against Roberto Espiritu and
Bienvenido Gelisan with the Court of First Instance of Manila, docketed therein as Civil Case No. 49603, for the
recovery of damages suffered by him thru the criminal acts committed by the defendants.
The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that he had no
contractual relations with the plaintiff Benito Alday as regards the hauling and/or delivery of the 400 bags of
fertilizer mentioned in the complaint; that the alleged misappropriation or nondelivery by defendant Roberto Espiritu
of plaintiff's 400 bags of fertilizer, was entirely beyond his (Gelisan's) control and knowledge, and which fact became
known to him, for the first time, on 8 February 1962 when his freight truck, with plate No. TH-2377, was impounded
by the Manila Police Department, at the instance of the plaintiff; and that in his written contract of hire with Roberto
Espiritu, it was expressly provided that the latter will bear and pay all loss and damages attending the carriage of
goods to be hauled by said Roberto Espiritu.
After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito Alday, since
Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. The dispositive portion of the decision
reads, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
Roberto Espiritu for the sum of P6,000 with interest at the legal rate from the time of the filing of the
complaint, and the costs of the suit. Plantiff's complaint is dismissed with respect to defendant
Bienvenido Gelisan, and judgment is rendered in favor of defendant Bienvenido Gelisan and against
the plaintiff for the sum of P350. 2
On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that Bienvenido Gelisan is
likewise liable for being the registered owner of the truck; and that the lease contract, executed by and between
Bienvenido Gelisan and Roberto Espiritu, is not binding upon Benito Alday for not having been previously approved
by the Public Service Commission. Accordingly, it sentenced Bienvenido Gelisan to pay, jointly and severally with
Roberto Espiritu, Benito Alday the amount of P5,397.30, with legal interest thereon from the filing of the complaint;
and to pay the costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan whatever amount
the latter may have paid to Benito Alday by virtue of the judgment. 4
Hence, the present recourse by Bienvenido Gelisan.
The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to be reviewed, is in
accord with the facts and the law on the case and we find no cogent reason to disturb the same. The Court has
invariably held in several decisions that the registered owner of a public service vehicle is responsible for damages
that may arise from consequences incident to its operation or that may be caused to any of the passengers
therein. 5 The claim of the petitioner that he is not hable in view of the lease contract executed by and between him
and Roberto Espiritu which exempts him from liability to third persons, cannot be sustained because it appears that
the lease contract, adverted to, had not been approved by the Public Service Commission. It is settled in our
jurisprudence that if the property covered by a franchise is transferred or leased to another without obtaining the
requisite approval, the transfer is not binding upon the public and third persons. 6
We also find no merit in the petitioner's argument that the rule requiring the previous approval by the Public Service
Commission, of the transfer or lease of the motor vehicle, may be applied only in cases where there is no positive
Identification of the owner or driver, or where there are very scant means of Identification, but not in those instances
where the person responsible for damages has been fixed or determined beforehand, as in the case at bar. The
reason for the rule we reiterate in the present case, was explained by the Court in Montoya vs. Ignacio, 7thus:
There is merit in this contention. The law really requires the approval of the Public Service
Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased
without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is
personal in nature any transfer or lease thereof should be notified to the Public Service Commission
so that the latter mav take proper safeguards to protect the interest of the public. In fact, the law
requires that, before the approval is granted, there should be a public hearing, with notice to all
interested parties, in order that the Commission may determine if there are good and reasonable
grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or
lease is detrimental to public interest. Such being the reason and philosophy behind this
requirement, it follows that if the property covered by the franchise is transferred, or leased to
another without obtaining the requisite approval, the transfer is not binding against the Public
Service Commission and in contemplation of law the grantee continues to be responsible under the
franchise in relation to the Commission and to the Public. Since the lease of the jeepney in question
was made without such approval the only conclusion that can be drawn is that Marcelino Ignacio still
continues to be its operator in contemplation of law, and as such is responsible for the consequences
incident to its operation, one of them being the collision under consideration.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be indemnified by
Roberto Espiritu for the amount titat he may be required to pay as damages for the injury caused to Benito Alday,
since the lease contract in question, although not effective against the public for not having been approved by the
Public Service Commission, is valid and binding between the contracting parties. 8

We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has consistently
considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver
for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said
vehicles. Thus, in the case of Vargas vs. Langcay, 9 the Court said:
We hold that the Court of Appeals erred in considering appellant-petitioner Diwata Vargas only
subsidiarily liable under Article 103 of the Revised Penal Code. This court, in previous decisions, has
always considered the registered owner/operator of a passenger vehicle, jointly and severally liable
with the driver, for damages incurred by passengers or third persons as a consequence of injuries (or
death) sustained in the operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol vs.
Osias, G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506; Necesito vs.
Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquino and Rayos vs Tamayo, 105
Phil., 949; 56 Off. Gaz. [36] 5617.) In the case of Erezo vs. Jepte, Supra, We held:
* * * In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused * * * (Emphasis supplied)
In the case of Tamayo vs. Aquino, supra, We said:
* * * As Tamayo is the registered owner of the truck, his responsibffity to the public or to any
passenger riding in the vehicle or truck must be direct * * * (Emphasis supplied)
WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.
SO ORDERED.
15. G.R. No. 70876 July 19, 1990
MA. LUISA BENEDICTO vs INTERMEDIATE APPELLATE COURT
This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court dated 30 January
1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the Regional Trial Court ("RTC") of Dagupan
City in Civil Case No. 5206. There, the RTC held petitioner Ma. Luisa Benedicto liable to pay private respondent
Greenhills Wood Industries Company, Inc. ("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the
cost of Greenhills' lost sawn lumber and attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City, operates sawmill
in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc., ("Blue Star")
a company with business operations in Valenzuela, Bulacan 100,000 board feet of sawn lumber with the
understanding that an initial delivery would be made on 15 May 1980. 1 To effect its first delivery, private
respondent's resident manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck
bearing Plate No. 225 GA TH to transport its sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This
cargo truck was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a
business enterprise engaged in hauling freight, with main office in B.F. Homes, Paraaque.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the loading of 7,690 board
feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck. Before the cargo truck left Maddela for
Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices Nos. 3259 and 3260 both of which were initialed by the
latter at the bottom left corner. 2 The first invoice was for the amount of P11,822.80 representing the value of 5,374
board feet of sawn lumber, while the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz
instructed Licuden to give the original copies of the two (2) invoices to the consignee upon arrival in Valenzuela,
Bulacan 3 and to retain the duplicate copies in order that he could afterwards claim the freightage from private
respondent's Manila office. 4
On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills' president, Henry Lee
Chuy, informing him that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela,
Bulacan. The latter in turn informed Greenhills' resident manager in its Maddela saw-mill of what had happened. In a
letter 5 dated 18 May 1980, Blue Star's administrative and personnel manager, Manuel R. Bautista, formally informed
Greenhills' president and general manager that Blue Star still had not received the sawn lumber which was supposed
to arrive on 15 May 1980 and because of this delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to continue with
their contract, private respondent Greenhill's filed Criminal Case No. 668 against driver Licuden for estafa.
Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for recovery of the value of the lost sawn
lumber plus damages before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the contract of
carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28 February 1980 as evidenced by a
deed of sale. 7She claimed that the truck had remained registered in her name notwithstanding its earlier sale to Tee
because the latter had paid her only P50,000.00 out of the total agreed price of P68,000.00 However, she averred
that Tee had been operating the said truck in Central Luzon from that date (28 February 1980) onwards, and that,
therefore, Licuden was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the subject truck,
and holding that Licuden was her employee, the trial court adjudged as follows:

WHEREFORE, in the light of the foregoing considerations, this Court hereby renders judgment
against defendant Maria Luisa Benedicto, ordering her to pay the Greenhills Wood Industries Co.
Inc., thru its President and General Manager, the amount of P16,016 cost of the sawn lumber loaded
on the cargo truck, with legal rate of interest from the filing of the complaint to pay attorney's fees in
the amount of P2,000.00; and to pay the costs of this suit.
SO ORDERED.

On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the decision of the trial
court in toto. Like the trial court, the appellate court held that since petitioner was the registered owner of the
subject vehicle, Licuden the driver of the truck, was her employee, and that accordingly petitioner should be
responsible for the negligence of said driver and bear the loss of the sawn lumber plus damages. Petitioner moved for
reconsideration, without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the facts and applicable law, the
appellate court was correct in finding that petitioner, being the registered owner of the carrier, should be held liable
for the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine which makes
the registered owner of a common carrier vehicle answerable to the public for the negligence of the driver despite
the sale of the vehicle to another person, applies only to cases involving death of or injury to passengers. What
applies in the present case, according to petitioner, is the rule that a contract of carriage requires proper delivery of
the goods to and acceptance by the carrier. Thus, petitioner contends that the delivery to a person falsely
representing himself to be an agent of the carrier prevents liability from attaching to the registered owner.
The Court considers that petitioner has failed to show that appellate court committed reversible error in affirming
the trial court's holding that petitioner was liable for the cost of the sawn lumber plus damages.
There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of
hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the
operations of the carrier, even though the specific vehicle involved may already have been transferred to another
person. This doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law,
the public has the right to assume that the registered owner is the actual or lawful owner thereof It would be very
difficult and often impossible as a practical matter, for members of the general public to enforce the rights of action
that they may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove
who the actual owner is. 11 The registered owner is not allowed to deny liability by proving the identity of the alleged
transferee. Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle's
certificate of registration to ascertain the owner of the carrier. In this regard, the letter presented by petitioner
allegedly written by Benjamin Tee admitting that Licuden was his driver, had no evidentiary value not only because
Benjamin Tee was not presented in court to testify on this matter but also because of the aforementioned doctrine. To
permit the ostensible or registered owner to prove who the actual owner is, would be to set at naught the purpose or
public policy which infuses that doctrine.
In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a contract of carriage
on behalf of the registered owner. It appears that, earlier, in the first week of May 1980, private respondent
Greenhills had contracted Licuden who was then driving the same cargo truck to transport and carry a load of sawn
lumber from the Maddela sawmill to Dagupan City. 12 No one came forward to question that contract or the authority
of Licuden to represent the owner of the carrier truck.
Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the freight truck for
her own benefit and convenience, that is, to secure the payment of the balance of the selling price of the truck. She
may have been unaware of the legal security device of chattel mortgage; or she, or her buyer, may have been
unwilling to absorb the expenses of registering a chattel mortgage over the truck. In either case, considerations both
of public policy and of equity require that she bear the consequences flowing from registered ownership of the
subject vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving negligence and
resulting injury to or death of passengers, and not to cases involving merely carriage of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the
law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers but also in
caring for goods transported by it. 13 The loss or destruction or deterioration of goods turned over to the common
carrier for conveyance to a designated destination, raises instantly a presumption of fault or negligence on the part
of the carrier, save only where such loss, destruction or damage arises from extreme circumstances such as a natural
disaster or calamity or act of the public enemy in time of war, or from an act or omission of the shipper himself or
from the character of the goods or their packaging or container. 14
This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier. 15 Clearly, to
permit a common carrier to escape its responsibility for the passengers or goods transported by it by proving a prior
sale of the vehicle or means of transportation to an alleged vendee would be to attenuate drastically the carrier's
duty of extraordinary diligence. It would also open wide the door to collusion between the carrier and the supposed
vendee and to shifting liability from the carrier to one without financial capability to respond for the resulting
damages. In other words, the thrust of the public policy here involved is as sharp and real in the case of carriage of
goods as it is in the transporting of human beings. Thus, to sustain petitioner Benedicto's contention, that is, to
require the shipper to go behind a certificate of registration of a public utility vehicle, would be utterly subversive of
the purpose of the law and doctrine.

Petitioner further insists that there was no perfected contract of carriage for the reason that there was no proof that
her consent or that of Tee had been obtained; no proof that the driver, Licuden was authorized to bind the registered
owner; and no proof that the parties had agreed on the freightage to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a transparent attempt to evade
statutory responsibilities. Driver Licuden was entrusted with possession and control of the freight truck by the
registered owner (and by the alleged secret owner, for that matter).itc-asl Driver Licuden, under the
circumstances, was clothed with at least implied authority to contract to carry goods and to accept delivery of such
goods for carriage to a specified destination. That the freight to be paid may-not have been fixed before loading and
carriage, did not prevent the contract of carriage from arising, since the freight was at least determinable if not fixed
by the tariff schedules in petitioner's main business office. Put in somewhat different terms, driver Licuden is in law
regarded as the employee and agent of the petitioner, for whose acts petitioner must respond. A contract of carriage
of goods was shown; the sawn lumber was loaded on board the freight truck; loss or non-delivery of the lumber at
Blue Star's premises in Valenzuela, Bulacan was also proven; and petitioner has not proven either that she had
exercised extraordinary diligence to prevent such loss or non-delivery or that the loss or non-delivery was due to
some casualty or force majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills
was thus fixed and complete, without prejudice to petitioner's right to proceed against her putative transferee
Benjamin Tee and driver Licuden for reimbursement or contribution. 17
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former Intermediate
Appellate Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.
16. G.R. No. 125948. December 29, 1998
FIRST PHILIPPINES INDUSTRIAL CORP. VS. CA
This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in
CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case
No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and
operate oil pipelines. The original pipeline concession was granted in 1967 [1] and renewed by the Energy Regulatory
Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas
City. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. [3] The
respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four
installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount
of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent
portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the
Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via
pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts
under Section 133 of the Local Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131,
Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on contractors and other
independent contractors' under Section 143, Paragraph (e) of the Local Government Code does not include the power
to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for
the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount
of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be
considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local
Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint [6] for tax refund
with prayer for a writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her
capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the
business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to
impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and
151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131
(h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid. [7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section
133 (j) of the Local Government Code as said exemption applies only to "transportation contractors and persons
engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines
are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or
manner by which a product is delivered to its destination. [8]

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A) whose concession
was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant
any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such
being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to
overburden the riding public or commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single specific or "special customer"
under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local
governments than the previous enactments, to make them economically and financially viable
to serve the people and discharge their functions with a concomitant obligation to accept
certain devolution of powers, x x x So, consistent with this policy even franchise grantees are
taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code." [9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we
referred the case to the respondent Court of Appeals for consideration and adjudication. [10] On November 29, 1995,
the respondent court rendered a decision [11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's
motion for reconsideration was denied on July 18, 1996. [12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996.
Petitioner moved for a reconsideration which was granted by this Court in a Resolution [14] of January 20,
1997.Thus, the petition was reinstated.
[13]

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common
carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the
business of transporting persons or property from place to place, for compensation, offering his services to the public
generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods for person generally as a business and
not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his established
roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
a 'sideline'). Article 1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the 'general public,' i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article 1877
deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of
'public service,' under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially

supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government
Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by
land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction
as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for
transport, and to charge without discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof
provides:
"that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be
a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83,
it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt
from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this
Code."
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are
illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on
the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the local government units. May we know the reason why the
transportation business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It
states that local government units may not impose taxes on the business of transportation, except as otherwise
provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the
power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross
annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on
the carrier business. Local government units may impose taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this
tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local government unit the
imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's
tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the
National Internal Revenue Code.[19] To tax petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated
November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
17. G.R. No. L-49407 August 19, 1988
National Development Co. vs. CA

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and
National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of
the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company
and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development
Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE
HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest
thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND
PESOS (Pl0,000.00) by way of damages as and for attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development Company
to pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime
Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff
pursuant to the judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered into
between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred
mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant
MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus,
on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati"
at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of
Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in
behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation
(Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of
Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila
the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a
Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American
raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the
authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the
plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading
duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered
totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of
Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which
the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and
S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their
successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to
recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the
said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of
Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP
(Record on Appeal), pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed,
MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21,
1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court
deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8,
1965, MCP filed its answer with counterclaim and cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an
answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's
answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories
and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the
memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default
(Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but
the trial court denied it in its order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision
ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal
rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees
of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to
set aside the decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979,
this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases
were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION
4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN
DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL
"DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE
INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONERAPPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT
INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME
COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN
PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS
ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT
"H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE
YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION
WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA
MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE
PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS
DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO
CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO
OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86
INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN
HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE
THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT
COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST
FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES
INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN
THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime
Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods
due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription
provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at
bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible
for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the
carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial
court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent,
NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of
Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company for the amount
the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470
[1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be
transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article
1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said
Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article
1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco, California
and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused
by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws
of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise
Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the
same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have
been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by
law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no
reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three
of the Code of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of
a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal.
But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable
to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and
damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or
carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain.
Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the
shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the
conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade
and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not

specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is
explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not
only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation,
has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership
or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading
were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of
action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills
of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual
consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a
certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total
amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiffappellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No.
46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the
vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted
in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit
6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in
Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to
contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner
and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia &
Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256,
262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly
provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence
under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce.
Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable,
since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract
(Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be
the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages
occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the
value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale
of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be
applied in determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of
the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss
of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding
vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the
vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to
818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not
to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only
at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the
Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog
obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment
of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative
to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore,
would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the
collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and
July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the
above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before
the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section
3, sub-paragraph (6) of the Carriage of Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the
respondent Appellate Court is AFFIRMED.
SO ORDERED.

18. G.R. No. L-26815 May 26, 1981


ADOLFO L. SANTOS vs. ABRAHAM SIBUG

The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26,
1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator.
Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger
jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep.
SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of
public convenience. ln other words, SANTOS became what is known in ordinary parlance as akabit operator. For the
protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private document
presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn
from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney
operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against
VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum.
That Civil Case will hereinafter be referred to as the BRANCH XVII CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally,
to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and
costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name
of VIDAD, and scheduled the public auction sale thereof on May 8,1964.
On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor
vehicle levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to
make use of VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted
to the Sheriff a bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To
save the Sheriff from liability if he were to proceed with the sale and if SANTOS' third-party claim should be
ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and
injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case
No. 56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X
CASE). The complaint was later amended to include the BONDING COMPANY as a party defendant although its bond
had not become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor
vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for
purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not receive
any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle
in question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not
a party in the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver
Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger
jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not restored to him.
SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte
commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from
proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and,
therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle in questioned and 3) that
damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the
Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued
wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by
another Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on
his own responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond
securing him against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As
said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and
personal liability." The mentioned discretional power and personal liability have been further elucidated in Planes
and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t
The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is
governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be.
followed where the property levied on execution 'is claimed by a by person. lf the third-party claim is
sufficient, the sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless
he is given by the judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial
Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the Indemnity
bond, but in such case he will answer for any damages with his own personal funds (Waits vs.
Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados
de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall
prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of
Rule 39.).
It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed
with the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist
from proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the
successful third-party claimant.

On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence
adduced, and decreed: 1wph1.t
WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale
of the vehicle in question ordering its return to the plaintiff and furthermore sentencing the
defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the
vehicle is returned to him, and P500.00 as attorney's fee's as well as the costs. 4
This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include
the BONDING COMPANY as jointly slid severally liable with SIBUG. 51wph1.t
... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed
P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co.,
Inc. the same sums it is ordered to pay under this decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking
furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not
sold, the public sale thereof having been restrained, there was no reason for promulgating judgment against the
BONDING COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the
vehicle in question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the
transportation business known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law,
specifically provided:
... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the
approval and authorization of the Commission previously had ... (g) to sell, alienate, mortgage,
encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator
of record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was
not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered
owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused
to SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is
based on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as
regards the public and third persons 7 even if the vehicle involved in the accident had been sold to another where
such sale had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle
here in question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so
that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of
the vehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to
avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD.
This is one way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling
public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the
actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by
reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH
XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by
SIBUG, 9 as well as for exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution.
SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch
X had no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate
jurisdiction. 11
On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH
X CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public
auction property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere
with the Judgment or decree of another court of concurrent jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate
Court in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals
enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13On
September 28, 1966, respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment
renderred in the Branch X Case and permanently restraining V from taking cognizance of the BRANCH X CASE
SANTOS. It ruled that: 1wph1.t
... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch
XVII when it issued a restraining order and finally a decision permanently enjoining the other court
from excuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an
interference with the powers and authority of the other court having co-equal and coordinate
jurisdiction. To rule otherwise, would indubitably lead to confusion which might hamper or hinder the
proper administration of justice. ... 14
Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle
being levied upon but registered in another's name in a separated action, observing that:

As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any
person affected by the representation that said vehicle is registered under the name of a particular
person had the right to rely on his declaration of ownership and registration: and the registered
owner or any other person for that matter cannot be permitted to repudiate said declaration with the
objective of proving that said registered vehicle is owned by another person and not by the registered
owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code)
xxx xxx xxx
Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the
registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner
of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be
opened to collusion between a person and a registered owner for the latter to escape said
responsibility to the public or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that:
1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of
Manila has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor
vehicle to satisfy the judgment indebtedness of another person:
2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that
was levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of
Manila in Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the
same court (Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its
registered owner;
3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First
Instance of Manila (Branch X ) in Civil Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case
submitted for decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue,
at the instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied
upon by a judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party
claimant has a right to vindicate his claim to the vehicle levied upon through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin
Salvador, 15speaking through Mr. Justice Ramon Aquino, succinctly held: 1wph1.t
It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with
the judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the
injunctive relief, is applied in cases, where no third-party claimant is involved, in order to prevent one
court from nullifying the judgment or process of another court of the same rank or category, a power
which devolves upon the proper appellate court.
xxx xxx xxx
When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of
injunction, which is issued to stop the auction sale of that property, is not an interference with the
writ of execution issued by another court because the writ of execution was improperly implemented
by the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not
authorized to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs.
Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88
Phil. 94, 102).
An earlier case, Abiera vs. Hon. Court of Appeals, et al.,

16

explained the doctrine more extensively: 1wph1.t

Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a
court of concurrent jurisdiction. No court has power to interfere by injunction with the judgments
or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief
sought by injunction.
Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court
must interfere with the judgment or decree issued by another court of equal or coordinate
jurisdiction and the relief sought by such injunction must be one which could be granted by the court
which rendered the judgment or issued the decree.
Same, Same Same; Exception Judgment rendered by another court in favor of a third person who
claims property levied upon on execution. Under section 17 of Rule 39 a third person who claims
property levied upon on execution may vindicate such claim by action. A judgment rendered in his
favor - declaring him to be the owner of the property - would not constitute interference with the
powers or processes of the court which rendered the judgment to enforce which the execution was
levied. lf that be so - and it is so because the property, being that of a stranger, is not subject to levy -

then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership by
the claimant, cannot be considered as such interference either.
Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the
Rules of Court, interpreted The right of a person who claims to be the owner of property levied
upon on execution to file a third-party claim with the sheriff is not exclusive, and he may file an action
to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to
answer for any damages that may be suffered by the third party claimant. By "action", as stated in the
Rule, what is meant is a separate and independent action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it
was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of
ownership in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X,
declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers
or processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so
because property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in question
was in custodia legis, and should not be interfered with without the permission of the proper Court, the property
must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule
does not apply and interference with his custody is not interference with another Court's Order of attachment. 17
However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the
Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a
"stranger's property" that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The
vehicle was, in fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of
public service, with its effects on the riding public, is involved. Whatever legal technicalities may be invoked, we find
the judgment of respondent Court of Appeals to be in consonance with justice.
WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by
Adolfo L. Santos is dismissed with costs against the petitioner.
SO ORDERED.
19. G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES vs. INTERMEDIATE APPELLATE COURT

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be
applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the
courts, and each must bear the consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in
installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs.
Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an
initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the
aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with
tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with
a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was
eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case,
Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for
damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.
This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with
Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest
bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to
a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested
the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly
refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez,
Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed
as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the
said court rendered a decision, the dispositive portion of which reads: t.hqw
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de
Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota
cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by
executing a deed of conveyance in favor of the plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of
convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three
cars. (Annex A, Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a
quo on October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by
including as part of its dispositive portion another paragraph, to wit: t.hqw
In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of
conveyance because of their deterioration, or because they are no longer serviceable, or because
they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair
market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or
amending the decision of public respondent so that:
(a) the additional paragraph added by the public respondent to the DECISION of the lower court
(CFI) be deleted;
(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid
or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita
Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross
negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39,
Rollo.)
Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a
person who has been granted a certificate of convenience allows another person who owns motors vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the government transportation
offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely
condemned. It constitutes an imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary
to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle
that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them.
Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the
parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:t.hqw
ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed;
(1) when the fault, is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by
prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that
are null void."
The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common
law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action
arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to
recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or
damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the
parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain
exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be
applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia,
Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No.
59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc.,
Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby
annuleled and set aside. No costs.
20. G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN vs. HONORABLE INTERMEDIATE APPELLATE COURT
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be
applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the
courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed
decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and
a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the
total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would
pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise
and so upon his own request, the period of paying the balance was extended to one year in monthly
installments until January 1976 when he stopped paying anymore. The plaintiff made demands but
just the same the defendant failed to comply with the same thus forcing the plaintiff to consult a
lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00
for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total account of
the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount
includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said
balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representing
attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the
payment of the balance of the purchase price. It has been the practice of financing firms that
whenever there is a balance of the purchase price the registration papers of the motor vehicle subject
of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to the
defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and
Angel Jaucian are one and the same, because it was made to appear that way only as the defendant
had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The agreement also
of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the
Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976
gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration
fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the
ground that the defendant failed to comply with some requirements such as the payment of the
insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying
that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that
though the ownership of the motorcycle was already transferred to the defendant the vehicle was still
mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all
motorcycle purchased from the plaintiff on credit was rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still
payable to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with
the side car because of the condition that the plaintiff would be the one to register every year the
motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to
register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the
defendant gave him P90.00 for mortgage fee and registration fee and had the motorcycle insured
with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit
"3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle the
defendant suffered damages when he failed to claim any insurance indemnity which would amount to
no less than P15,000.00 for the more than two times that the motorcycle figured in accidents aside
from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the
motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
resulting in its not being registered. The truth being that the motorcycle was being used for
transporting passengers and it kept on travelling from one place to another. The motor vehicle sold to
him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and
knowledge and the defendant was not even given a copy of the mortgage deed. The defendant claims
that it is not true that the motorcycle was mortgaged because of re-discounting for rediscounting is
only true with Rural Banks and the Central Bank. The defendant puts the blame on the plaintiff for
not registering the motorcycle with the LTC and for not giving him the registration papers inspite of
demands made. Finally, the evidence of the defendant shows that because of the filing of this case he
was forced to retain the services of a lawyer for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in question,
particularly for the purpose of engaging and using the same in the transportation business and for
this purpose said trimobile unit was attached to the plaintiffs transportation line who had the
franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the
unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant,
that plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for
the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the
amount of P82.00 for its registration, as well as the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against
private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant
to pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal
rate of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff
the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation;
and to pay the costs.

SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed
a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its
decision, the pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the
private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the
prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal
transaction involving the fictitious registration of the motor vehicle in the name of the private
respondent so that he may traffic with the privileges of his franchise, or certificate of public
convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring
an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja
Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case
No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City
Court of Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a
lone assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby
a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the government transportation
offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to
public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle
that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this
premise it would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given by
virtue of the contract, or demand, the performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere
lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate
Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
21. G.R. No. L-16790 April 30, 1963
URBANO MAGBOO and EMILIA C. MAGBOO, vs. DELFIN BERNARDO

Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter to this Court on
the ground that only questions of law are involved.
The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for enforcement of his
subsidiary liability as employer in accordance with Article 103, Revised Penal Code. The trial court ordered
defendant to pay plaintiffs P3,000.00 and costs upon the following stipulated facts:
1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them and was under
their custody until his death on October 24,1956 when he was killed in a motor vehicle accident, the fatal
vehicle being a passenger jeepney with Plate No, AC-1963 (56) owned by the defendant;
2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque;
3. That the contract between Conrado Roque and defendant Delfin Bernardo was that Roque was to pay to
defendant the sum of P8.00, which he paid to said defendant, for privilege of driving the jeepney on October
24, 1956, it being their agreement that whatever earnings Roque could make out of the use of the jeepney in

transporting passengers from one point to another in the City of Manila would belong entirely to Conrado
Roque;
4. That as a consequence of the accident and as a result of the death of Cesar Magboo in said accident,
Conrado Roque was prosecuted for homicide thru reckless imprudence before the Court of First Instance of
Manila, the information having been docketed as Criminal Case No. 37736, and that upon arraignment
Conrado Roque pleaded guilty to the information and was sentenced to six (6) months of arresto mayor, with
the accessory penalties of the law; to indemnify the heirs of the deceased in the sum of P3,000.00, with
subsidiary imprisonment in case of insolvency, and to pay the costs;
5. That pursuant to said judgment Conrado Roque served his sentence but he was not able to pay the
indemnity because he was insolvent."
Appellant assails said decision, assigning three errors which boil down to the question of whether or not an
employer-employee relationship exists between a jeepney-owner and a driver under a "boundary system"
arrangement. Appellant contends that the relationship is essentially that of lessor and lessee.
A similar contention has been rejected by this Court in several cases. In National Labor Union v. Dinglasan, 52 O.G.,
No. 4, 1933, it was held that the features which characterize the "boundary system" namely, the fact that the
driver does not receive a fixed wage but gets only the excess of the receipt of fares collected by him over the amount
he pays to the jeep-owner and that the gasoline consumed by the jeep is for the account of the driver are not
sufficient to withdraw the relationship between them from that of employer and employee. The ruling was
subsequently cited and applied in Doce v. Workmen's Compensation Commission, L-9417, December 22, 1958, which
involved the liability of a bus owner for injury compensation to a conductor working under the "boundary system."
The same principle applies with greater reason in negligence cases concerning the right of third parties to recover
damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, the owner and operator of a
passenger jeepney leased it to another, but without the approval of the Public Service Commission. In a subsequent
collision a passenger died. We ruled that since the lease was made without such approval, which was required by law,
the owner continued to be the operator of the vehicle in legal contemplation and as such was responsible for the
consequences incident to its operation. The same responsibility was held to attach in a case where the injured party
was not a passenger but a third person, who sued on the theory of culpa aquiliana(Timbol vs. Osias, L-7547, April 30,
1955). There is no reason why a different rule should be applied in a subsidiary liability case under Article 103 of the
Revised Penal Code. As in the existence of an employer-employee relationship between the owner of the vehicle and
the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system"
on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law but also
to place the riding public at the mercy of reckless and irresponsible drivers - reckless because the measure of their
earnings depends largely upon the number of trips they make and, hence, the speed at which they drive; and
irresponsible because most if not all of them are in no position to pay the damages they might cause. (See Erezo vs.
Jepte, L-9605, September 30, 1957).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
Appellant further argues that he should not have been held subsidiarily liable because Conrado Roque (the driver of
the jeepney) pleaded guilty to the charge in the criminal case without appellant's knowledge and contrary to the
agreement between them that such plea would not be entered but, instead evidence would be presented to prove
Roque's innocence. On this point we quote with approval the pertinent portion of the decision appealed from:
"'With respect to the contention of the defendant that he was taken unaware by the spontaneous plea of guilt
entered by the driver Conrado Roque, and that he did not have a chance to prove the innocence of said
Conrado Roque, the Court holds that at this stage, it is already too late to try the criminal case all over again.
Defendant's allegation that he relied on his belief that Conrado Roque would defend himself and they had
sufficient proof to show that Roque was not guilty of the crime charged cannot be entertained. Defendant
should have taken it to himself to aid in the defense of Conrado Roque. Having failed to take this step and the
accused having been declared guilty by final judgment of the crime of homicide thru reckless imprudence,
there appears no more way for the defendant to escape his subsidiary liability as provided for in Article 103
of the Revised Penal Code."'
WHEREFORE, the judgment appealed from, being in accordance with law, is hereby affirmed, with costs against
defendant-appellant.
22. G.R. No. L-21438 September 28, 1966
AIR FRANCE, vs. RAFAEL CARRASCOSO

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by way
of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare between first class
and tourist class for the portion of the trip Bangkok-Rome, these various amounts with interest at the legal rate, from
the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.
On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from P393.20 to
P383.10, and voted to affirm the appealed decision "in all other respects", with costs against petitioner.
The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:
Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on
March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc., issued
to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to Bangkok, plaintiff
travelled in "first class", but at Bangkok, the Manager of the defendant airline forced plaintiff to vacate the
"first class" seat that he was occupying because, in the words of the witness Ernesto G. Cuento, there was a
"white man", who, the Manager alleged, had a "better right" to the seat. When asked to vacate his "first
class" seat, the plaintiff, as was to be expected, refused, and told defendant's Manager that his seat would be
taken over his dead body; a commotion ensued, and, according to said Ernesto G. Cuento, "many of the
Filipino passengers got nervous in the tourist class; when they found out that Mr. Carrascoso was having a
hot discussion with the white man [manager], they came all across to Mr. Carrascoso and pacified Mr.
Carrascoso to give his seat to the white man" (Transcript, p. 12, Hearing of May 26, 1959); and plaintiff
reluctantly gave his "first class" seat in the plane.3
1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent Court of Appeals.
Petitioner charges that respondent court failed to make complete findings of fact on all the issues properly laid
before it. We are asked to consider facts favorable to petitioner, and then, to overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record without
expressing therein clearly and distinctly the facts and the law on which it is based". 5 This is echoed in the statutory
demand that a judgment determining the merits of the case shall state "clearly and distinctly the facts and the law on
which it is based"; 6 and that "Every decision of the Court of Appeals shall contain complete findings of fact on all
issues properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however, solely
insists that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn. 9 A court of
justice is not hidebound to write in its decision every bit and piece of evidence 10 presented by one party and the
other upon the issues raised. Neither is it to be burdened with the obligation "to specify in the sentence the
facts"which a party "considered as proved". 11 This is but a part of the mental process from which the Court draws the
essential ultimate facts. A decision is not to be so clogged with details such that prolixity, if not confusion, may result.
So long as the decision of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error
for said court to withhold therefrom "any specific finding of facts with respect to the evidence for the defense".
Because as this Court well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the
decision) the contentions of the appellant and the reasons for refusing to believe them is not sufficient to hold the
same contrary to the requirements of the provisions of law and the Constitution". It is in this setting that
in Manigque, it was held that the mere fact that the findings "were based entirely on the evidence for the prosecution
without taking into consideration or even mentioning the appellant's side in the controversy as shown by his own
testimony", would not vitiate the judgment. 13 If the court did not recite in the decision the testimony of each witness
for, or each item of evidence presented by, the defeated party, it does not mean that the court has overlooked such
testimony or such item of evidence. 14 At any rate, the legal presumptions are that official duty has been regularly
performed, and that all the matters within an issue in a case were laid before the court and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of the
ultimate facts as found by the court ... and essential to support the decision and judgment rendered thereon". 16They
consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A question of law, upon the
other hand, has been declared as "one which does not call for an examination of the probative value of the evidence
presented by the parties." 18
2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to alter the
facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals support its
judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket. But
petitioner asserts that said ticket did not represent the true and complete intent and agreement of the parties; that
said respondent knew that he did not have confirmed reservations for first class on any specific flight, although he
had tourist class protection; that, accordingly, the issuance of a first class ticket was no guarantee that he would have
a first class ride, but that such would depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of Appeals
under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had confirmed
reservations for, and a right to, first class seats on the "definite" segments of his journey, particularly that from
Saigon to Beirut". 21
And, the Court of Appeals disposed of this contention thus:
Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee that
the passenger to whom the same had been issued, would be accommodated in the first-class compartment,
for as in the case of plaintiff he had yet to make arrangements upon arrival at every station for the necessary
first-class reservation. We are not impressed by such a reasoning. We cannot understand how a reputable

firm like defendant airplane company could have the indiscretion to give out tickets it never meant to honor
at all. It received the corresponding amount in payment of first-class tickets and yet it allowed the passenger
to be at the mercy of its employees. It is more in keeping with the ordinary course of business that the
company should know whether or riot the tickets it issues are to be honored or not. 22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from his
testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness, Rafael
Altonaga, confirmed plaintiff's testimony and testified as follows:
Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
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Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although plaintiff
paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in Hongkong. The court
cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over written evidence, and
plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said witnesses, and clearly show that the
plaintiff was issued, and paid for, a first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for a
"first class" accommodation for the plaintiff was confirmed. The court cannot believe that after such confirmation
defendant had a verbal understanding with plaintiff that the "first class" ticket issued to him by defendant would be
subject to confirmation in Hongkong. 23
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount refunded on
Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of Appeals in all other
respects. We hold the view that such a judgment of affirmance has merged the judgment of the lower court. 24Implicit
in that affirmance is a determination by the Court of Appeals that the proceeding in the Court of First Instance was
free from prejudicial error and "all questions raised by the assignments of error and all questions that might have
been raised are to be regarded as finally adjudicated against the appellant". So also, the judgment affirmed "must be
regarded as free from all error". 25 We reached this policy construction because nothing in the decision of the Court
of Appeals on this point would suggest that its findings of fact are in any way at war with those of the trial court. Nor
was said affirmance by the Court of Appeals upon a ground or grounds different from those which were made the
basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the fact
that seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of the hands
of an airline. What security then can a passenger have? It will always be an easy matter for an airline aided by its
employees, to strike out the very stipulations in the ticket, and say that there was a verbal agreement to the contrary.
What if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written document speaks a
uniform language; that spoken word could be notoriously unreliable. If only to achieve stability in the relations
between passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower
courts refused to believe the oral evidence intended to defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first class
seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of distortions
by the Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do we subscribe to
petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to provoke an issue". 29 And
this because, as petitioner states, Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat
and because from Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat
in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that Carrascoso's
action is planted upon breach of contract; that to authorize an award for moral damages there must be an averment
of fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a finding of bad faith. The pivotal
allegations in the complaint bearing on this issue are:
3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on defendant's
plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting point up to and until
plaintiff's return trip to Manila, ... .
4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok, defendant
furnished to the plaintiff First Class accommodation but only after protestations, arguments and/or insistence
were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff
only TouristClass accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelledby defendant's employees to leave the First Class accommodation berths at Bangkok after he
was already seated.
6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments brought
by defendant's breach of contract was forced to take a Pan American World Airways plane on his return trip
from Madrid to Manila.32
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2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff suffered
inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious anxiety,
wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of P30,000.00. 33
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The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first class
passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached when
petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when petitioner's
employee compelled Carrascoso to leave his first class accommodation berth "after he was already, seated" and to
take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassments and humiliations,
thereby causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral
damages. It is true that there is no specific mention of the term bad faith in the complaint. But, the inference of bad
faith is there, it may be drawn from the facts and circumstances set forth therein. 34 The contract was averred to
establish the relation between the parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on guard
on what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso was oustedby
petitioner's manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the fulfillment of the
contract was presented without objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to
whether or not there is sufficient averment in the complaint to justify an award for moral damages. Deficiency in the
complaint, if any, was cured by the evidence. An amendment thereof to conform to the evidence is not even
required. 36 On the question of bad faith, the Court of Appeals declared:
That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his consent
but against his will, has been sufficiently established by plaintiff in his testimony before the court,
corroborated by the corresponding entry made by the purser of the plane in his notebook which notation
reads as follows:
"First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene",
and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the plane
who was asked by the manager of defendant company at Bangkok to intervene even refused to do so. It is
noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the plaintiff. It
could have been easy for defendant to present its manager at Bangkok to testify at the trial of the case, or yet
to secure his disposition; but defendant did neither. 37
The Court of appeals further stated
Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if the
employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already been
taken, surely the plaintiff should not have been picked out as the one to suffer the consequences and to be
subjected to the humiliation and indignity of being ejected from his seat in the presence of others. Instead of
explaining to the white man the improvidence committed by defendant's employees, the manager adopted the
more drastic step of ousting the plaintiff who was then safely ensconsced in his rightful seat. We are
strengthened in our belief that this probably was what happened there, by the testimony of defendant's
witness Rafael Altonaga who, when asked to explain the meaning of the letters "O.K." appearing on the
tickets of plaintiff, said "that the space is confirmed for first class. Likewise, Zenaida Faustino, another
witness for defendant, who was the chief of the Reservation Office of defendant, testified as follows:
"Q How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?
A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge has said on this point:
Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right" to the
seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove "any
better", nay, any right on the part of the "white man" to the "First class" seat that the plaintiff was
occupying and for which he paid and was issued a corresponding "first class" ticket.

If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant
could have easily proven it by having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances, the Court is constrained to
find, as it does find, that the Manager of the defendant airline in Bangkok not merely asked but
threatened the plaintiff to throw him out of the plane if he did not give up his "first class" seat
because the said Manager wanted to accommodate, using the words of the witness Ernesto G.
Cuento, the "white man".38
It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the term
"bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager not only
prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary will; he
forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist class
compartment - just to give way to another passenger whose right thereto has not been established. Certainly,
this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is understood in law.
For, "bad faith" contemplates a "state of mind affirmatively operating with furtive design or with some motive
of self-interest or will or for ulterior purpose." 39
And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of the
Court of First Instance, thus:
The evidence shows that the defendant violated its contract of transportation with plaintiff in bad
faith, with the aggravating circumstances that defendant's Manager in Bangkok went to the extent of
threatening the plaintiff in the presence of many passengers to have him thrown out of the airplane to
give the "first class" seat that he was occupying to, again using the words of the witness Ernesto G.
Cuento, a "white man" whom he (defendant's Manager) wished to accommodate, and the defendant
has not proven that this "white man" had any "better right" to occupy the "first class" seat that the
plaintiff was occupying, duly paid for, and for which the corresponding "first class" ticket was issued
by the defendant to him.40
5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled in
law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article 21 of the
Civil Code says:
ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of Article
2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any other contractual relation. 43And
this, because of the relation which an air-carrier sustains with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore,
generates a relation attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could
give ground for an action for damages.
Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any rule or discourteous conduct on the
part of employees towards a passenger gives the latter an action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third persons to falsely notify her that the check was worthless
and demand payment under threat of ejection, though the language used was not insulting and she was not
ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both in origin and
nature" nevertheless "the act that breaks the contract may be also a tort". 47 And in another case, "Where a
passenger on a railroad train, when the conductor came to collect his fare tendered him the cash fare to a point
where the train was scheduled not to stop, and told him that as soon as the train reached such point he would pay
the cash fare from that point to destination, there was nothing in the conduct of the passenger which justified the
conductor in using insulting language to him, as by calling him a lunatic," 48 and the Supreme Court of South
Carolina there held the carrier liable for the mental suffering of said passenger.1awphl.nt
Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we have
said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier a case
of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus
Q You mentioned about an attendant. Who is that attendant and purser?
A When we left already that was already in the trip I could not help it. So one of the flight attendants
approached me and requested from me my ticket and I said, What for? and she said, "We will note that you
transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to accepting my transfer."
And I also said, "You are not going to note anything there because I am protesting to this transfer".
Q Was she able to note it?

A No, because I did not give my ticket.


Q About that purser?
A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I stood
up and I went to the pantry that was next to me and the purser was there. He told me, "I have recorded the
incident in my notebook." He read it and translated it to me because it was recorded in French "First
class passenger was forced to go to the tourist class against his will, and that the captain refused to
intervene."
Mr. VALTE
I move to strike out the last part of the testimony of the witness because the best evidence would be the
notes. Your Honor.
COURT
I will allow that as part of his testimony.

49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook reading
"First class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene"
is predicated upon evidence [Carrascoso's testimony above] which is incompetent. We do not think so. The subject of
inquiry is not the entry, but the ouster incident. Testimony on the entry does not come within the proscription of the
best evidence rule. Such testimony is admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements then, in this
environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous excitement and mental
and physical condition of the declarant". 51 The utterance of the purser regarding his entry in the notebook was
spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been guaranteed. 52 It
thus escapes the operation of the hearsay rule. It forms part of the res gestae.
At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have been an
easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no such entry was
made, the deposition of the purser could have cleared up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary damages
in contracts and quasi- contracts. The only condition is that defendant should have "acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent Carrascoso from his first class
seat fits into this legal precept. And this, in addition to moral damages. 54
9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment for
attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that attorneys'
fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised as it was here
should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees. The task
of fixing these amounts is primarily with the trial court. 56 The Court of Appeals did not interfere with the same. The
dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and circumstances point to
the reasonableness thereof.57
On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We accordingly
vote to affirm the same. Costs against petitioner. So ordered.
23. G.R.

NO. 138060, SEPTEMBER 1, 2004


TIU VS. ARRIESGADO