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1. G.R. No.

166250

July 26, 2010

UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,


vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION,
Respondents.
For review is the Court of Appeals (CA) Decision 1 dated April 29, 2004 and Resolution 2 dated
November 26, 2004. The assailed Decision affirmed the Regional Trial Court (RTC) decision 3
dated February 22, 2001; while the assailed Resolution denied petitioner Unsworth Transport
International (Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth
Transport International, Inc.s (UTIs) motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment
of 27 drums of various raw materials for pharmaceutical manufacturing, consisting of: "1) 3
drums (of) extracts, flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of)
flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums
(of) Vitabs: Vitamin B Complex Extract."4 UTI issued Bill of Lading No. C320/C15991-2, 5
covering the aforesaid shipment. The subject shipment was insured with private respondent
Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92 6 and
Open Cargo Policy No. HO-022-RIU.7
On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40
container van, with no. APLU-982012, boarded on APLs vessel M/V "Pres. Jackson," Voyage
42, and transshipped to APLs M/V "Pres. Taft" 8 for delivery to petitioner in favor of the
consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992,
petitioner received the said shipment in its warehouse after it stamped the Permit to Deliver
Imported Goods9 procured by the Champs Customs Brokerage. 10 Three days thereafter, or on
October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a
stripping survey of the shipment located in petitioners warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine)
issued Gate Pass No. 761412 which stated that "22 drums 13 Raw Materials for
Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by
Champs for delivery to Unilabs warehouse. The materials were noted to be
complete and in good order in the gate pass. 14 On the same day, the shipment arrived
in Unilabs warehouse and was immediately surveyed by an independent surveyor,
J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery15
On October 23 and 28, 1992, the same independent surveyor conducted final inspection
surveys which yielded the same results. Consequently, Unilabs quality control representative
rejected one paper bag containing dried yeast and one steel drum containing Vitamin B
Complex as unfit for the intended purpose.16
On November 7, 1992, Unilab filed a formal claim 17 for the damage against private respondent
and UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by
Jardine that the goods were in complete and good condition; while private respondent paid the
claimed amount on March 23, 1993. By virtue of the Loss and Subrogation Receipt 18 issued by
Unilab in favor of private respondent, the latter filed a complaint for Damages against APL,
UTI and petitioner with the RTC of Makati. 19 The case was docketed as Civil Case No. 933473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits ensued. On February 22,
2001, the RTC decided in favor of private respondent and against APL, UTI and petitioner, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE &
SURETY CORPORATION and against the defendants AMERICAN PRESIDENT LINES and
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INTL., PHILS.), ordering the latter to pay, jointly and severally, the former the
following amounts:

19- steel drums STC Vitamin B Complex Extract, all in good order condition and
properly sealed

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and
27/100 (Php76,231.27) with interest at the legal rate of 6% per annum to be
computed starting from September 30, 1993 until fully paid, for and as actual
damages;

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx.
spilling of 1%11

2. The amount equivalent to 25% of the total sum as attorneys fees;

1 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

3. Cost of this litigation.


SO ORDERED.20
On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTIs
defense that it was merely a forwarder, declaring instead that it was a common carrier. The
appellate court added that by issuing the Bill of Lading, UTI acknowledged receipt of the
goods and agreed to transport and deliver them at a specific place to a person named or his
order. The court further concluded that upon the delivery of the subject shipment to
petitioners warehouse, its liability became similar to that of a depositary. As such, it ought to
have exercised ordinary diligence in the care of the goods. And as found by the RTC, the CA
agreed that petitioner failed to exercise the required diligence. The CA also rejected
petitioners claim that its liability should be limited to $500 per package pursuant to the
Carriage of Goods by Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court
considered it as a common carrier notwithstanding the non-issuance of a bill of lading
inasmuch as a bill of lading is not indispensable for the execution of a contract of carriage. 21
Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the
following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
UPHOLDING THE DECISION OF THE REGIONAL TRIAL COURT DATED 22
FEBRUARY 2001, AWARDING THE SUM OF SEVENTY SIX THOUSAND TWO
HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST
AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEYS FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY
DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED
THE ALLEGED DAMAGE TO ITS CARGO.22
Petitioner admits that it is a forwarder but disagrees with the CAs conclusion that it is a
common carrier. It also questions the appellate courts findings that it failed to establish that it
exercised extraordinary or ordinary diligence in the vigilance over the subject shipment. As to
the damages allegedly suffered by private respondent, petitioner counters that they were not
sufficiently proven. Lastly, it insists that its liability, in any event, should be limited to $500
pursuant to the package limitation rule. Indeed, petitioner wants us to review the factual
findings of the RTC and the CA and to evaluate anew the evidence presented by the parties.

The petition is partly meritorious.


Well established is the rule that factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:
Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth.
Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm
holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to
provide transportation of property for compensation and, in the ordinary course of its business,
(1) to assemble and consolidate, or to provide for assembling and consolidating, shipments,
and to perform or provide for break-bulk and distribution operations of the shipments; (2) to
assume responsibility for the transportation of goods from the place of receipt to the place of
destination; and (3) to use for any part of the transportation a carrier subject to the federal law
pertaining to common carriers.231avvphi1
A freight forwarders liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to
their destination instead of merely arranging for their transportation, it becomes liable as a
common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of
a carrier, which actually executes the transport, even though the forwarder does not carry the
merchandise itself.24
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner
undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical
manufacturing to the consignee.
A bill of lading is a written acknowledgement of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named or on his or her order. 25 It
operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract
to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment,
describes the goods as to quantity, weight, dimensions, identification marks, condition, quality,
and value. As a contract, it names the contracting parties, which include the consignee; fixes
the route, destination, and freight rate or charges; and stipulates the rights and obligations
assumed by the parties.26

2 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got
lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence. 27 Mere proof of delivery of the
goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, loss, or destruction of the goods happened,
the transporter shall be held responsible.28
Though it is not our function to evaluate anew the evidence presented, we refer to the records
of the case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut
the prima facie presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good
order and condition in New York, United States of America. Second, the OCMSC Survey
Report stated that one steel drum STC Vitamin B Complex Extract was discovered to be with
a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No. 7614,
issued by Jardine, noted that the subject shipment was in good order and condition, it was
specifically stated that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas
Survey Report stated that "1-s/drum was punctured and retaped on the bottom side and the
content was lacking, and there was a short delivery of 5-drums."
All these conclusively prove the fact of shipment in good order and condition, and the
consequent damage to one steel drum of Vitamin B Complex Extract while in the possession
of petitioner which failed to explain the reason for the damage. Further, petitioner failed to
prove that it observed the extraordinary diligence and precaution which the law requires a
common carrier to exercise and to follow in order to avoid damage to or destruction of the
goods entrusted to it for safe carriage and delivery.29
However, we affirm the applicability of the Package Limitation Rule under the COGSA,
contrary to the RTC and the CAs findings.
It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package. In all matters not regulated by the Civil Code, the rights and obligations
of common carriers are governed by the Code of Commerce and special laws. Thus, the
COGSA supplements the Civil Code by establishing a provision limiting the carriers liability
in the absence of a shippers declaration of a higher value in the bill of lading. 30 Section 4(5)
of the COGSA provides:
(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 of 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 the bill
of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but
shall not be conclusive on the carrier.
In the present case, the shipper did not declare a higher valuation of the goods to be shipped.
Contrary to the CAs conclusion, the insertion of the words "L/C No. LC No. 1-187-008394/
NY 69867 covering shipment of raw materials for pharmaceutical Mfg. x x x" cannot be the
basis of petitioners liability.31 Furthermore, the insertion of an invoice number does not in
itself sufficiently and convincingly show that petitioner had knowledge of the value of the
cargo.32
In light of the foregoing, petitioners liability should be limited to $500 per steel drum. In this
case, as there was only one drum lost, private respondent is entitled to receive only $500 as
damages for the loss. In addition to said amount, as aptly held by the trial court, an interest
rate of 6% per annum should also be imposed, plus 25% of the total sum as attorneys fees.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of
Appeals Decision dated April 29, 2004 and Resolution dated November 26, 2004 are
AFFIRMED with MODIFICATION by reducing the principal amount due private respondent
Pioneer Insurance and Surety Corporation from P76,231.27 to $500, with interest of 6% per
annum from date of demand, and 25% of the amount due as attorneys fees.
The other aspects of the assailed Decision and Resolution STAND. SO ORDERED.
2. G.R. No. 165647

March 26, 2009

PHILIPPINES
FIRST
INSURANCE
CO.,
INC.,
Petitioner,
vs. WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN
CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI
FAREAST SHIP BUSINESS COMPANY," Respondents.
Before us is a Rule 45 petition1 which seeks the reversal of the Decision 2 and Resolution3 of
the Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision 4 of
the Regional Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing
the complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board
M/S Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99
PCT Min. (shipment), complete and in good order for transportation to and delivery at the port
of Manila for consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean

3 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Bill of Lading. The Bill of Lading reflects the gross weight of the total cargo at 500,200
kilograms.6 The Owner and/or Charterer of M/V Offshore Master is unknown while the
shipper of the shipment is Shanghai Fareast Ship Business Company. Both are foreign firms
doing business in the Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel
M/S Offshore Master from which it was subsequently discharged. It was disclosed during the
discharge of the shipment from the carrier that 2,426 poly bags (bags) were in bad order and
condition, having sustained various degrees of spillages and losses. This is evidenced by the
Turn Over Survey of Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian
Terminals, Inc. (arrastre operator). 8 The bad state of the bags is also evinced by the arrastre
operators Request for Bad Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to
the consignees warehouse in Quezon City,10 while the final inspection was conducted jointly
by the consignees representative and the cargo surveyor. During the unloading, it was found
and noted that the bags had been discharged in damaged and bad order condition. Upon
inspection, it was discovered that 63,065.00 kilograms of the shipment had sustained
unrecovered spillages, while 58,235.00 kilograms had been exposed and contaminated,
resulting in losses due to depreciation and downgrading. 11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the
damaged shipment, to no avail. Since the shipment was insured with petitioner Philippines
First Insurance Co., Inc. against all risks in the amount of P2,470,213.50,12 the consignee filed
a formal claim13 with petitioner for the damage and losses sustained by the shipment. After
evaluating the invoices, the turn-over survey, the bad order certificate and other documents, 14
petitioner found the claim to be in order and compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum of P397,879.69 and the latter signed a
subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the
recovery of the amount paid by petitioner to the consignee. However, despite receipt of the
letter, Wallem did not settle nor even send a response to petitioners claim. 15
Consequently, petitioner instituted an action before the RTC for damages against respondents
for the recovery of P397,879.69 representing the actual damages suffered by petitioner plus
legal interest thereon computed from the time of the filing of the complaint until fully paid and
attorneys fees equivalent to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner
P397,879.69 with 6% interest plus attorneys fees and costs of the suit. It attributed the
damage and losses sustained by the shipment to the arrastre operators mishandling in the
discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals, 17 the RTC

held the shipping company and the arrastre operator solidarily liable since both the arrastre
operator and the carrier are charged with and obligated to deliver the goods in good order
condition to the consignee. It also ruled that the ship functioned as a common carrier and was
obliged to observe the degree of care required of a common carrier in handling cargoes.
Further, it held that a notice of loss or damage in writing is not required in this case because
said goods already underwent a joint inspection or survey at the time of receipt thereof by the
consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTCs decision. 18 According to the appellate
court, there is no solidary liability between the carrier and the arrastre operator because it was
clearly established by the court a quo that the damage and losses of the shipment were
attributed to the mishandling by the arrastre operator in the discharge of the shipment. The
appellate court ruled that the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common
carrier, the carriers duties extend to the obligation to safely discharge the cargo
from the vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged
shipment;
3. Whether or not Wallems failure to answer the extra judicial demand by petitioner
for the cost of the lost/damaged shipment is an implied admission of the formers
liability for said goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondents vessel is a common carrier. 20 Thus, the standards for
determining the existence or absence of the respondents liability will be gauged on the degree
of diligence required of a common carrier. Moreover, as the shipment was an exercise of
international trade, the provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22
The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.

4 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

It is undisputed that the shipment was damaged prior to its receipt by the insured consignee.
The damage to the shipment was documented by the turn-over survey23 and Request for Bad
Order Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the
shipment were received by the arrastre operator in damaged condition. With these documents,
petitioner insists that the shipment incurred damage or losses while still in the care and
responsibility of Wallem and before it was turned over and delivered to the arrastre operator.

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
Shanghai Fareast Business Co., and the consignee, to wit:

The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a
cargo surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage
to the cargo were caused by the mishandling of the arrastre operator. Specifically, that the torn
cargo bags resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet
board and in pushing the bags by the stevedores of the arrastre operator to the tug boats then to
the ports.25 The appellate court affirmed the finding of mishandling in the discharge of cargo
and it served as its basis for exculpating respondents from liability, rationalizing that with the
fault of the arrastre operator in the unloading of the cargo established it should bear sole
liability for the cost of the damaged/lost cargo.

The Carrier shall not be liable of loss of or damage to the goods before loading and after
discharging from the vessel, howsoever such loss or damage arises. 31

While it is established that damage or losses were incurred by the shipment during the
unloading, it is disputed who should be liable for the damage incurred at that point of
transport. To address this issue, the pertinent laws and jurisprudence are examined.
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 transported by them. 26
Subject to certain exceptions enumerated under Article 1734 27 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of the goods. 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.28
For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is
liable for the cargo from the time it is turned over to him at the dock or afloat alongside the
vessel at the port of loading, until he delivers it on the shore or on the discharging wharf at the
port of unloading, unless agreed otherwise. In Standard Oil Co. of New York v. Lopez
Castelo,29 the Court interpreted the ship captains liability as ultimately that of the shipowner
by regarding the captain as the representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by
sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and
discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to
the rights and immunities set forth in the Act. 30 Section 3 (2) thereof then states that among the
carriers responsibilities are to properly and carefully load, handle, stow, carry, keep, care for,
and discharge the goods carried.

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the
time when the goods are loaded on board the vessel and shall cease when they are discharged
from the vessel.

On the other hand, the functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee or shipper and the ship's
tackle.32 Being the custodian of the goods discharged from a vessel, an arrastre operator's duty
is to take good care of the goods and to turn them over to the party entitled to their
possession.33
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and damage
to shipments under its custody.34
In Firemans Fund Insurance Co. v. Metro Port Service, Inc. 35 the Court explained the
relationship and responsibility of an arrastre operator to a consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier
is similar to that of the consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods
in good condition to the consignee.(Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a
carrier may not be held solidarily liable at all times. But the precise question is which entity
had custody of the shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the carriers responsibilities
are to properly and carefully load, care for and discharge the goods carried. The bill of lading
covering the subject shipment likewise stipulates that the carriers liability for loss or damage
to the goods ceases after its discharge from the vessel. Article 619 of the Code of Commerce

5 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

holds a ship captain liable for the cargo from the time it is turned over to him until its delivery
at the port of unloading.

Q He did not send the stevedores to what manner in the discharging of the cargo
from the vessel?

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled
that like the duty of seaworthiness, the duty of care of the cargo is non-delegable, 38 and the
carrier is accordingly responsible for the acts of the master, the crew, the stevedore, and his
other agents. It has also been held that it is ordinarily the duty of the master of a vessel to
unload the cargo and place it in readiness for delivery to the consignee, and there is an implied
obligation that this shall be accomplished with sound machinery, competent hands, and in such
manner that no unnecessary injury shall be done thereto. 39 And the fact that a consignee is
required to furnish persons to assist in unloading a shipment may not relieve the carrier of its
duty as to such unloading.40

A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42

The exercise of the carriers custody and responsibility over the subject shipment during the
unloading actually transpired in the instant case during the unloading of the shipment as
testified by Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping [company]?
A Yes, sir.

xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.43
Moreover, the liability of Wallem is highlighted by Mr. Talens notes in the Bad Order
Inspection, to wit:
"The bad order torn bags, was due to stevedores[] utilizing steel hooks/spikes in piling the
cargo to [the] pallet board at the vessels cargo holds and at the pier designated area before and
after discharged that cause the bags to torn [sic]."44 (Emphasis supplied)
The records are replete with evidence which show that the damage to the bags happened
before and after their discharge45 and it was caused by the stevedores of the arrastre operator
who were then under the supervision of Wallem.1awphi1.net

xxx

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or losses were incurred during
the discharge of the shipment while under the supervision of the carrier. Consequently, the
carrier is liable for the damage or losses caused to the shipment. As the cost of the actual
damage to the subject shipment has long been settled, the trial courts finding of actual
damages in the amount of P397,879.69 has to be sustained.

Q Mr. Witness, during the discharging operation of this cargo, where was the master
of the vessel?

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing
credibility of witnesses is well-settled:

A On board the vessel, supervising, sir.

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and
entitled to the highest respect because it is more competent to so conclude, having had the
opportunity to observe the witnesses' demeanor and deportment on the stand, and the manner
in which they gave their testimonies. The trial judge therefore can better determine if such
witnesses were telling the truth, being in the ideal position to weigh conflicting testimonies.
Therefore, unless the trial judge plainly overlooked certain facts of substance and value which,
if considered, might affect the result of the case, his assessment on credibility must be
respected.46

Q And, who hired the services of the stevedores?


A The checker of the vessel of Wallem, sir.41

Q And, observed the discharging operation?


A Yes, sir.
Q And, what did the master of the vessel do when the cargo was being unloaded
from the vessel?
A He would report to the head checker, sir.

6 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Contrary to petitioners stance on the third issue, Wallems failure to respond to its demand
letter does not constitute an implied admission of liability. To borrow the words of Mr. Justice
Oliver Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter containing the statements that he
wishes to prove. He does not make the letter evidence by sending it to the party against whom
he wishes to prove the facts [stated therein]. He no more can impose a duty to answer a charge
than he can impose a duty to pay by sending goods. Therefore a failure to answer such adverse
assertions in the absence of further circumstances making an answer requisite or natural has no
effect as an admission.47
With respect to the attorneys fees, it is evident that petitioner was compelled to litigate this
matter to protect its interest. The RTCs award of P20,000.00 as attorneys fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22
June 2004 and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE.
Wallem is ordered to pay petitioner the sum of P397,879.69, with interest thereon at 6% per
annum from the filing of the complaint on 7 October 1996 until the judgment becomes final
and executory. Thereafter, an interest rate of 12% per annum shall be imposed. 48 Respondents
are also ordered to pay petitioner the amount of P20,000.00 for and as attorneys fees, together
with the costs of the suit.
SO ORDERED.
3. G.R. No. 101089. April 7, 1993.
ESTRELLITA
M.
BASCOS,
petitioners,
vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON
CARRIER. Article 1732 of the Civil Code defines a common carrier as "(a) person,
corporation or firm, or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air, for compensation, offering their services to
the public." The test to determine a common carrier is "whether the given undertaking is a part
of the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted." . . . The holding of
the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the
Civil Code, it held thus: "The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids

making any distinction between a person or enterprise offering transportation service on a


regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguished between a carrier offering its
services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think
that Article 1732 deliberately refrained from making such distinctions."
2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED;
WHEN PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION
OVERCAME; WHEN PRESUMPTION MADE ABSOLUTE. Common carriers are
obliged to observe extraordinary diligence in the vigilance over the goods transported by them.
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods
are lost, destroyed or deteriorated. There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. In those cases
where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption . . . The presumption of
negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus,
contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.
3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW
CARRIER ABSOLVED FROM LIABILITY. In De Guzman vs. Court of Appeals, the
Court held that hijacking, not being included in the provisions of Article 1734, must be dealt
with under the provisions of Article 1735 and thus, the common carrier is presumed to have
been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he
must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or
force. This is in accordance with Article 1745 of the Civil Code which provides: "Art. 1745.
Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy . . . (6) That the common carrier's liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible threat, violences or force, is
dispensed with or diminished"; In the same case, the Supreme Court also held that: "Under
Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or robbers,
except where such thieves or robbers in fact acted "with grave of irresistible threat, violence of
force," We believe and so hold that the limits of the duty of extraordinary diligence in the
vigilance over the goods carried are reached where the goods are lost as a result of a robbery
which is attended by "grave or irresistible threat, violence or force."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this
case, petitioner herself has made the admission that she was in the trucking business, offering
her trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is
required to prove the same.

7 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT.
Petitioner presented no other proof of the existence of the contract of lease. He who alleges a
fact has the burden of proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS
AVAILABLE AS WITNESSES. While the affidavit of Juanito Morden, the truck helper in
the hijacked truck, was presented as evidence in court, he himself was a witness as could be
gleaned from the contents of the petition. Affidavits are not considered the best evidence if the
affiants are available as witnesses.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW
DEFINES IT TO BE. Granting that the said evidence were not self-serving, the same were
not sufficient to prove that the contract was one of lease. It must be understood that a contract
is what the law defines it to be and not what it is called by the contracting parties.
DECISION
CAMPOS, JR., J p:
This is a petition for review on certiorari of the decision ** of the Court of Appeals in
"RODOLFO A. CIPRIANO, doing business under the name CIPRIANO TRADING
ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M. BASCOS, doing business under the
name of BASCOS TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216, the
dispositive portion of which is quoted hereunder:
"PREMISES considered, We find no reversible error in the decision appealed from, which is
hereby affirmed in toto. Costs against appellant." 1
The facts, as gathered by this Court, are as follows:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered
into a hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound
itself to haul the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan,
Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its
obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos
(petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from
the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed
to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking
and non-delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary
attachment 4 for breach of a contract of carriage. The prayer for a Writ of Preliminary
Attachment was supported by an affidavit 5 which contained the following allegations:
"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of
Court, whereby a writ of preliminary attachment may lawfully issue, namely:
"(e) in an action against a party who has removed or disposed of his property, or is about to do
so, with intent to defraud his creditors;"
5. That there is no sufficient security for the claim sought to be enforced by the present action;
6. That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"
The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of
carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to
Laguna; that CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the
cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on the
night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and
that petitioner and the police exerted all efforts to locate the hijacked properties; that after
preliminary investigation, an information for robbery and carnapping were filed against Jose
Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE.
After trial, the trial court rendered a decision *** the dispositive portion of which reads as
follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant
ordering the latter to pay the former:
1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR
PESOS (P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per
annum to be counted from December 4, 1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and
3. The costs of the suit.

8 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.
SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's
judgment.
Consequently, petitioner filed this petition where she makes the following assignment of
errors; to wit:
"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL
RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS
CARRIAGE OF GOODS AND NOT LEASE OF CARGO TRUCK.
II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE
RESPONDENT COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN
PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS IS
CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE
THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO FORCE
MAJEURE, NAMELY, HIJACKING.
III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL
COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF
PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND ACADEMIC BY
THE DECISION OF THE MERITS OF THE CASE." 7
The petition presents the following issues for resolution: (1) was petitioner a common carrier?;
and (2) was the hijacking referred to a force majeure?
The Court of Appeals, in holding that petitioner was a common carrier, found that she
admitted in her answer that she did business under the name A.M. Bascos Trucking and that
said admission dispensed with the presentation by private respondent, Rodolfo Cipriano, of
proofs that petitioner was a common carrier. The respondent Court also adopted in toto the
trial court's decision that petitioner was a common carrier, Moreover, both courts appreciated
the following pieces of evidence as indicators that petitioner was a common carrier: the fact
that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting of 400 bags
of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the
truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control of
the cargo was placed in petitioner's care.
In disputing the conclusion of the trial and appellate courts that petitioner was a common
carrier, she alleged in this petition that the contract between her and Rodolfo A. Cipriano,

representing CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which
referred to the contract as "lease". These affidavits were made by Jesus Bascos 8 and by
petitioner herself. 9 She further averred that Jesus Bascos confirmed in his testimony his
statement that the contract was a lease contract. 10 She also stated that: she was not catering to
the general public. Thus, in her answer to the amended complaint, she said that she does
business under the same style of A.M. Bascos Trucking, offering her trucks for lease to those
who have cargo to move, not to the general public but to a few customers only in view of the
fact that it is only a small business. 11
We agree with the respondent Court in its finding that petitioner is a common carrier.
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to
determine a common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted." 12 In this case, petitioner herself has
made the admission that she was in the trucking business, offering her trucks to those with
cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 13
But petitioner argues that there was only a contract of lease because they offer their services
only to a select group of people and because the private respondents, plaintiffs in the lower
court, did not object to the presentation of affidavits by petitioner where the transaction was
referred to as a lease contract.
Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14
is instructive. In referring to Article 1732 of the Civil Code, it held thus:
"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions."
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts
have dismissed them as self-serving and petitioner contests the conclusion. We are bound by
the appellate court's factual conclusions. Yet, granting that the said evidence were not selfserving, the same were not sufficient to prove that the contract was one of lease. It must be
understood that a contract is what the law defines it to be and not what it is called by the

9 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

contracting parties. 15 Furthermore, petitioner presented no other proof of the existence of the
contract of lease. He who alleges a fact has the burden of proving it. 16
Likewise, We affirm the holding of the respondent court that the loss of the goods was not due
to force majeure.
Common carriers are obliged to observe extraordinary diligence in the vigilance over the
goods transported by them. 17 Accordingly, they are presumed to have been at fault or to have
acted negligently if the goods are lost, destroyed or deteriorated. 18 There are very few
instances when the presumption of negligence does not attach and these instances are
enumerated in Article 1734. 19 In those cases where the presumption is applied, the common
carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption.
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her
from liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held
that hijacking, not being included in the provisions of Article 1734, must be dealt with under
the provisions of Article 1735 and thus, the common carrier is presumed to have been at fault
or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that
the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with Article 1745 of the Civil Code which provides:

Juanito Morden. It was not a first-hand account. While it had been admitted in court for lack of
objection on the part of private respondent, the respondent Court had discretion in assigning
weight to such evidence. We are bound by the conclusion of the appellate court. In a petition
for review on certiorari, We are not to determine the probative value of evidence but to resolve
questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking
took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked
truck, was presented as evidence in court, he himself was a witness as could be gleaned from
the contents of the petition. Affidavits are not considered the best evidence if the affiants are
available as witnesses. 25 The subsequent filing of the information for carnapping and robbery
against the accused named in said affidavits did not necessarily mean that the contents of the
affidavits were true because they were yet to be determined in the trial of the criminal cases.
The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any
evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary
diligence made the presumption conclusive against her.
Having affirmed the findings of the respondent Court on the substantial issues involved, We
find no reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary
attachment has been rendered moot and academic by the decision on the merits.

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

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

xxx xxx xxx

SO ORDERED.

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

4. G.R. No. 114167 July 12, 1995

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

COASTWISE
LIGHTERAGE
CORPORATION,
petitioner,
vs. COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY,
respondents.

"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."

This is a petition for review of a Decision rendered by the Court of Appeals, dated December
17, 1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the suit.

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and
the Court of Appeals have concluded that these affidavits were not enough to overcome the
presumption. Petitioner's affidavit about the hijacking was based on what had been told her by

The factual background of this case is as follows:


Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros
to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's

10 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise
owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9",
struck an unknown sunken object. The forward buoyancy compartment was damaged, and
water gushed in through a hole "two inches wide and twenty-two inches long" 1 As a
consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the use
it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of
molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of
its lost cargo, herein private respondent, Philippine General Insurance Company (PhilGen, for
short) and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage
denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount
of P700,000.00, representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial
Court of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales,
Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights
and claims which the consignee may have against the carrier, which is presumed to have
violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment
which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a private
carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of
the consignee against the carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding
that it was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to Manila and refers to this contract
as a "charter agreement". It then proceeds to cite the case of Home Insurance Company vs.
American Steamship Agencies, Inc. 2 wherein this Court held: ". . . a common carrier
undertaking to carry a special cargo or chartered to a special person only becomes a private
carrier."

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. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract
of affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4
wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will
generally be regarded as the owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes the owner
pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of
the vessel leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the vessel and
under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of
the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment on account of the aforementioned
distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5
We agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo
from one point to another, but the possession, command and navigation of the vessels
remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common
carrier and was still liable as such.

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of
the court are as follows:

11 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

The law and jurisprudence on common carriers both hold that the mere proof of delivery of
goods in good order to a carrier and the subsequent arrival of the same goods at the place of
destination in bad order makes for a prima facie case against the carrier.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported,
by proof of its exercise of extraordinary diligence.

It follows then that the presumption of negligence that attaches to common carriers, once the
goods it transports are lost, destroyed or deteriorated, applies to the petitioner. This
presumption, which is overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once
more rule against the petitioner. We have already found petitioner liable for breach of the
contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained
by the loss of the cargo which petitioner-carrier was transporting, it was not the carrier which
paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent
PhilGen.

The records show that the damage to the barge which carried the cargo of molasses was caused
by its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to
be a submerged derelict vessel. Petitioner contends that this navigational hazard was the
efficient cause of the accident. Further it asserts that the fact that the Philippine Coastguard
"has not exerted any effort to prepare a chart to indicate the location of sunken derelicts within
Manila North Harbor to avoid navigational accidents" 6 effectively contributed to the
happening of this mishap. Thus, being unaware of the hidden danger that lies in its path, it
became impossible for the petitioner to avoid the same. Nothing could have prevented the
event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far
from having rendered service with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed.
The Code of Commerce, which subsidiarily governs common carriers (which are primarily
governed by the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos,
have legal capacity to contract in accordance with this code, and prove the
skill capacity and qualifications necessary to command and direct the
vessel, as established by marine and navigation laws, ordinances or
regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron
violates this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a
person whose navigational skills are questionable, at the helm of the vessel which eventually
met the fateful accident. It may also logically, follow that a person without license to navigate,
lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes
taken by seasoned and legally authorized ones. Had the patron been licensed, he could be
presumed to have both the skill and the knowledge that would have prevented the vessel's
hitting the sunken derelict ship that lay on their way to Pier 18.

Article 2207 of the Civil Code is explicit on this point:


Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a
long line of cases including Compania Maritima v. Insurance Company of North America; 7
Fireman's Fund Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan
Insurance Corporation v. Court of Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated as an
equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to
Pag-asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being
transported by petitioner Coastwise Lighterage, the former was subrogated into all the rights
which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner Coastwise
Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision
affirming the order of Branch 35 of the Regional Trial Court of Manila for petitioner

12 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Coastwise Lighterage to pay respondent Philippine General Insurance Company the "principal
amount of P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989,
the date the complaint was filed until fully paid and another sum of P100,000.00 as attorney's
fees and costs" 10 is likewise hereby AFFIRMED

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the
copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of P1,903,335.39. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance
indemnity.

SO ORDERED.
5. G.R. No. 179446

January 10, 2011

LOADMASTERS
CUSTOMS
SERVICES,
INC.,
Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION,
Respondents.
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
assailing the August 24, 2007 Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.
82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and
Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs Services,
Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the amount
of P1,896,789.62 representing the insurance indemnity which R&B Insurance Corporation
(R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable Corporation
(Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from
Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No.
02-103040. It sought reimbursement of the amount it had paid to Columbia for the loss of the
subject cargo. It claimed that it had been subrogated "to the right of the consignee to recover
from the party/parties who may be held legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision 3 holding Glodel liable for damages for
the loss of the subject cargo and dismissing Loadmasters counterclaim for damages and
attorneys fees against R&B Insurance. The dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of
evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as actual
and compensatory damages, with interest from the date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
principal amount recovered as and for attorneys fees plus P1,500.00 per appearance
in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation
expenses.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from
the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to
Columbias warehouses/plants in Bulacan and Valenzuela City.

WHEREAS, the defendant Loadmasters Customs Services, Inc.s counterclaim for damages
and attorneys fees against plaintiff are hereby dismissed.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper
cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were
destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato
were duly delivered in Columbias warehouses there. Of the six (6) trucks en route to
Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with
11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.

SO ORDERED.4

With costs against defendant Glodel Brokerage Corporation.

Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:

13 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to
appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it
shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the
appellee Loadmasters is likewise held liable to appellant Glodel in the amount of
P1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable to
appellant R&B Insurance Corporation.
Appellant Glodels appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court
presenting the following

position even without amending its Answer. As to the relationship between Loadmasters and
Glodel, it contends that a contract of agency existed between the two corporations. 8
Subrogation is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. 9 Doubtless, R&B Insurance is subrogated to
the rights of the insured to the extent of the amount it paid the consignee under the marine
insurance, as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrong-doer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.

ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of
the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it
cannot be considered an agent of Glodel because it never represented the latter in its dealings
with the consignee. At any rate, it further contends that Glodel has no recourse against it for its
(Glodels) failure to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil
Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because
the latter was grossly negligent in the transportation of the subject cargo. With respect to
Loadmasters claim that it is already estopped from filing a cross-claim, Glodel insists that it
can still do so even for the first time on appeal because there is no rule that provides
otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of Charter
wherein the transporter (Loadmasters) is only hired for the specific job of delivering the
merchandise. Thus, the diligence required in this case is merely ordinary diligence or that of a
good father of the family, not the extraordinary diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
against Loadmasters because it was not prevented from presenting evidence to prove its

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for
the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the
Civil Code, common carriers are persons, corporations, firms, or associations engaged in the
business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in
the business of transporting goods by land, through its trucking service. It is a common carrier
as distinguished from a private carrier wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. 10 The distinction
is significant in the sense that "the rights and obligations of the parties to a contract of private
carriage are governed principally by their stipulations, not by the law on common carriers." 11
In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely
and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article
1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing under

14 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

the laws of the Republic of the Philippines and is engaged in the business of customs
brokering." It cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc., 14 a customs broker is also
regarded as a common carrier, the transportation of goods being an integral part of its
business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the circumstances of such case,
as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary
diligence, it is that extreme measure of care and caution which persons of unusual prudence
and circumspection observe for securing and preserving their own property or rights. 15 This
exacting standard imposed on common carriers in a contract of carriage of goods is intended
to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the
goods have been lodged for shipment. 16 Thus, in case of loss of the goods, the common carrier
is presumed to have been at fault or to have acted negligently. 17 This presumption of fault or
negligence, however, may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that
the exercise of extraordinary diligence 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.18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and
severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the
New Civil Code, "the responsibility of two or more persons who are liable for a quasi-delict is
solidary."
Loadmasters claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of Article
2176 of the Civil Code on quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service,
Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc. 19 where this Court held
that a tort may arise despite the absence of a contractual relationship, to wit:

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the negligent and careless loading and
stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and
McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to
the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers
may have a cause of action in light of the Courts consistent ruling that the act that breaks the
contract may be also a tort. In fine, a liability for tort may arise even under a contract, where
tort is that which breaches the contract. In the present case, Phoenix and McGee are not suing
for damages for injuries arising from the breach of the contract of service but from the
alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del
Monte Produce. Despite the absence of contractual relationship between Del Monte Produce
and Mindanao Terminal, the allegation of negligence on the part of the defendant should be
sufficient to establish a cause of action arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts
or omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused by
its employees who acted within the scope of their assigned task of delivering the goods safely
to the warehouse.
Whenever an employees negligence causes damage or injury to another, there instantly arises
a presumption juris tantum that the employer failed to exercise diligentissimi patris families in
the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. 20 To
avoid liability for a quasi-delict committed by its employee, an employer must overcome the
presumption by presenting convincing proof that he exercised the care and diligence of a good
father of a family in the selection and supervision of his employee. 21 In this regard,
Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to
ensure that Loadmasters would fully comply with the undertaking to safely transport the
subject cargo to the designated destination. It should have been more prudent in entrusting the
goods to Loadmasters by taking precautionary measures, such as providing escorts to

15 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.

become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194
of the Civil Code. [Emphasis supplied]

At this juncture, the Court clarifies that there exists no principal-agent relationship between
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code
provides: "By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter."
The elements of a contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the
scope of his authority.22

The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having
failed to file a cross-claim against the latter.1avvphi1

Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a settled
rule that the basis for agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal effect
as if they were personally executed by the principal. On the part of the principal, there must be
an actual intention to appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept the appointment and act on
it.23 Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each
wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are several
causes for the resulting damages, a party is not relieved from liability, even partially. It is
sufficient that the negligence of a party is an efficient cause without which the damage would
not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would
not have resulted from his negligence alone, without the negligence or wrongful acts of the
other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an efficient cause
without which the injury would not have happened, the injury may be attributed to all or any
of the causes and recovery may be had against any or all of the responsible persons although
under the circumstances of the case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not the same. No actor's negligence
ceases to be a proximate cause merely because it does not exceed the negligence of other
actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were
the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of them
are liable for the total damage. Where the concurrent or successive negligent acts or omissions
of two or more persons, although acting independently, are in combination the direct and
proximate cause of a single injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or damage to a third party, they

Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract
of service as the latter is primarily liable for the loss of the subject cargo. In this case,
however, it cannot succeed in seeking judicial sanction against Loadmasters because the
records disclose that it did not properly interpose a cross-claim against the latter. Glodel did
not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable
in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not
set up shall be barred.25 Thus, a cross-claim cannot be set up for the first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
on equitable grounds. "Equity, which has been aptly described as a justice outside legality, is
applied only in the absence of, and never against, statutory law or judicial rules of
procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been at
fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of
the Court of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services,
Inc. and respondent Glodel Brokerage Corporation jointly and severally liable to respondent
R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire
& Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance
Corporation a] the amount of P1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorneys fees; and c] the amount of
P22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against
petitioner Loadmasters Customs Services, Inc. is DENIED.
SO ORDERED.
6. G.R. No. 157917

August 29, 2012

SPOUSES
TEODORO1
and
NANETTE
PERENA,
Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL
RAILWAYS, and the COURT OF APPEALS Respondents.

16 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound
to observe extraordinary diligence in the conduct of his business. He is presumed to be
negligent when death occurs to a passenger. His liability may include indemnity for loss of
earning capacity even if the deceased passenger may only be an unemployed high school
student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal
the adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA)
affirmed with modification the decision rendered on December 3, 1999 by the Regional Trial
Court (RTC), Branch 260, in Paraaque City that had decreed them jointly and severally liable
with Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a
high school student of Don Bosco Technical Institute (Don Bosco).
Antecedents

warn motorists of its approach. When the train was about 50 meters away from the passenger
bus and the van, Alano applied the ordinary brakes of the train. He applied the emergency
brakes only when he saw that a collision was imminent. The passenger bus successfully
crossed the railroad tracks, but the van driven by Alfaro did not. The train hit the rear end of
the van, and the impact threw nine of the 12 students in the rear, including Aaron, out of the
van. Aaron landed in the path of the train, which dragged his body and severed his head,
instantaneously killing him. Alano fled the scene on board the train, and did not wait for the
police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereas, PNR and Alano. The Pereas and PNR filed their
respective answers, with cross-claims against each other, but Alfaro could not be served with
summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:

The Pereas were engaged in the business of transporting students from their respective
residences in Paraaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be seated in the front beside
the driver, and the others in the rear, with six students on either side. They employed Clemente
Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco.
On August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m.
from the Zarates residence. Aaron took his place on the left side of the van near the rear door.
The van, with its air-conditioning unit turned on and the stereo playing loudly, ultimately
carried all the 14 student riders on their way to Don Bosco. Considering that the students were
due at Don Bosco by 7:15 a.m., and that they were already running late because of the heavy
vehicular traffic on the South Superhighway, Alfaro took the van to an alternate route at about
6:45 a.m. by traversing the narrow path underneath the Magallanes Interchange that was then
commonly used by Makati-bound vehicles as a short cut into Makati. At the time, the narrow
path was marked by piles of construction materials and parked passenger jeepneys, and the
railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other
responsible persons manning the crossing. In fact, the bamboo barandilla was up, leaving the
railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302
(train), operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange
travelling northbound. As the train neared the railroad crossing, Alfaro drove the van eastward
across the railroad tracks, closely tailing a large passenger bus. His view of the oncoming train
was blocked because he overtook the passenger bus on its left side. The train blew its horn to

That spouses Zarate were the legitimate parents of Aaron John L. Zarate;(1)
Spouses Zarate engaged the services of spouses(2) Perea for the adequate and
safe transportation carriage of the former spouses' son from their residence in
Paraaque to his school at the Don Bosco Technical Institute in Makati City;
During the effectivity of the contract of(3) carriage and in the implementation
thereof, Aaron, the minor son of spouses Zarate died in connection with a
vehicular/train collision which occurred while Aaron was riding the contracted
carrier Kia Ceres van of spouses Perea, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided with the train of
PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;
At the time of the vehicular/train collision,(4) the subject site of the vehicular/train
collision was a railroad crossing used by motorists for crossing the railroad tracks;
During the said time of the vehicular/train(5) collision, there were no appropriate
and safety warning signs and railings at the site commonly used for railroad
crossing;
At the material time, countless number of Makati(6) bound public utility and
private vehicles used on a daily basis the site of the collision as an alternative route
and short-cut to Makati;

17 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

The train driver or operator left the scene of(7) the incident on board the commuter
train involved without waiting for the police investigator;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of
Aaron John Zarate;

The site commonly used for railroad crossing by(8) motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the vehicular
collision;

(8) Whether or not defendant PNR was grossly negligent in operating the commuter
train involved in the accident, in allowing or tolerating the motoring public to cross,
and its failure to install safety devices or equipment at the site of the accident for the
protection of the public;

PNR received the demand letter of the spouses Zarate;(9)


PNR refused to acknowledge any liability for the vehicular/train collision;(10)

(9) Whether or not defendant PNR should be made to reimburse defendant spouses
for any and whatever amount the latter may be held answerable or which they may
be ordered to pay in favor of plaintiffs by reason of the action;

The eventual closure of the railroad crossing(11) alleged by PNR was an internal
arrangement between the former and its project contractor; and

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the
amounts claimed by the latter in their Complaint by reason of its gross negligence;

The site of the vehicular/train collision was(12) within the vicinity or less than 100
meters from the Magallanes station of PNR.

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral
and exemplary damages and attorney's fees.2

B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the vehicular
collision, which resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of defendant
Alfaro are liable for any negligence which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning
signs and railings in the area commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular collision which resulted in the
death of the plaintiff spouses' son;

The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil
Code.
In their defense, the Pereas adduced evidence to show that they had exercised the diligence of
a good father of the family in the selection and supervision of Alfaro, by making sure that
Alfaro had been issued a drivers license and had not been involved in any vehicular accident
prior to the collision; that their own son had taken the van daily; and that Teodoro Perea had
sometimes accompanied Alfaro in the vans trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the
reckless crossing of the van whose driver had not first stopped, looked and listened; and that
the narrow path traversed by the van had not been intended to be a railroad crossing for
motorists.

(4) Whether or not defendant spouses Perea are liable for breach of the contract of
carriage with plaintiff-spouses in failing to provide adequate and safe transportation
for the latter's son;

Ruling of the RTC

(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:

(6) Whether or not defendants spouses Teodorico and Nanette Perea observed the
diligence of employers and school bus operators;

On December 3, 1999, the RTC rendered its decision, 3 disposing:

(1) (for) the death of Aaron- Php50,000.00;


(2) Actual damages in the amount of Php100,000.00;

18 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

(3) For the loss of earning capacity- Php2,109,071.00;

The trial court erred in awarding excessive damages and attorneys fees.

(4) Moral damages in the amount of Php4,000,000.00;

The trial court erred in awarding damages in the form of deceaseds loss of earning capacity in
the absence of sufficient basis for such an award.

(5) Exemplary damages in the amount of Php1,000,000.00;


(6) Attorneys fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for reconsideration, 4 reiterating that the
cooperative gross negligence of the Pereas and PNR had caused the collision that led to the
death of Aaron; and that the damages awarded to the Zarates were not excessive, but based on
the established circumstances.
The CAs Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit: 5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and
severally liable together with defendant-appellants spouses Teodorico and Nanette
Perea and defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the
death of Aaron Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees
witnesses despite overwhelming documentary evidence on record, supporting the
case of defendants-appellants Philippine National Railways.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC,
but limited the moral damages to P 2,500,000.00; and deleted the attorneys fees because the
RTC did not state the factual and legal bases, to wit: 6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court,
Branch 260 of Paraaque City is AFFIRMED with the modification that the award of Actual
Damages is reduced to P 59,502.76; Moral Damages is reduced to P 2,500,000.00; and the
award for Attorneys Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the
ruling in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, 7 wherein
the Court gave the heirs of Cariaga a sum representing the loss of the deceaseds earning
capacity despite Cariaga being only a medical student at the time of the fatal incident.
Applying the formula adopted in the American Expectancy Table of Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering that
the nature of his work and his salary at the time of Aarons death were unknown, it used the
prevailing minimum wage of P 280.00/day to compute Aarons gross annual salary to be P
110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by Aarons
life expectancy of 39.3 years, his gross income would aggregate to P 4,351,164.30, from
which his estimated expenses in the sum of P 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aarons computed net income turning out to be higher
than the amount claimed by the Zarates, only P 2,109,071.00, the amount expressly prayed for
by them, was granted.

The Pereas ascribed the following errors to the RTC, namely:


On April 4, 2003, the CA denied the Pereas motion for reconsideration. 8
The trial court erred in finding defendants-appellants jointly and severally liable for actual,
moral and exemplary damages and attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas against the
Philippine National Railways and in not holding the latter and its train driver primarily
responsible for the incident.

Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to wit:

19 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly
and severally liable to pay damages with Philippine National Railways and dismissing their
cross-claim against the latter.
II. The lower court erred in affirming the trial courts decision awarding damages for loss of
earning capacity of a minor who was only a high school student at the time of his death in the
absence of sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were
the
Pereas
and severally liable for damages?

and

PNR

jointly

The Zarates brought this action for recovery of damages against both the Pereas and the
PNR, basing their claim against the Pereas on breach of contract of carriage and against the
PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had
a drivers license and that he had not been involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son travel to and from school on a daily
basis; and that Teodoro Perea himself sometimes accompanied Alfaro in transporting the
passengers to and from school. The RTC gave scant consideration to such defense by
regarding such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas
operated as a common carrier; and that their standard of care was extraordinary diligence, not
the ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as
a private carrier,9 primarily because he only caters to some specific or privileged individuals,
and his operation is neither open to the indefinite public nor for public use, the exact nature of

the operation of a school bus service has not been finally settled. This is the occasion to lay the
matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons
from one place to another, gratuitously or for hire. The carrier is classified either as a
private/special carrier or as a common/public carrier. 10 A private carrier is one who, without
making the activity a vocation, or without holding himself or itself out to the public as ready to
act for all who may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either gratuitously or for
hire.11 The provisions on ordinary contracts of the Civil Code govern the contract of private
carriage.The diligence required of a private carrier is only ordinary, that is, the diligence of a
good father of the family. In contrast, a common carrier is a person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the public. 12 Contracts of
common carriage are governed by the provisions on common carriers of the Civil Code, the
Public Service Act,13 and other special laws relating to transportation. A common carrier is
required to observe extraordinary diligence, and is presumed to be at fault or to have acted
negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14
In relation to common carriers, the Court defined public use in the following terms in United
States v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we
must look not only to the character of the business to be done, but also to the proposed mode
of doing it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of the public utility
commission. There must be, in general, a right which the law compels the owner to give to the
general public. It is not enough that the general prosperity of the public is promoted. Public
use is not synonymous with public interest. The true criterion by which to judge the character
of the use is whether the public may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals, 16 the Court noted that Article 1732 of the Civil Code
avoided any distinction between a person or an enterprise offering transportation on a regular
or an isolated basis; and has not distinguished a carrier offering his services to the general
public, that is, the general community or population, from one offering his services only to a
narrow segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil Code. Public service, according to
Section 13, paragraph (b) of the Public Service Act, includes:

20 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

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 clientle, whether permanent or
occasional, and done for the general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with
or without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine repair shop, 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. x x x. 17
Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators, 18 custom brokers and warehousemen, 19 and
barge operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of
the business actually transacted, or the number and character of the conveyances used in the
activity, but whether the undertaking is a part of the activity engaged in by the carrier that he
has held out to the general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as advertised and held
out to the general public, the individual or the entity rendering such service is a private, not a
common, carrier. The question must be determined by the character of the business actually
carried on by the carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes. 21
Applying these considerations to the case before us, there is no question that the Pereas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a
fee. Despite catering to a limited clientle, the Pereas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the passengers is
defined by law. Given the nature of the business and for reasons of public policy, the common
carrier is bound "to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each
case."22 Article 1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances." To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier must prove
his or its observance of that extraordinary diligence; otherwise, the legal presumption that he
or it was at fault or acted negligently would stand. 23 No device, whether by stipulation, posting

of notices, statements on tickets, or otherwise, may dispense with or lessen the responsibility
of the common carrier as defined under Article 1755 of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or reason by which the
Court might now reverse the CAs findings on their liability. On the contrary, an examination
of the records shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already presumed to be
negligent at the time of the accident because death had occurred to their passenger. 25 The
presumption of negligence, being a presumption of law, laid the burden of evidence on their
shoulders to establish that they had not been negligent. 26 It was the law no less that required
them to prove their observance of extraordinary diligence in seeing to the safe and secure
carriage of the passengers to their destination. Until they did so in a credible manner, they
stood to be held legally responsible for the death of Aaron and thus to be held liable for all the
natural consequences of such death.
There is no question that the Pereas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family
in the selection and supervision of their driver was not legally sufficient. According to Article
1759 of the Civil Code, their liability as a common carrier did not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and supervision of their
employee. This was the reason why the RTC treated this defense of the Pereas as
inappropriate in this action for breach of contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver might have
acted beyond the scope of his authority or even in violation of the orders of the common
carrier.27 In this connection, the records showed their drivers actual negligence. There was a
showing, to begin with, that their driver traversed the railroad tracks at a point at which the
PNR did not permit motorists going into the Makati area to cross the railroad tracks. Although
that point had been used by motorists as a shortcut into the Makati area, that fact alone did not
excuse their driver into taking that route. On the other hand, with his familiarity with that
shortcut, their driver was fully aware of the risks to his passengers but he still disregarded the
risks. Compounding his lack of care was that loud music was playing inside the airconditioned van at the time of the accident. The loudness most probably reduced his ability to
hear the warning horns of the oncoming train to allow him to correctly appreciate the lurking
dangers on the railroad tracks. Also, he sought to overtake a passenger bus on the left side as
both vehicles traversed the railroad tracks. In so doing, he lost his view of the train that was
then coming from the opposite side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of the train. As a result, the bus
avoided a collision with the train but the van got slammed at its rear, causing the fatality.
Lastly, he did not slow down or go to a full stop before traversing the railroad tracks despite
knowing that his slackening of speed and going to a full stop were in observance of the right
of way at railroad tracks as defined by the traffic laws and regulations. 28 He thereby violated a

21 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

specific traffic regulation on right of way, by virtue of which he was immediately presumed to
be negligent.29

leave himself blind to the approach of the oncoming train that he knew was on the opposite
side of the bus.

The omissions of care on the part of the van driver constituted negligence, 30 which, according
to Layugan v. Intermediate Appellate Court, 31 is "the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man
would not do,32 or as Judge Cooley defines it, (t)he failure to observe for the protection of the
interests of another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury."33

Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court, 35 where
the Court held the PNR solely liable for the damages caused to a passenger bus and its
passengers when its train hit the rear end of the bus that was then traversing the railroad
crossing. But the circumstances of that case and this one share no similarities. In Philippine
National Railways v. Intermediate Appellate Court, no evidence of contributory negligence
was adduced against the owner of the bus. Instead, it was the owner of the bus who proved the
exercise of extraordinary diligence by preponderant evidence. Also, the records are replete
with the showing of negligence on the part of both the Pereas and the PNR. Another
distinction is that the passenger bus in Philippine National Railways v. Intermediate Appellate
Court was traversing the dedicated railroad crossing when it was hit by the train, but the
Pereas school van traversed the railroad tracks at a point not intended for that purpose.

The test by which to determine the existence of negligence in a particular case has been aptly
stated in the leading case of Picart v. Smith, 34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated
as follows: Did the defendant in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the same situation? If not, then
he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied
by the imaginary conduct of the discreet paterfamilias of the Roman law. The existence of
negligence in a given case is not determined by reference to the personal judgment of the actor
in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation
must of course be always determined in the light of human experience and in view of the facts
involved in the particular case. Abstract speculation cannot here be of much value but this
much can be profitably said: Reasonable men govern their conduct by the circumstances
which are before them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is something before
them to suggest or warn of danger. Could a prudent man, in the case under consideration,
foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to
take precautions to guard against that harm. Reasonable foresight of harm, followed by the
ignoring of the suggestion born of this prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the existence of
negligence in a given case is this: Conduct is said to be negligent when a prudent man in the
position of the tortfeasor would have foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent
when he traversed the railroad tracks at a point not allowed for a motorists crossing despite
being fully aware of the grave harm to be thereby caused to his passengers; and when he
disregarded the foresight of harm to his passengers by overtaking the bus on the left side as to

At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and
severally" liable for damages arising from the death of Aaron. They had been impleaded in the
same complaint as defendants against whom the Zarates had the right to relief, whether jointly,
severally, or in the alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates. 36 Although the basis of the right to relief of the
Zarates (i.e., breach of contract of carriage) against the Pereas was distinct from the basis of
the Zarates right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code),
they nonetheless could be held jointly and severally liable by virtue of their respective
negligence combining to cause the death of Aaron. As to the PNR, the RTC rightly found the
PNR also guilty of negligence despite the school van of the Pereas traversing the railroad
tracks at a point not dedicated by the PNR as a railroad crossing for pedestrians and motorists,
because the PNR did not ensure the safety of others through the placing of crossbars, signal
lights, warning signs, and other permanent safety barriers to prevent vehicles or pedestrians
from crossing there. The RTC observed that the fact that a crossing guard had been assigned to
man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the risks
to others as well as the need to control the vehicular and other traffic there. Verily, the Pereas
and the PNR were joint tortfeasors.
2.
Was
the
indemnity
Aarons earning capacity proper?

for

loss

of

The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the
RTC on the liability, the CA modified the amount. Both lower courts took into consideration
that Aaron, while only a high school student, had been enrolled in one of the reputable schools
in the Philippines and that he had been a normal and able-bodied child prior to his death. The
basis for the computation of Aarons earning capacity was not what he would have become or
what he would have wanted to be if not for his untimely death, but the minimum wage in
effect at the time of his death. Moreover, the RTCs computation of Aarons life expectancy

22 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

rate was not reckoned from his age of 15 years at the time of his death, but on 21 years, his
age when he would have graduated from college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1wphi1 They cited People v. Teehankee, Jr., 37 where the Court deleted the
indemnity for victim Jussi Leinos loss of earning capacity as a pilot for being speculative due
to his having graduated from high school at the International School in Manila only two years
before the shooting, and was at the time of the shooting only enrolled in the first semester at
the Manila Aero Club to pursue his ambition to become a professional pilot. That meant,
according to the Court, that he was for all intents and purposes only a high school graduate.
We reject the Pereas submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that
Aaron would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a
physician, or a lawyer). Instead, the computation of Aarons earning capacity was premised on
him being a lowly minimum wage earner despite his being then enrolled at a prestigious high
school like Don Bosco in Makati, a fact that would have likely ensured his success in his later
years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken
against his parents and in favor of the defendants whose negligence not only cost Aaron his
life and his right to work and earn money, but also deprived his parents of their right to his
presence and his services as well. Our law itself states that the loss of the earning capacity of
the deceased shall be the liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning capacity at the time
of his death."38 Accordingly, we emphatically hold in favor of the indemnification for Aarons
loss of earning capacity despite him having been unemployed, because compensation of this
nature is awarded not for loss of time or earnings but for loss of the deceaseds power or
ability to earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company, 40 fourth-year medical student Edgardo
Carriagas earning capacity, although he survived the accident but his injuries rendered him
permanently incapacitated, was computed to be that of the physician that he dreamed to
become. The Court considered his scholastic record sufficient to justify the assumption that he
could have finished the medical course and would have passed the medical board
examinations in due time, and that he could have possibly earned a modest income as a
medical practitioner. Also, in People v. Sanchez, 41 the Court opined that murder and rape

victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed goodpaying jobs had they graduated in due time, and that their jobs would probably pay them high
monthly salaries from P 10,000.00 to P 15,000.00 upon their graduation. Their earning
capacities were computed at rates higher than the minimum wage at the time of their deaths
due to their being already senior agriculture students of the University of the Philippines in
Los Baos, the countrys leading educational institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages awarded to the
Zarates in the respective amounts of P 2,500,000.00 and P 1,000,000.00 on the ground that
such amounts were excessive.
The plea is unwarranted.
The moral damages of P 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates deep
mental anguish over their sons unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the
Zarates obtain the means, diversions or amusements that would alleviate their suffering for the
loss of their child. At any rate, reducing the amount as excessive might prove to be an
injustice, given the passage of a long time from when their mental anguish was inflicted on
them on August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the
Pereas needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others similarly
situated like them the ever-present need for greater and constant vigilance in the conduct of a
business imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs of suit.
SO ORDERED.
7. G.R. No. 166640

July 31, 2009

HERMINIO
MARIANO,
JR.,
Petitioner,
vs.
ILDEFONSO C. CALLEJAS and EDGAR DE BORJA, Respondents.

23 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

On appeal are the Decision1 and Resolution2 of the Court of Appeals in CA-G.R. CV No.
66891, dated May 21, 2004 and January 7, 2005 respectively, which reversed the Decision 3 of
the Regional Trial Court (RTC) of Quezon City, dated September 13, 1999, which found
respondents jointly and severally liable to pay petitioner damages for the death of his wife.

In the case at bar, the trial court, in its Decision dated September 13, 1999, found respondents
Ildefonso Callejas and Edgar de Borja, together with Liong Chio Chang, jointly and severally
liable to pay petitioner damages and costs of suit. The dispositive portion of the Decision
reads:

First, the facts:

ACCORDINGLY, the defendants are ordered to pay as follows:

Petitioner Herminio Mariano, Jr. is the surviving spouse of Dr. Frelinda Mariano who was a
passenger of a Celyrosa Express bus bound for Tagaytay when she met her death. Respondent
Ildefonso C. Callejas is the registered owner of Celyrosa Express, while respondent Edgar de
Borja was the driver of the bus on which the deceased was a passenger.
At around 6:30 p.m. on November 12, 1991, along Aguinaldo Highway, San Agustin,
Dasmarias, Cavite, the Celyrosa Express bus, carrying Dr. Mariano as its passenger, collided
with an Isuzu truck with trailer bearing plate numbers PJH 906 and TRH 531. The passenger
bus was bound for Tagaytay while the trailer truck came from the opposite direction, bound
for Manila. The trailer truck bumped the passenger bus on its left middle portion. Due to the
impact, the passenger bus fell on its right side on the right shoulder of the highway and caused
the death of Dr. Mariano and physical injuries to four other passengers. Dr. Mariano was 36
years old at the time of her death. She left behind three minor children, aged four, three and
two years.
Petitioner filed a complaint for breach of contract of carriage and damages against respondents
for their failure to transport his wife and mother of his three minor children safely to her
destination. Respondents denied liability for the death of Dr. Mariano. They claimed that the
proximate cause of the accident was the recklessness of the driver of the trailer truck which
bumped their bus while allegedly at a halt on the shoulder of the road in its rightful lane. Thus,
respondent Callejas filed a third-party complaint against Liong Chio Chang, doing business
under the name and style of La Perla Sugar Supply, the owner of the trailer truck, for
indemnity in the event that he would be held liable for damages to petitioner.lavvph!l
Other cases were filed. Callejas filed a complaint, 4 docketed as Civil Case No. NC-397 before
the RTC of Naic, Cavite, against La Perla Sugar Supply and Arcadio Arcilla, the truck driver,
for damages he incurred due to the vehicular accident. On September 24, 1992, the said court
dismissed the complaint against La Perla Sugar Supply for lack of evidence. It, however,
found Arcilla liable to pay Callejas the cost of the repairs of his passenger bus, his lost
earnings, exemplary damages and attorneys fees. 5
A criminal case, Criminal Case No. 2223-92, was also filed against truck driver Arcilla in the
RTC of Imus, Cavite. On May 3, 1994, the said court convicted truck driver Arcadio Arcilla of
the crime of reckless imprudence resulting to homicide, multiple slight physical injuries and
damage to property.6

1. The sum of P50,000.00 as civil indemnity for the loss of life;


2. The sum of P40,000.00 as actual and compensatory damages;
3. The sum of P1,829,200.00 as foregone income;
4. The sum of P30,000.00 as moral damages;
5. The sum of P20,000.00 as exemplary damages;
6. The costs of suit.
SO ORDERED.7
Respondents Callejas and De Borja appealed to the Court of Appeals, contending that the trial
court erred in holding them guilty of breach of contract of carriage.
On May 21, 2004, the Court of Appeals reversed the decision of the trial court. It reasoned:
. . . the presumption of fault or negligence against the carrier is only a disputable presumption.
It gives in where contrary facts are established proving either that the carrier had exercised the
degree of diligence required by law or the injury suffered by the passenger was due to a
fortuitous event. Where, as in the instant case, the injury sustained by the petitioner was in no
way due to any defect in the means of transport or in the method of transporting or to the
negligent or wilful acts of private respondent's employees, and therefore involving no issue of
negligence in its duty to provide safe and suitable cars as well as competent employees, with
the injury arising wholly from causes created by strangers over which the carrier had no
control or even knowledge or could not have prevented, the presumption is rebutted and the
carrier is not and ought not to be held liable. To rule otherwise would make the common
carrier the insurer of the absolute safety of its passengers which is not the intention of the
lawmakers.8
The dispositive portion of the Decision reads:
WHEREFORE, the decision appealed from, insofar as it found defendants-appellants
Ildefonso Callejas and Edgar de Borja liable for damages to plaintiff-appellee Herminio E.

24 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Mariano, Jr., is REVERSED and SET ASIDE and another one entered absolving them from
any liability for the death of Dr. Frelinda Cargo Mariano. 9

foresight can provide. What constitutes compliance with said duty is adjudged with due regard
to all the circumstances.

The appellate court also denied the motion for reconsideration filed by petitioner.

Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of
the common carrier when its passenger is injured, merely relieves the latter, for the time being,
from introducing evidence to fasten the negligence on the former, because the presumption
stands in the place of evidence. Being a mere presumption, however, the same is rebuttable by
proof that the common carrier had exercised extraordinary diligence as required by law in the
performance of its contractual obligation, or that the injury suffered by the passenger was
solely due to a fortuitous event.

Hence, this appeal, relying on the following ground:


THE DECISION OF THE HONORABLE COURT OF APPEALS, SPECIAL FOURTEENTH
DIVISION IS NOT IN ACCORD WITH THE FACTUAL BASIS OF THE CASE. 10
The following are the provisions of the Civil Code pertinent to the case at bar:
ART. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.
ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard
for all the circumstances.
ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.
In accord with the above provisions, Celyrosa Express, a common carrier, through its driver,
respondent De Borja, and its registered owner, respondent Callejas, has the express obligation
"to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances," 11 and
to observe extraordinary diligence in the discharge of its duty. The death of the wife of the
petitioner in the course of transporting her to her destination gave rise to the presumption of
negligence of the carrier. To overcome the presumption, respondents have to show that they
observed extraordinary diligence in the discharge of their duty, or that the accident was caused
by a fortuitous event.
This Court interpreted the above quoted provisions in Pilapil v. Court of Appeals. 12 We
elucidated:
While the law requires the highest degree of diligence from common carriers in the safe
transport of their passengers and creates a presumption of negligence against them, it does not,
however, make the carrier an insurer of the absolute safety of its passengers.
Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and
precaution in the carriage of passengers by common carriers to only such as human care and

In fine, we can only infer from the law the intention of the Code Commission and Congress to
curb the recklessness of drivers and operators of common carriers in the conduct of their
business.
Thus, it is clear that neither the law nor the nature of the business of a transportation company
makes it an insurer of the passenger's safety, but that its liability for personal injuries sustained
by its passenger rests upon its negligence, its failure to exercise the degree of diligence that the
law requires.
In the case at bar, petitioner cannot succeed in his contention that respondents failed to
overcome the presumption of negligence against them. The totality of evidence shows that the
death of petitioners spouse was caused by the reckless negligence of the driver of the Isuzu
trailer truck which lost its brakes and bumped the Celyrosa Express bus, owned and operated
by respondents.
First, we advert to the sketch prepared by PO3 Magno S. de Villa, who investigated the
accident. The sketch13 shows the passenger bus facing the direction of Tagaytay City and lying
on its right side on the shoulder of the road, about five meters away from the point of impact.
On the other hand, the trailer truck was on the opposite direction, about 500 meters away from
the point of impact. PO3 De Villa stated that he interviewed De Borja, respondent driver of the
passenger bus, who said that he was about to unload some passengers when his bus was
bumped by the driver of the trailer truck that lost its brakes. PO3 De Villa checked out the
trailer truck and found that its brakes really failed. He testified before the trial court, as
follows:
ATTY. ESTELYDIZ:
q You pointed to the Isuzu truck beyond the point of impact. Did you investigate
why did (sic) the Isuzu truck is beyond the point of impact?
a Because the truck has no brakes.

25 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

COURT:
q What is the distance between that circle which is marked as Exh. 1-c to the place
where you found the same?
a More or less 500 meters.
q Why did you say that the truck has no brakes?
a I tested it.
q And you found no brakes?
a Yes, sir.
xxx

Said vehicle 1 [passenger bus] was running from Manila toward south direction when, in the
course of its travel, it was hit and bumped by vehicle 2 [truck with trailer] then running fast
from opposite direction, causing said vehicle 1 to fall on its side on the road shoulder, causing
the death of one and injuries of some passengers thereof, and its damage, after collission (sic),
vehicle 2 continiously (sic) ran and stopped at approximately 500 meters away from the piont
(sic) of impact.15
In fine, the evidence shows that before the collision, the passenger bus was cruising on its
rightful lane along the Aguinaldo Highway when the trailer truck coming from the opposite
direction, on full speed, suddenly swerved and encroached on its lane, and bumped the
passenger bus on its left middle portion. Respondent driver De Borja had every right to expect
that the trailer truck coming from the opposite direction would stay on its proper lane. He was
not expected to know that the trailer truck had lost its brakes. The swerving of the trailer truck
was abrupt and it was running on a fast speed as it was found 500 meters away from the point
of collision. Secondly, any doubt as to the culpability of the driver of the trailer truck ought to
vanish when he pleaded guilty to the charge of reckless imprudence resulting to multiple slight
physical injuries and damage to property in Criminal Case No. 2223-92, involving the same
incident.1avvph!1

q When you went to the scene of accident, what was the position of Celyrosa bus?
a It was lying on its side.
COURT:

IN VIEW WHEREOF, the petition is DENIED. The Decision dated May 21, 2004 and the
Resolution dated January 7, 2005 of the Court of Appeals in CA-G.R. CV No. 66891 are
AFFIRMED.
SO ORDERED.

q Right side or left side?


8. G.R. No. 161833. July 8, 2005
a Right side.
ATTY. ESTELYDIZ:
q On what part of the road was it lying?
a On the shoulder of the road.
COURT:
q How many meters from the point of impact?
a Near, about 5 meters.

PHILIPPINE
CHARTER
INSURANCE
CORPORATION,
Petitioners,
vs. UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR," NATIONAL
SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL
CONTAINER SERVICES, INC., Respondents.
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure
assailing the Decision1 dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV
No. 57357 which affirmed the Decision dated February 17, 1997 of the Regional Trial Court
(RTC) of Manila, Branch 37, in Civil Case No. 95-73338.
The Antecedent

14

His police report bolsters his testimony and states:

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of
parts and accessories in the port of Pusan, Korea, on board the vessel M/V "National Honor,"
represented in the Philippines by its agent, National Shipping Corporation of the Philippines
(NSCP). The shipment was for delivery to Manila, Philippines. Freight forwarder, Samhwa

26 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Inter-Trans Co., Ltd., issued Bill of Lading No. SH9410306 2 in the name of the shipper
consigned to the order of Metropolitan Bank and Trust Company with arrival notice in Manila
to ultimate consignee Blue Mono International Company, Incorporated (BMICI), Binondo,
Manila.

furnished with a copy of the crate cargo list and bill of lading, and it knew the contents of the
crate.11 The following day, the vessel started discharging its cargoes using its winch crane. The
crane was operated by Olegario Balsa, a winchman from the ICTSI, 12 the exclusive arrastre
operator of MICT.

NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 3 in the name of the freight
forwarder, as shipper, consigned to the order of Stamm International Inc., Makati, Philippines.
It is provided therein that:

Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of
the ICTSI, conducted an inspection of the cargo. 13 They inspected the hatches, checked the
cargo and found it in apparent good condition. 14 Claudio Cansino, the stevedore of the ICTSI,
placed two sling cables on each end of Crate No. 1. 15 No sling cable was fastened on the midportion of the crate. In Dauzs experience, this was a normal procedure. 16 As the crate was
being hoisted from the vessels hatch, the mid-portion of the wooden flooring suddenly
snapped in the air, about five feet high from the vessels twin deck, sending all its contents
crashing down hard,17 resulting in extensive damage to the shipment.

12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent
good order and condition except as, otherwise, noted of the total number of Containers or
other packages or units enumerated overleaf. Proof to the contrary shall be admissible when
this Bill of Lading has been transferred to a third party acting in good faith. No representation
is made by the Carrier as to the weight, contents, measure, quantity, quality, description,
condition, marks, numbers, or value of the Goods and the Carrier shall be under no
responsibility whatsoever in respect of such description or particulars.
13. The shipper, whether principal or agent, represents and warrants that the goods are
properly described, marked, secured, and packed and may be handled in ordinary course
without damage to the goods, ship, or property or persons and guarantees the correctness of
the particulars, weight or each piece or package and description of the goods and agrees to
ascertain and to disclose in writing on shipment, any condition, nature, quality, ingredient or
characteristic that may cause damage, injury or detriment to the goods, other property, the ship
or to persons, and for the failure to do so the shipper agrees to be liable for and fully
indemnify the carrier and hold it harmless in respect of any injury or death of any person and
loss or damage to cargo or property. The carrier shall be responsible as to the correctness of
any such mark, descriptions or representations.4
The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2,
complete and in good order condition, covered by Commercial Invoice No. YJ-73564 DTD 5
and a Packing List.6 There were no markings on the outer portion of the crates except the name
of the consignee.7 Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs. It contained
the following articles: one (1) unit Lathe Machine complete with parts and accessories; one (1)
unit Surface Grinder complete with parts and accessories; and one (1) unit Milling Machine
complete with parts and accessories. On the flooring of the wooden crates were three wooden
battens placed side by side to support the weight of the cargo. Crate No. 2, on the other hand,
measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine was stuffed in the crate.
The shipment had a total invoice value of US$90,000.00 C&F Manila. 8 It was insured for
P2,547,270.00 with the Philippine Charter Insurance Corporation (PCIC) thru its general
agent, Family Insurance and Investment Corporation, 9 under Marine Risk Note No. 68043
dated October 24, 1994.10
The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on
November 14, 1995. The International Container Terminal Services, Incorporated (ICTSI) was

BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such damaged
condition.18 Upon receipt of the damaged shipment, BMICI found that the same could no
longer be used for the intended purpose. The Mariners Adjustment Corporation hired by PCIC
conducted a survey and declared that the packing of the shipment was considered insufficient.
It ruled out the possibility of taxes due to insufficiency of packing. It opined that three to four
pieces of cable or wire rope slings, held in all equal setting, never by-passing the center of the
crate, should have been used, considering that the crate contained heavy machinery. 19
BMICI subsequently filed separate claims against the NSCP,20 the ICTSI,21 and its insurer, the
PCIC,22 for US$61,500.00. When the other companies denied liability, PCIC paid the claim
and was issued a Subrogation Receipt23 for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint
for Damages24 against the "Unknown owner of the vessel M/V National Honor," NSCP and
ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed,
among others
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered
ordering defendants to pay plaintiff, jointly or in the alternative, the following:
1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing
of this complaint until fully paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.25

27 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its codefendant NSCP, claiming that the loss/damage of the shipment was caused exclusively by the
defective material of the wooden battens of the shipment, insufficient packing or acts of the
shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens
placed on the wooden flooring of the crate was of good material but was not strong enough to
support the weight of the machines inside the crate. He averred that most stevedores did not
know how to read and write; hence, he placed the sling cables only on those portions of the
crate where the arrow signs were placed, as in the case of fragile cargo. He said that unless
otherwise indicated by arrow signs, the ICTSI used only two cable slings on each side of the
crate and would not place a sling cable in the mid-section. 26 He declared that the crate fell
from the cranes because the wooden batten in the mid-portion was broken as it was being
lifted.27 He concluded that the loss/damage was caused by the failure of the shipper or its
packer to place wooden battens of strong materials under the flooring of the crate, and to place
a sign in its mid-term section where the sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to
the cargo could be attributed to insufficient packing and unbalanced weight distribution of the
cargo inside the crate as evidenced by the types and shapes of items found. 28
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two
defendants are dismissed, with costs against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the
internal defect and weakness of the materials used in the fabrication of the crates. The middle
wooden batten had a hole (bukong-bukong). The trial court rejected the certification 30 of the
shipper, stating that the shipment was properly packed and secured, as mere hearsay and
devoid of any evidentiary weight, the affiant not having testified.
Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19, 2004
affirming in toto the appealed decision, with this fallo
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February
17, 1997, is AFFIRMED.
SO ORDERED.32

The appellate court held, inter alia, that it was bound by the finding of facts of the RTC,
especially so where the evidence in support thereof is more than substantial. It ratiocinated
that the loss of the shipment was due to an excepted cause "[t]he character of the goods or
defects in the packing or in the containers" and the failure of the shipper to indicate signs to
notify the stevedores that extra care should be employed in handling the shipment. 33 It blamed
the shipper for its failure to use materials of stronger quality to support the heavy machines
and to indicate an arrow in the middle portion of the cargo where additional slings should be
attached.34 The CA concluded that common carriers are not absolute insurers against all risks
in the transport of the goods.35
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT
HOLDING THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE
SUSTAINED BY THE SHIPMENT IN THE POSSESSION OF THE ARRASTRE
OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT
APPLYING THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE
CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING
THAT THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS
DEFECTIVE PACKING AND NOT TO THE FAULT AND NEGLIGENCE OF THE
RESPONDENTS.36
The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to
the carrier) in good order, and their arrival at the place of destination in bad order makes out a
prima facie case against it; in such case, it is liable for the loss or damage to the cargo absent
satisfactory explanation given by the carrier as to the exercise of extraordinary diligence. The
petitioner avers that the shipment was sufficiently packed in wooden boxes, as shown by the
fact that it was accepted on board the vessel and arrived in Manila safely. It emphasizes that
the respondents did not contest the contents of the bill of lading, and that the respondents
knew that the manner and condition of the packing of the cargo was normal and barren of
defects. It maintains that it behooved the respondent ICTSI to place three to four cables or
wire slings in equal settings, including the center portion of the crate to prevent damage to the
cargo:

28 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

[A] simple look at the manifesto of the cargo and the bill of lading would have alerted
respondents of the nature of the cargo consisting of thick and heavy machinery. Extra-care
should have been made and extended in the discharge of the subject shipment. Had the
respondent only bothered to check the list of its contents, they would have been nervous
enough to place additional slings and cables to support those massive machines, which were
composed almost entirely of thick steel, clearly intended for heavy industries. As indicated in
the list, the boxes contained one lat[h]e machine, one milling machine and one grinding
machine-all coming with complete parts and accessories. Yet, not one among the respondents
were cautious enough. Here lies the utter failure of the respondents to observed extraordinary
diligence in the handling of the cargo in their custody and possession, which the Court of
Appeals should have readily observed in its appreciation of the pertinent facts. 37
The petitioner posits that the loss/damage was caused by the mishandling of the shipment by
therein respondent ICTSI, the arrastre operator, and not by its negligence.
The petitioner insists that the respondents did not observe extraordinary diligence in the care
of the goods. It argues that in the performance of its obligations, the respondent ICTSI should
observe the same degree of diligence as that required of a common carrier under the New Civil
Code of the Philippines. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,38 it posits that
respondents are liable in solidum to it, inasmuch as both are charged with the obligation to
deliver the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily
liable with it. It further avers that the "carrier cannot discharge directly to the consignee
because cargo discharging is the monopoly of the arrastre." Liability, therefore, falls solely
upon the shoulder of respondent ICTSI, inasmuch as the discharging of cargoes from the
vessel was its exclusive responsibility. Besides, the petitioner is raising questions of facts,
improper in a petition for review on certiorari.39
Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of
the Rules of Court. It claims that it is merely a depository and not a common carrier; hence, it
is not obliged to exercise extraordinary diligence. It reiterates that the loss/damage was caused
by the failure of the shipper or his packer to place a sign on the sides and middle portion of the
crate that extra care should be employed in handling the shipment, and that the middle wooden
batten on the flooring of the crate had a hole. The respondent asserts that the testimony of
Anthony Abarquez, who conducted his investigation at the site of the incident, should prevail
over that of Rolando Balatbat. As an alternative, it argues that if ever adjudged liable, its
liability is limited only to P3,500.00 as expressed in the liability clause of Gate Pass CFS-BRGP No. 319773.

admits certain exceptions, such as when (1) the conclusion is grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3)
there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact are conflicting; (6) there is no citation of specific evidence on which the
factual findings are based; (7) the findings of absence of facts are contradicted by the presence
of evidence on record; (8) the findings of the Court of Appeals are contrary to those of the trial
court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts
that, if properly considered, would justify a different conclusion; (10) the findings of the Court
of Appeals are beyond the issues of the case; and (11) such findings are contrary to the
admissions of both parties.40
We have reviewed the records and find no justification to warrant the application of any
exception to the general rule.
We agree with the contention of the petitioner that common carriers, from the nature of their
business and for reasons of public policy, are mandated 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. 41 The Court has defined extraordinary
diligence in the vigilance over the goods as follows:
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." 42
The common carriers duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance, by the person entitled to receive them. 43 When the goods
shipped are either lost or arrive in damaged condition, a presumption arises against the carrier
of its failure to observe that diligence, and there need not be an express finding of negligence
to hold it liable.44 To overcome the presumption of negligence in the case of loss, destruction
or deterioration of the goods, the common carrier must prove that it exercised extraordinary
diligence.45
However, under Article 1734 of the New Civil Code, the presumption of negligence does not
apply to any of the following causes:

The petition has no merit.

1. Flood, storm, earthquake, lightning or other natural disaster or calamity;

The well-entrenched rule in our jurisdiction is that only questions of law may be entertained
by this Court in a petition for review on certiorari. This rule, however, is not ironclad and

2. Act of the public enemy in war, whether international or civil;

29 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

3. Act or omission of the shipper or owner of the goods;

The CA affirmed the ruling of the RTC, thus:

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

The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code,
particularly number (4) thereof, i.e., the character of the goods or defects in the packing or in
the containers. The trial court found that the breakage of the crate was not due to the fault or
negligence of ICTSI, but to the inherent defect and weakness of the materials used in the
fabrication of the said crate.

5. Order or act of competent public authority.


It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts
the common carrier for the loss or damage to the cargo is a closed list. 46 To exculpate itself
from liability for the loss/damage to the cargo under any of the causes, the common carrier is
burdened to prove any of the aforecited causes claimed by it by a preponderance of evidence.
If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the carrier
is negligent.47
"Defect" is the want or absence of something necessary for completeness or perfection; a lack
or absence of something essential to completeness; a deficiency in something essential to the
proper use for the purpose for which a thing is to be used. 48 On the other hand, inferior means
of poor quality, mediocre, or second rate. 49 A thing may be of inferior quality but not
necessarily defective. In other words, "defectiveness" is not synonymous with "inferiority."
In the present case, the trial court declared that based on the record, the loss of the shipment
was caused by the negligence of the petitioner as the shipper:

Upon examination of the records, We find no compelling reason to depart from the factual
findings of the trial court.
It appears that the wooden batten used as support for the flooring was not made of good
materials, which caused the middle portion thereof to give way when it was lifted. The shipper
also failed to indicate signs to notify the stevedores that extra care should be employed in
handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and
responsibilities:
"Q: With regard to crates, what do you do with the crates?
A: Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.

The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate
No. 1 and the total destruction of its contents were not imputable to any fault or negligence on
the part of said defendant in handling the unloading of the cargoes from the carrying vessel,
but was due solely to the inherent defect and weakness of the materials used in the fabrication
of said crate.
The crate should have three solid and strong wooden batten placed side by side underneath or
on the flooring of the crate to support the weight of its contents. However, in the case of the
crate in dispute, although there were three wooden battens placed side by side on its flooring,
the middle wooden batten, which carried substantial volume of the weight of the crates
contents, had a knot hole or "bukong-bukong," which considerably affected, reduced and
weakened its strength. Because of the enormous weight of the machineries inside this crate,
the middle wooden batten gave way and collapsed. As the combined strength of the other two
wooden battens were not sufficient to hold and carry the load, they too simultaneously with
the middle wooden battens gave way and collapsed (TSN, Sept. 26, 1996, pp. 20-24).

Q: When the crates have arrows drawn and where you placed the slings, what do you do with
these crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with the crates?
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

Q: Now, what, if any, were written or were marked on the crate?


A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.

Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing
in the record which would indicate that defendant ICTSI had any role in the choice of the
materials used in fabricating this crate. Said defendant, therefore, cannot be held as blame
worthy for the loss of the machineries contained in Crate No. 1. 50

Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Maam.

30 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Q: How many arrows did you see?


A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?


A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?


A: Nothing more, Maam.
Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where there
are no arrows?
A: You can not place slings if there are no arrows, Maam."
Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea
without defect, the fault should be attributed to the arrastre operator who mishandled the
cargo, is without merit. The cargo fell while it was being carried only at about five (5) feet
high above the ground. It would not have so easily collapsed had the cargo been properly
packed. The shipper should have used materials of stronger quality to support the heavy
machines. Not only did the shipper fail to properly pack the cargo, it also failed to indicate an
arrow in the middle portion of the cargo where additional slings should be attached. At any
rate, the issue of negligence is factual in nature and in this regard, it is settled that factual
findings of the lower courts are entitled to great weight and respect on appeal, and, in fact,
accorded finality when supported by substantial evidence. 51
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The
petitioner failed to rebut the testimony of Dauz, that the crates were sealed and that the
contents thereof could not be seen from the outside. 52 While it is true that the crate contained
machineries and spare parts, it cannot thereby be concluded that the respondents knew or
should have known that the middle wooden batten had a hole, or that it was not strong enough
to bear the weight of the shipment.
There is no showing in the Bill of Lading that the shipment was in good order or condition
when the carrier received the cargo, or that the three wooden battens under the flooring of the

cargo were not defective or insufficient or inadequate. On the other hand, under Bill of Lading
No. NSGPBSML512565 issued by the respondent NSCP and accepted by the petitioner, the
latter represented and warranted that the goods were properly packed, and disclosed in writing
the "condition, nature, quality or characteristic that may cause damage, injury or detriment to
the goods." Absent any signs on the shipment requiring the placement of a sling cable in the
mid-portion of the crate, the respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good condition, is
sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that
such statement will create a prima facie presumption only as to the external condition and not
to that not open to inspection.53
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. SO
ORDERED.
9. G.R. No. L-9671

August 23, 1957

CESAR L. ISAAC, plaintiff-appellant, vs. A. L. AMMEN TRANSPORTATION CO.,


INC., defendant-appellee.
A. L. Ammen Transportation Co., Inc., hereinafter referred to as defendant, is a corporation
engaged in the business of transporting passengers by land for compensation in the Bicol
provinces and one of the lines it operates is the one connecting Legaspi City, Albay with Naga
City, Camarines Sur. One of the buses which defendant was operating is Bus No. 31. On May
31, 1951, plaintiff boarded said bus as a passenger paying the required fare from Ligao, Albay
bound for Pili, Camarines Sur, but before reaching his destination, the bus collided with a
motor vehicle of the pick-up type coming from the opposite direction, as a result of which
plaintiff's left arm was completely severed and the severed portion fell inside the bus. Plaintiff
was rushed to a hospital in Iriga, Camarines Sur where he was given blood transfusion to save
his life. After four days, he was transferred to another hospital in Tabaco, Albay, where he
under went treatment for three months. He was moved later to the Orthopedic Hospital where
he was operated on and stayed there for another two months. For these services, he incurred
expenses amounting to P623.40, excluding medical fees which were paid by defendant.
As an aftermath, plaintiff brought this action against defendants for damages alleging that the
collision which resulted in the loss of his left arm was mainly due to the gross incompetence
and recklessness of the driver of the bus operated by defendant and that defendant incurred in
culpa contractual arising from its non-compliance with its obligation to transport plaintiff
safely to his, destination. Plaintiff prays for judgment against defendant as follows: (1) P5,000
as expenses for his medical treatment, and P3,000 as the cost of an artificial arm, or a total of
P8,000; (2) P6,000 representing loss of earning; (3) P75,000 for diminution of his earning
capacity; (4) P50,000 as moral damages; and (5) P10,000 as attorneys' fees and costs of suit.

31 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Defendant set up as special defense that the injury suffered by plaintiff was due entirely to the
fault or negligence of the driver of the pick-up car which collided with the bus driven by its
driver and to the contributory negligence of plaintiff himself. Defendant further claims that the
accident which resulted in the injury of plaintiff is one which defendant could not foresee or,
though foreseen, was inevitable.
The after trial found that the collision occurred due to the negligence of the driver of the pickup car and not to that of the driver of the bus it appearing that the latter did everything he
could to avoid the same but that notwithstanding his efforts, he was not able to avoid it. As a
consequence, the court dismissed complaint, with costs against plaintiff. This is an appeal
from said decision.
It appears that plaintiff boarded a bus of defendant as paying passenger from Ligao, Albay,
bound for Pili, Camarines Sur, but before reaching his destination, the bus collided with a
pick-up car which was coming from the opposite direction and, as a, result, his left arm was
completely severed and fell inside the back part of the bus. Having this background in view,
and considering that plaintiff chose to hold defendant liable on its contractual obligation to
carry him safely to his place of destination, it becomes important to determine the nature and
extent of the liability of a common carrier to a passenger in the light of the law applicable in
this jurisdiction.
In this connection, appellant invokes the rule that, "when an action is based on a contract of
carriage, as in this case, all that is necessary to sustain recovery is proof of the existence of the
contract of the breach thereof by act or omission", and in support thereof, he cites several
Philippine cases.1 With the ruling in mind, appellant seems to imply that once the contract of
carriage is established and there is proof that the same was broken by failure of the carrier to
transport the passenger safely to his destination, the liability of the former attaches. On the
other hand, appellee claims that is a wrong presentation of the rule. It claims that the decisions
of this Court in the cases cited do not warrant the construction sought to be placed upon, them
by appellant for a mere perusal thereof would show that the liability of the carrier was
predicated not upon mere breach of its contract of carriage but upon the finding that its
negligence was found to be the direct or proximate cause of the injury complained of. Thus,
appellee contends that "if there is no negligence on the part of the common carrier but that the
accident resulting in injuries is due to causes which are inevitable and which could not have
been avoided or anticipated notwithstanding the exercise of that high degree of care and skill
which the carrier is bound to exercise for the safety of his passengers", neither the common
carrier nor the driver is liable therefor.
We believe that the law concerning the liability of a common carrier has now suffered a
substantial modification in view of the innovations introduced by the new Civil Code. These
innovations are the ones embodied in Articles 1733, 1755 and 1756 in so far as the relation
between a common carrier and its passengers is concerned, which, for ready reference, we
quote hereunder:

ART. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extra ordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.
ART. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
ART. 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in articles 1733 and 1755.
The Code Commission, in justifying this extraordinary diligence required of a common
carrier, says the following:
A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost deligence of very cautions persons, with due
regard for all circumstances. This extraordinary diligence required of common
carriers is calculated to protect the passengers from the tragic mishaps that
frequently occur in connection with rapid modern transportation. This high standard
of care is imperatively demanded by the precariousness of human life and by the
consideration that every person must in every way be safeguarded against all injury.
(Report of the Code Commission, pp. 35-36)" (Padilla, Civil Code of the
Philippines, Vol. IV, 1956 ed., p. 197).
From the above legal provisions, we can make the following restatement of the principles
governing the liability of a common carrier: (1) the liability of a carrier is contractual and
arises upon breach of its obligation. There is breach if it fails to exert extraordinary diligence
according to all circumstances of each case; (2) a carrier is obliged to carry its passenger with
the utmost diligence of a very cautious person, having due regard for all the circumstances; (3)
a carrier is presumed to be at fault or to have acted negligently in case of death of, or injury to,
passengers, it being its duty to prove that it exercised extraordinary diligence; and (4) the
carrier is not an insurer against all risks of travel.
The question that now arises is: Has defendant observed extraordinary diligence or the utmost
diligence of every cautious person, having due regard for all circumstances, in avoiding the
collision which resulted in the injury caused to the plaintiff?

32 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

After examining the evidence in connection with how the collision occurred, the lower court
made the following finding:
Hemos examinado muy detenidamente las pruebas presentadas en la vista,
principalmente, las declaraciones que hemos acotado arriba, y hernos Ilegado a la
conclusion de que el demandado ha hecho, todo cuanto estuviere de su parte para
evitar el accidente, pero sin embargo, no ha podido evitarlo.
EI hecho de que el demandado, antes del choque, tuvo que hacer pasar su truck
encima de los montones de grava que estaban depositados en la orilla del camino,
sin que haya ido mas alla, por el grave riesgo que corrian las vidas de sus pasajeros,
es prueba concluyente de lo que tenemos dicho, a saber: que el cuanto esuba de
su parte, para evitar el accidente, sin que haya podidoevitardo, por estar fuera de su
control.
The evidence would appear to support the above finding. Thus, it appears that Bus No. 31,
immediately prior to the collision, was running at a moderate speed because it had just stopped
at the school zone of Matacong, Polangui, Albay. The pick-up car was at full speed and was
running outside of its proper lane. The driver of the bus, upon seeing the manner in which the
pick-up was then running, swerved the bus to the very extreme right of the road until its front
and rear wheels have gone over the pile of stones or gravel situated on the rampart of the road.
Said driver could not move the bus farther right and run over a greater portion of the pile, the
peak of which was about 3 feet high, without endangering the safety of his passengers. And
notwithstanding all these efforts, the rear left side of the bus was hit by the pick-up car.
Of course, this finding is disputed by appellant who cannot see eye to eye with the evidence
for the appellee and insists that the collision took place because the driver of the bus was
going at a fast speed. He contends that, having seen that a car was coming from the opposite
direction at a distance which allows the use of moderate care and prudence to avoid an
accident, and knowing that on the side of the road along which he was going there was a pile
of gravel, the driver of the bus should have stopped and waited for the vehicle from the
opposite direction to pass, and should have proceeded only after the other vehicle had passed.
In other words, according to appellant, the act of the driver of the bus in squeezing his way
through of the bus in squeezing his way through between the oncoming pick-up and the pile of
gravel under the circumstances was considered negligent.
But this matter is one of credibility and evaluation of the evidence. This is evidence. This is
the function of the trial court. The trial court has already spoken on this matter as we have
pointed out above. This is also a matter of appreciation of the situation on the part of the
driver. While the position taken by appellant appeals more to the sense of caution that one
should observe in a given situation to avoid an accident or mishap, such however can not
always be expected from one who is placed suddenly in a predicament where he is not given
enough time to take the course of action as he should under ordinary circumstances. One who
is placed in such a predicament cannot exercise such coolness or accuracy of judgment as is

required of him under ordinary circumstances and he cannot therefore be expected to observe
the same judgment, care and precaution as in the latter. For this reason, authorities abound
where failure to observe the same degree of care that as ordinary prudent man would exercise
under ordinary circumstances when confronted with a sadden emergency was held to be
warranted and a justification to exempt the carrier from liability. Thus, it was held that "where
a carrier's employee is confronted with a sudden emergency, the fact that he is obliged to act
quickly and without a chance for deliberation must be taken into account, and he is held to the
some degree of care that he would otherwise be required to exercise in the absence of such
emergency but must exercise only such care as any ordinary prudent person would exercise
under like circumstances and conditions, and the failure on his part to exercise the best
judgement the case renders possible does not establish lack of care and skill on his part which
renders the company, liable. . . . (13 C. J. S., 1412; 10 C. J.,970). Considering all the
circumstances, we are persuaded to conclude that the driver of the bus has done what a
prudent man could have done to avoid the collision and in our opinion this relieves appellee
from legibility under our law.
A circumstances which miliates against the stand of appellant is the fact borne out by the
evidence that when he boarded the bus in question, he seated himself on the left side thereof
resting his left arm on the window sill but with his left elbow outside the window, this being
his position in the bus when the collision took place. It is for this reason that the collision
resulted in the severance of said left arm from the body of appellant thus doing him a great
damage. It is therefore apparent that appellant is guilty of contributory negligence. Had he not
placed his left arm on the window sill with a portion thereof protruding outside, perhaps the
injury would have been avoided as is the case with the other passenger. It is to be noted that
appellant was the only victim of the collision.
It is true that such contributory negligence cannot relieve appellee of its liability but will only
entitle it to a reduction of the amount of damage caused (Article 1762, new Civil Code), but
this is a circumstance which further militates against the position taken by appellant in this
case.
It is the prevailing rule that it is negligence per se for a passenger on a railroad
voluntarily or inadvertently to protrude his arm, hand, elbow, or any other part of his
body through the window of a moving car beyond the outer edge of the window or
outer surface of the car, so as to come in contact with objects or obstacles near the
track, and that no recovery can be had for an injury which but for such negligence
would not have been sustained. (10 C. J. 1139)
Plaintiff, (passenger) while riding on an interurban car, to flick the ashes, from his
cigar, thrust his hand over the guard rail a sufficient distance beyond the side line of
the car to bring it in contact with the trunk of a tree standing beside the track; the
force of the blow breaking his wrist. Held, that he was guilty of contributory
negligence as a matter of law. (Malakia vs. Rhode Island Co., 89 A., 337.)

33 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Wherefore, the decision appealed from is affirmed, with cost against appellant.
10. G.R. No. 150403

January 25, 2007

CEBU
SALVAGE
CORPORATION,
Petitioner,
vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?
This is the issue presented for the Courts resolution in this petition for review on certiorari 1
assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27, 1989
decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila. 5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter 6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc. 8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day.9 The shipment never reached its destination, however, because the M/T Espiritu Santo
sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting
in the total loss of the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12 Thereafter, it filed a case in the RTC 13 against petitioner
for reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance of goods, in

consideration of the payment of freight. 14 Under a voyage charter, the shipowner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of freight. 15 An owner who retains
possession of the ship remains liable as carrier and must answer for loss or non-delivery of the
goods received for transportation.16
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage. 17 It insists that the agreement was merely
a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have control and
supervision over the vessel, its master and crew.19 Thus, it could not be held liable for the loss
of the shipment caused by the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down. 20
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it
was engaged in the business of carrying and transporting goods by water, for compensation,
and offered its services to the public.21
From the nature of their business and for reasons of public policy, common carriers are bound
to observe extraordinary diligence over the goods they transport according to the
circumstances of each case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by the causes specified in
Article 1734 of the Civil Code. 23 In all other cases, common carriers are presumed to be at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had
control over what vessel it would use. All throughout its dealings with MCCII, it represented
itself as a common carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and duties as a common
carrier. The MCCII (respondents subrogor) could not be reasonably expected to inquire about
the ownership of the vessels which petitioner carrier offered to utilize. As a practical matter, it
is very difficult and often impossible for the general public to enforce its rights of action under
a contract of carriage if it should be required to know who the actual owner of the vessel is. 25
In fact, in this case, the voyage charter itself denominated petitioner as the "owner/operator" of
the vessel.26

34 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Petitioner next contends that if there was a contract of carriage, then it was between MCCII
and ALS as evidenced by the bill of lading ALS issued. 27

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

Again, we disagree.

PEDRO
DE
GUZMAN,
petitioner,
vs. COURT OF APPEALS and ERNESTO CENDANA, respondents.

The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed
by the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract
directly with ALS. While it is true that a bill of lading may serve as the contract of carriage
between the parties, 29 it cannot prevail over the express provision of the voyage charter that
MCCII and petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard a
vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill of
lading operates as the receipt for the goods, and as document of title passing the property of
the goods, but not as varying the contract between the charterer and the shipowner." The Bill
of Lading becomes, therefore, only a receipt and not the contract of carriage in a charter of the
entire vessel, for the contract is the Charter Party, and is the law between the parties who are
bound by its terms and condition provided that these are not contrary to law, morals, good
customs, public order and public policy. 30
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account. 31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach of its contract of
carriage. The law, in fact, prohibits it and condemns it as unjust and contrary to public policy.32

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.

To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on
board the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove
that it exercised extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of affreightment, the
carrier was answerable for the loss of the goods received for transportation. 33

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.

The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does
not own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the carrier
and the supposed owner and to the possible shifting of liability from the carrier to one without
any financial capability to answer for the resulting damages. 34

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.

WHEREFORE, the petition is hereby DENIED. Costs against petitioner. SO ORDERED.

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

35 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under
the facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their
services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:

... every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or both, shipyard, marine repair
shop,
wharf
or
dock,
ice
plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations
and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his customers
a fee for hauling their goods; that fee frequently fell below commercial freight rates is not
relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate
of public convenience is not a requisite for the incurring of liability under the Civil Code
provisions governing common carriers. That liability arises the moment a person or firm acts
as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been
granted a certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary certificate of
public convenience, would be offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being
and property of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by simply failing to obtain the necessary
permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held
to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods

36 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

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.

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.

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:

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:

(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.

Any of the following or similar stipulations shall be considered


unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible
for the acts or omissions of his or its employees;
(6) that the common carrier's liability for acts
committed by thieves, or of robbers who do not act
with grave or irresistible threat, violence or force, is
dispensed with or diminished; and

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.

(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

37 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

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.
12. G.R. No. 115381 December 23, 1994
KILUSANG
MAYO
UNO
LABOR
CENTER,
petitioner,
vs. HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING
AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS
ASSOCIATION OF THE PHILIPPINES, respondents.
Public utilities are privately owned and operated businesses whose service are essential to the
general public. They are enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public utility services are impressed with
public interest and concern. The same is true with respect to the business of common carrier
which holds such a peculiar relation to the public interest that there is superinduced upon it the
right of public regulation when private properties are affected with public interest, hence, they
cease to be juris privati only. When, therefore, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public an interest in that use, and must submit
to the control by the public for the common good, to the extent of the interest he has thus
created. 1
An abdication of the licensing and regulatory government agencies of their functions as the
instant petition seeks to show, is indeed lamentable. Not only is it an unsound administrative
policy but it is inimical to public trust and public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain
memoranda, circulars and/or orders of the Department of Transportation and Communications
(DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which,
among others, (a) authorize provincial bus and jeepney operators to increase or decrease the
prescribed transportation fares without application therefor with the LTFRB and without
hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act
No. 146, as amended, otherwise known as the Public Service Act, and in derogation of
LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus
operators, and (b) establish a presumption of public need in favor of applicants for certificates
of public convenience (CPC) and place on the oppositor the burden of proving that there is no
need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as
amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and
reasonable." It is, likewise, violative of the Rules of Court which places upon each party the
burden to prove his own affirmative allegations. 3 The offending provisions contained in the
questioned issuances pointed out by petitioner, have resulted in the introduction into our
highways and thoroughfares thousands of old and smoke-belching buses, many of which are
right-hand driven, and have exposed our consumers to the burden of spiraling costs of public
transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant
petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the
implementation of a fare range scheme for provincial bus services in the country; (b) DOTC
Department
Order
No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport
services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to
implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009,
providing implementing guidelines on the DOTC Department Order No. 92-587; and (e)
LTFRB Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular
No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus
operators to charge passengers rates within a range of 15% above and 15% below the LTFRB
official rate for a period of one (1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and
the priorities set out in the Medium-Term Philippine Development Plan
(MTPDP) 1987 1992) is the liberalization of regulations in the
transport sector. Along this line, the Government intends to move away
gradually from regulatory policies and make progress towards greater
reliance on free market forces.

38 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Based on several surveys and observations, bus companies are already


charging passenger rates above and below the official fare declared by
LTFRB on many provincial routes. It is in this context that some form of
liberalization on public transport fares is to be tested on a pilot basis.

2. To allow bus operators in the country to charge


fares fifteen (15%) above the present LTFRB fares in
the wake of the devastation, death and suffering
caused by the July 16 earthquake will not be socially
warranted and will be politically unsound; most likely
public criticism against the DOTC and the LTFRB
will be triggered by the untimely motu propio
implementation of the proposal by the mere expedient
of publicizing the fare range scheme without calling a
public hearing, which scheme many as early as during
the Secretary's predecessor know through newspaper
reports and columnists' comments to be Asian
Development Bank and World Bank inspired.

In view thereof, the LTFRB is hereby directed to immediately publicize a


fare range scheme for all provincial bus routes in country (except those
operating within Metro Manila). Transport Operators shall be allowed to
charge passengers within a range of fifteen percent (15%) above and
fifteen percent (15%) below the LTFRB official rate for a period of one
year.
Guidelines and procedures for the said scheme shall be prepared by
LTFRB in coordination with the DOTC Planning Service.

3. More than inducing a reduction in bus fares by


fifteen percent (15%) the implementation of the
proposal will instead trigger an upward adjustment in
bus fares by fifteen percent (15%) at a time when
hundreds of thousands of people in Central and
Northern Luzon, particularly in Central Pangasinan,
La Union, Baguio City, Nueva Ecija, and the Cagayan
Valley are suffering from the devastation and havoc
caused by the recent earthquake.

The implementation of the said fare range scheme shall start on 6 August
1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S.
Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June
1990 which the LTFRB received on 19 July 1990, directing the Board "to
immediately publicize a fare range scheme for all provincial bus routes in
the country (except those operating within Metro Manila)" that will allow
operators "to charge passengers within a range of fifteen percent (15%)
above and fifteen percent (15%) below the LTFRB official rate for a
period of one year" the undersigned is respectfully adverting the
Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes
the following for the fixing and determination of rates
(a) the rates to be approved should be proposed by
public service operators; (b) there should be a
publication and notice to concerned or affected parties
in the territory affected; (c) a public hearing should be
held for the fixing of the rates; hence, implementation
of the proposed fare range scheme on August 6
without complying with the requirements of the Public
Service Act may not be legally feasible.

4. In lieu of the said proposal, the DOTC with its


agencies involved in public transportation can
consider measures and reforms in the industry that will
be socially uplifting, especially for the people in the
areas devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully
suggests that the implementation of the proposed fare range scheme this
year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the
Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board
increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses
with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed
basic per kilometer fare rate, with the said minimum-maximum fare range applying only to
ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per
kilometer fare for aircon buses, was sought.

39 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an
across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses.
The decrease was due to the drop in the expected price of diesel.

primary policy, planning, regulating and implementing agency on


transportation;

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C.
Bautista alleging that the proposed rates were exorbitant and unreasonable and that the
application contained no allegation on the rate of return of the proposed increase in rates.

WHEREAS, to achieve the objective of a viable, efficient, and dependable


transportation system, the transportation regulatory agencies under or
attached to the DOTC have to harmonize their decisions and adopt a
common philosophy and direction;

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate
increase in accordance with the following schedule of fares on a straight computation method,
viz:

WHEREAS, the government proposes to build on the successful


liberalization measures pursued over the last five years and bring the
transport sector nearer to a balanced longer term regulatory framework;

AUTHORIZED FARES

NOW, THEREFORE, pursuant to the powers granted by laws to the


DOTC, the following policies and principles in the economic regulation of
land, air, and water transportation services are hereby adopted:

LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR
STUDENT P1.15 P0.28

P1.50

P0.37

VISAYAS/MINDANAO
REGULAR
P1.60
STUDENT
P1.20
FIRST
CLASS
LUZON
VISAYAS/
MINDANAO
PREMIERE
CLASS
LUZON
VISAYAS/
MINDANAO P0.405

(PER

(PER

P0.375
P0.285
KM.)
P0.385
P0.395
KM.)
P0.395

AIRCON (PER KM.) P0.415. 4


On March 30, 1992, then Secretary of the Department of Transportation and Communications
Pete
Nicomedes
Prado
issued
Department
Order
No.
92-587 defining the policy framework on the regulation of transport services. The full text of
the said order is reproduced below in view of the importance of the provisions contained
therein:
WHEREAS, Executive Order No. 125 as amended, designates the
Department of Transportation and Communications (DOTC) as the

1. Entry into and exit out of the industry. Following the Constitutional
dictum against monopoly, no franchise holder shall be permitted to
maintain a monopoly on any route. A minimum of two franchise holders
shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public
convenience, shall be: proof of Filipino citizenship, financial capability,
public need, and sufficient insurance cover to protect the riding public.
In determining public need, the presumption of need for a service shall be
deemed in favor of the applicant. The burden of proving that there is no
need for a proposed service shall be with the oppositor(s).
In the interest of providing efficient public transport services, the use of
the "prior operator" and the "priority of filing" rules shall be discontinued.
The route measured capacity test or other similar tests of demand for
vehicle/vessel fleet on any route shall be used only as a guide in weighing
the merits of each franchise application and not as a limit to the services
offered.
Where there are limitations in facilities, such as congested road space in
urban areas, or at airports and ports, the use of demand management
measures in conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business
decision, subject only to the filing of appropriate notice and following a

40 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

phase-out period, to inform the public and to minimize disruption of


services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from
government controls. Passenger fares shall also be deregulated, except for
the lowest class of passenger service (normally third class passenger
transport) for which the government will fix indicative or reference fares.
Operators of particular services may fix their own fares within a range
15% above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on specific
routes, or for the transport of particular commodities, maximum
mandatory freight rates or passenger fares shall be set temporarily by the
government pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such
services in the most advantageous terms to the public and the government,
following public bids for the services. The advisability of bidding out the
services or using other kinds of incentives on such routes shall be studied
by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of
policy, the government shall not engage in special financing and incentive
programs, including direct subsidies for fleet acquisition and expansion.
Only when the market situation warrants government intervention shall
programs of this type be considered. Existing programs shall be phased
out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil
Aeronautics Board, the Maritime Industry Authority are hereby directed to
submit to the Office of the Secretary, within forty-five (45) days of this
Order, the detailed rules and procedures for the Implementation of the
policies herein set forth. In the formulation of such rules, the concerned
agencies shall be guided by the most recent studies on the subjects, such as
the Provincial Road Passenger Transport Study, the Civil Aviation Master
Plan, the Presidential Task Force on the Inter-island Shipping Industry, and
the Inter-island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and
Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the
LTFRB suggesting swift action on the adoption of rules and procedures to implement abovequoted Department Order No. 92-587 that laid down deregulation and other liberalization

policies for the transport sector. Attached to the said memorandum was a revised draft of the
required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate
and Fare Setting, with comments and suggestions from the World Bank incorporated therein.
Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that
the adoption of the rules and procedures is a pre-requisite to the approval of the Economic
Integration Loan from the World Bank. 5
On
February
17,
1993,
the
LTFRB
issued
Memorandum
Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order
No. 92-587. The Circular provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public
Convenience.
The issuance of a Certificate of Public Convenience is determined by
public need. The presumption of public need for a service shall be deemed
in favor of the applicant, while burden of proving that there is no need for
the proposed service shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition
complementary with the quality of service, subject to prior notice and
public hearing. Fares shall not be provisionally authorized without public
hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent
for provincial buses and jeepneys shall be widened to 20% and -25% limit
in 1994 with the authorized fare to be replaced by an indicative or
reference rate as the basis for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and
premier services.
xxx xxx xxx
(Emphasis ours).

41 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation
policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of
the prescribed fare without first having filed a petition for the purpose and without the benefit
of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares.
Said increased fares were to be made effective on March 16, 1994.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC
Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the
standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's
authority to set a fare range scheme and establish a presumption of public need in applications
for certificates of public convenience.

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

We find the instant petition impressed with merit.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for
lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of
the parties, hereby DISMISSES FOR LACK OF MERIT the petition filed
in the above-entitled case. This petition in this case was resolved with
dispatch at the request of petitioner to enable it to immediately avail of the
legal remedies or options it is entitled under existing laws.
SO ORDERED. 6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary
restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and
preventing respondents from implementing the bus fare rate increase as well as the questioned
orders and memorandum circulars. This meant that provincial bus fares were rolled back to the
levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise
enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent
LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent,
later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above
the existing authorized fare without having to file a petition for the purpose, is
unconstitutional, invalid and illegal. Second, the establishment of a presumption of public
need in favor of an applicant for a proposed transport service without having to prove public
necessity, is illegal for being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised
by the petitioner, questions the wisdom and the manner by which the instant petition was filed.
It asserts that the petitioner has no legal standing to sue or has no real interest in the case at
bench and in obtaining the reliefs prayed for.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the
standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of
Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes
pending between parties who have the right to sue in the courts of law and equity. Corollary to
this provision is the principle of locus standi of a party litigant. One who is directly affected
by and whose interest is immediate and substantial in the controversy has the standing to sue.
The rule therefore requires that a party must show a personal stake in the outcome of the case
or an injury to himself that can be redressed by a favorable decision so as to warrant an
invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers
in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and
irreparable injury and damage from the implementation of the questioned memoranda,
circulars and/or orders, has shown that it has a clear legal right that was violated and continues
to be violated with the enforcement of the challenged memoranda, circulars and/or orders.
KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly
affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the
millions of commuters who comprise the riding public. Certainly, their rights must be
protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready
to brush aside this barren procedural infirmity and recognize the legal standing of the
petitioner in view of the transcendental importance of the issues raised. And this act of

42 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

liberality is not without judicial precedent. As early as the Emergency Powers Cases, this
Court had exercised its discretion and waived the requirement of proper party. In the recent
case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and
enumerated some of the cases where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which
it may, in the exercise of its discretion, set aside in view of the importance
of the issues raised. In the landmark Emergency Powers Cases, [G.R. No.
L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R.
No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this
Court brushed aside this technicality because "the transcendental
importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must, technicalities of
procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers'
suits are concerned, this Court had declared that it "is not devoid of
discretion as to whether or not it should be entertained," (Tan v.
Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open
discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA
333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary
taxpayers, members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute
actions before this court to question the constitutionality or validity of
laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement
gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of Congress
(Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479
[1965]); (b) Executive Order No. 284, issued by President Corazon C.
Aquino on 25 July 1987, which allowed members of the cabinet, their
undersecretaries, and assistant secretaries to hold other government offices
or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317
[1991]); (c) the automatic appropriation for debt service in the General
Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d)
R.A. No. 7056 on the holding of desynchronized elections (Osmea v.
Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the
charter of the Philippine Amusement and Gaming Corporation) on the
ground that it is contrary to morals, public policy, and order (Basco v.

Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f)
R.A. No. 6975, establishing the Philippine National Police. (Carpio v.
Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus
standi include those attacking the validity or legality of (a) an order
allowing the importation of rice in the light of the prohibition imposed by
R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v.
Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as
they proposed amendments to the Constitution and P.D. No. 1031 insofar
as it directed the COMELEC to supervise, control, hold, and conduct the
referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on
Elections, supra); (c) the bidding for the sale of the 3,179 square meters of
land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA
797 [1990]); (d) the approval without hearing by the Board of Investments
of the amended application of the Bataan Petrochemical Corporation to
transfer the site of its plant from Bataan to Batangas and the validity of
such transfer and the shift of feedstock from naphtha only to naphtha
and/or liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288
[1990]); (e) the decisions, orders, rulings, and resolutions of the Executive
Secretary, Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs, and the Fiscal Incentives Review Board
exempting the National Power Corporation from indirect tax and duties
(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy
Regulatory Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil prices did not
allow the petitioner substantial cross-examination; (Maceda v. Energy
Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478
which levied a special duty of P0.95 per liter of imported oil products
(Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of
the Commission on Elections concerning the apportionment, by district, of
the number of elective members of Sanggunians (De Guia vs. Commission
on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued
by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and
Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275
[1975]), this Court, despite its unequivocal ruling that the petitioners
therein had no personality to file the petition, resolved nevertheless to pass
upon the issues raised because of the far-reaching implications of the
petition. We did no less in De Guia v. COMELEC (Supra) where, although
we declared that De Guia "does not appear to have locus standi, a standing
in law, a personal or substantial interest," we brushed aside the procedural

43 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

infirmity "considering the importance of the issue involved, concerning as


it does the political exercise of qualified voters affected by the
apportionment, and petitioner alleging abuse of discretion and violation of
the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. The
Commission shall have power, upon proper notice and hearing in
accordance with the rules and provisions of this Act, subject to the
limitations and exceptions mentioned and saving provisions to the
contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges,
classifications, or schedules thereof, as well as commutation, mileage
kilometrage, and other special rates which shall be imposed, observed, and
followed thereafter by any public service: Provided, That the Commission
may, in its discretion, approve rates proposed by public services
provisionally and without necessity of any hearing; but it shall call a
hearing thereon within thirty days thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided, further, That
in case the public service equipment of an operator is used principally or
secondarily for the promotion of a private business, the net profits of said
private business shall be considered in relation with the public service of
such operator for the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public
Service Commission the power of fixing the rates of public services. Respondent
LTFRB, the existing regulatory body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive
order authorizes LTFRB "to determine, prescribe, approve and periodically review
and adjust, reasonable fares, rates and other related charges, relative to the operation
of public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt


to the increasing complexity of modern life. As subjects for governmental regulation multiply,
so does the difficulty of administering the laws. Hence, specialization even in legislation has
become necessary. Given the task of determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is
entrusted with the power of subordinate legislation. With this authority, an administrative body
and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling
in" the details which the Legislature may neither have time or competence to provide.
However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC
and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator,
or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a
fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount
to an undue delegation of legislative authority. Potestas delegata non delegari potest. What
has been delegated cannot be delegated. This doctrine is based on the ethical principle that
such a delegated power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening mind of
another. 10 A further delegation of such power would indeed constitute a negation of the duty in
violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of
allowing the provincial bus operators to change and increase their fares at will would result
not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding
public at the mercy of transport operators who may increase fares every hour, every day, every
month or every year, whenever it pleases them or whenever they deem it "necessary" to do so.
In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co.
was granted by the Public Service Commission the authority to change its freight rates at will,
this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law
to delegate to the Philippine Railway Co. the power of altering its freight
rates whenever it should find it necessary to do so in order to meet the
competition of road trucks and autobuses, or to change its freight rates at
will, or to regard its present rates as maximum rates, and to fix lower
rates whenever in the opinion of the Philippine Railway Co. it would be to
its advantage to do so.
The mere recital of the language of the application of the Philippine
Railway Co. is enough to show that it is untenable. The Legislature has
delegated to the Public Service Commission the power of fixing the rates
of public services, but it has not authorized the Public Service
Commission to delegate that power to a common carrier or other public
service. The rates of public services like the Philippine Railway Co. have
been approved or fixed by the Public Service Commission, and any
change in such rates must be authorized or approved by the Public Service

44 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Commission after they have been shown to be just and reasonable. The
public service may, of course, propose new rates, as the Philippine
Railway Co. did in case No. 31827, but it cannot lawfully make said new
rates effective without the approval of the Public Service Commission,
and the Public Service Commission itself cannot authorize a public service
to enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they are
submitted to it, if the evidence shows them to be just and reasonable,
otherwise it must disapprove them. Clearly, the commission cannot
determine in advance whether or not the new rates of the Philippine
Railway Co. will be just and reasonable, because it does not know what
those rates will be.
In the present case the Philippine Railway Co. in effect asked for
permission to change its freight rates at will. It may change them every
day or every hour, whenever it deems it necessary to do so in order to
meet competition or whenever in its opinion it would be to its advantage.
Such a procedure would create a most unsatisfactory state of affairs and
largely defeat the purposes of the public service law. 13 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If
transport operators will be authorized to impose and collect an additional amount equivalent to
20% over and above the authorized fare over a period of time, this will unduly prejudice a
commuter who will be made to pay a fare that has been computed in a manner similar to those
of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators
to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same
time, they were allowed to impose and collect a fare range of plus or minus 15% over the
authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which
is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990.
Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994,
then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 +
P0.05 centavos). If bus operators will exercise their authority to impose an additional 20%
over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is,
P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be
continuously subjected, not only to a double fare adjustment but to a compounding fare as
well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare
increase applied for, they can still collect an additional amount by virtue of the authorized fare
range. Mathematically, the situation translates into the following:
Year**
LTFRB
rate***
kilometer

authorized

Fare
collected

Range

Fare

to

be
per

1990
P0.37
15%
1994
P0.42
+
0.05
=
0.47
1998
P0.56
+
0.05
=
0.61
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

(P0.05)
20%
(P0.09)
20%
(P0.12)

P0.42
P0.56
P0.73

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive
government function that requires dexterity of judgment and sound discretion with the settled
goal of arriving at a just and reasonable rate acceptable to both the public utility and the
public. Several factors, in fact, have to be taken into consideration before a balance could be
achieved. A rate should not be confiscatory as would place an operator in a situation where he
will continue to operate at a loss. Hence, the rate should enable public utilities to generate
revenues sufficient to cover operational costs and provide reasonable return on the
investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary
to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the
end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on
millions of commuters, government must not relinquish this important function in favor of
those who would benefit and profit from the industry. Neither should the requisite notice and
hearing be done away with. The people, represented by reputable oppositors, deserve to be
given full opportunity to be heard in their opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and
satisfactory arrangement for all parties involved. To do away with such a procedure and allow
just one party, an interested party at that, to determine what the rate should be, will undermine
the right of the other parties to due process. The purpose of a hearing is precisely to determine
what a just and reasonable rate is. 15 Discarding such procedural and constitutional right is
certainly inimical to our fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the
operation of land transportation services for public use as required by law. Pursuant to Section
16(a) of the Public Service Act, as amended, the following requirements must be met before a
CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock company constituted and organized
under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must
belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of
undertaking the proposed service and meeting the responsibilities incident to its operation; and
(iii) the applicant must prove that the operation of the public service proposed and the
authorization to do business will promote the public interest in a proper and suitable manner .
It is understood that there must be proper notice and hearing before the PSC can exercise its
power to issue a CPC.

45 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory
policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by
public need. The presumption of public need for a service shall be deemed
in favor of the applicant, while the burden of proving that there is no need
for the proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of
the Public Service Act which requires that before a CPC will be issued, the applicant must
prove by proper notice and hearing that the operation of the public service proposed will
promote public interest in a proper and suitable manner. On the contrary, the policy guideline
states that the presumption of public need for a public service shall be deemed in favor of the
applicant. In case of conflict between a statute and an administrative order, the former must
prevail.
By its terms, public convenience or necessity generally means something fitting or suited to
the public need. 16 As one of the basic requirements for the grant of a CPC, public convenience
and necessity exists when the proposed facility or service meets a reasonable want of the
public and supply a need which the existing facilities do not adequately supply. The existence
or
non-existence of public convenience and necessity is therefore a question of fact that must be
established by evidence, real and/or testimonial; empirical data; statistics and such other
means necessary, in a public hearing conducted for that purpose. The object and purpose of
such procedure, among other things, is to look out for, and protect, the interests of both the
public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after
full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for
the convenience of the public. 17 Basic convenience is the primary consideration for which a
CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators
in subject routes must be given an opportunity to offer proof and oppose the application.
Therefore, an applicant must, at all times, be required to prove his capacity and capability to
furnish
the
service
which
he
has
undertaken
to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses wellsettled and institutionalized judicial, quasi-judicial and administrative procedures. It allows the
party who initiates the proceedings to prove, by mere application, his affirmative allegations.
Moreover, the offending provisions of the LTFRB memorandum circular in question would in
effect amend the Rules of Court by adding another disputable presumption in the enumeration
of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this
Court's authority cannot be countenanced as only this Court is mandated by law to promulgate
rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country
given the present circumstances. Advocacy of liberalized franchising and regulatory process is
tantamount to an abdication by the government of its inherent right to exercise police power,
that is, the right of government to regulate public utilities for protection of the public and the
utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders
to regulate the transport sector, we find that they committed grave abuse of discretion in
issuing
DOTC
Department
Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC
Department Order No. 92-587, the said administrative issuances being amendatory and
violative of the Public Service Act and the Rules of Court. Consequently, we rule that the
twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994
without the benefit of a petition and a public hearing is null and void and of no force and
effect. No grave abuse of discretion however was committed in the issuance of DOTC
Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same
being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the
challenged administrative issuances and orders, namely: DOTC Department Order No. 92587,
LTFRB
Memorandum
Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a)
delegating to provincial bus and jeepney operators the authority to increase or decrease the
duly prescribed transportation fares; and (b) creating a presumption of public need for a
service in favor of the applicant for a certificate of public convenience and placing the burden
of proving that there is no need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT
insofar as it enjoined the bus fare rate increase granted under the provisions of the
aforementioned administrative circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs. SO ORDERED.

46 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

13. G.R. No. 100727 March 18, 1992


COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION, petitioner,
vs. THE COURT OF APPEALS, LUNGSOD SILANGAN TRANSPORT SERVICES,
CORP., INC., respondents.
This is a petition for review on certiorari of the decision of the Court of Appeals which
affirmed with modification the decision of the Regional Trial Court awarding damages in
favor of respondent Lungsod Silangan Transport Services Corp., Inc. (Lungsod Corp. for
brevity).
The antecedents facts of this case are as follows:
It appears that a certificate of public convenience to operate a jeepney
service was ordered to be issued in favor of Lungsod Silangan to ply the
Cogeo-Cubao route sometime in 1983 on the justification that public
necessity and convenience will best be served, and in the absence of
existing authorized operators on the lined apply for . . . On the other hand,
defendant-Association was registered as a non-stock, non-profit
organization with the Securities and Exchange Commission on October
30, 1985 . . . with the main purpose of representing plaintiff-appellee for
whatever contract and/or agreement it will have regarding the ownership
of units, and the like, of the members of the Association . . .
Perturbed by plaintiffs' Board Resolution No. 9 . . . adopting a Bandera'
System under which a member of the cooperative is permitted to queue for
passenger at the disputed pathway in exchange for the ticket worth twenty
pesos, the proceeds of which shall be utilized for Christmas programs of
the drivers and other benefits, and on the strength of defendants'
registration as a collective body with the Securities and Exchange
Commission, defendants-appellants, led by Romeo Oliva decided to form
a human barricade on November 11, 1985 and assumed the dispatching of
passenger jeepneys . . . This development as initiated by defendantsappellants gave rise to the suit for damages.
Defendant-Association's Answer contained vehement denials to the
insinuation of take over and at the same time raised as a defense the
circumstance that the organization was formed not to compete with
plaintiff-cooperative. It, however, admitted that it is not authorized to
transport passengers . . . (pp. 15-16, Rollo)
On July 31, 1989, the trial court rendered a decision in favor of respondent Lungsod Corp., the
dispositive portion of which states:

WHEREFORE FROM THE FOREGOING CONSIDERATION, the Court


hereby renders judgment in favor of the plaintiff and against the
defendants as follows:
1. Ordering defendants to pay plaintiff the amount of P50,000.00 as actual
damages;
2. Ordering the defendants to pay the plaintiffs the amount of P10,000.00
as attorney's fees.
SO ORDERED. (P. 39, Rollo)
Not satisfied with the decision, petitioner Association appealed with the Court of Appeals. On
May 27, 1991, respondent appellate court rendered its decision affirming the findings of the
trial court except with regard to the award of actual damages in the amount of P50,000.00 and
attorney's fees in the amount of P10,000.00. The Court of Appeals however, awarded nominal
damages to petitioner in the amount of P10,000.00.
Hence, this petition was filed with the petitioner assigning the following errors of the appellate
court:
I. THE RESPONDENT COURT ERRED IN MERELY MODIFYING
THE JUDGMENT OF THE TRIAL COURT.
II. THE RESPONDENT COURT ERRED IN HOLDING THAT THE
PETITIONER USURPED THE PROPERTY RIGHT OF THE PRIVATE
RESPONDENT.
III. AND THE RESPONDENT COURT ERRED IN DENYING THE
MOTION FOR RECONSIDERATION.
Since the assigned errors are interrelated, this Court shall discuss them jointly. The main issue
raised by the petitioner is whether or not the petitioner usurped the property right of the
respondent which shall entitle the latter to the award of nominal damages.
Petitioner contends that the association was formed not to complete with the respondent
corporation in the latter's operation as a common carrier; that the same was organized for the
common protection of drivers from abusive traffic officers who extort money from them, and
for the elimination of the practice of respondent corporation of requiring jeepney owners to
execute deed of sale in favor of the corporation to show that the latter is the owner of the jeeps
under its certificate of public convenience. Petitioner also argues that in organizing the
association, the members thereof are merely exercising their freedom or right to redress their
grievances.

47 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

We find the petition devoid of merit.


Under the Public Service Law, a certificate of public convenience is an authorization issued by
the Public Service Commission for the operation of public services for which no franchise is
required by law. In the instant case, a certificate of public convenience was issued to
respondent corporation on January 24, 1983 to operate a public utility jeepney service on the
Cogeo-Cubao route. As found by the trial court, the certificate was issued pursuant to a
decision passed by the Board of Transportation in BOT Case No. 82-565.
A certification of public convenience is included in the term "property" in the broad sense of
the term. Under the Public Service Law, a certificate of public convenience can be sold by the
holder thereof because it has considerable material value and is considered as valuable asset
(Raymundo v. Luneta Motor Co., et al., 58 Phil. 889). Although there is no doubt that it is
private property, it is affected with a public interest and must be submitted to the control of the
government for the common good (Pangasinan Transportation Co. v. PSC, 70 Phil 221).
Hence, insofar as the interest of the State is involved, a certificate of public convenience does
not confer upon the holder any proprietary right or interest or franchise in the route covered
thereby and in the public highways (Lugue v. Villegas, L-22545, Nov . 28, 1969, 30 SCRA
409). However, with respect to other persons and other public utilities, a certificate of public
convenience as property, which represents the right and authority to operate its facilities for
public service, cannot be taken or interfered with without due process of law. Appropriate
actions may be maintained in courts by the holder of the certificate against those who have not
been authorized to operate in competition with the former and those who invade the rights
which the former has pursuant to the authority granted by the Public Service Commission
(A.L. Ammen Transportation Co. v. Golingco. 43 Phil. 280).
In the case at bar, the trial court found that petitioner association forcibly took over the
operation of the jeepney service in the Cogeo-Cubao route without any authorization from the
Public Service Commission and in violation of the right of respondent corporation to operate
its services in the said route under its certificate of public convenience. These were its findings
which were affirmed by the appellate court:
The Court from the testimony of plaintiff's witnesses as well as the
documentary evidences presented is convinced that the actions taken by
defendant herein though it admit that it did not have the authority to
transport passenger did in fact assume the role as a common carrier
engaged in the transport of passengers within that span of ten days
beginning November 11, 1985 when it unilaterally took upon itself the
operation and dispatching of jeepneys at St. Mary's St. The president of
the defendant corporation. Romeo Oliva himself in his testimony
confirmed that there was indeed a takeover of the operations at St. Mary's
St. . . . (p. 36, Rollo)

The findings of the trial court especially if affirmed by the appellate court bear great weight
and will not be disturbed on appeal before this Court. Although there is no question that
petitioner can exercise their constitutional right to redress their grievances with respondent
Lungsod Corp., the manner by which this constitutional right is to be, exercised should not
undermine public peace and order nor should it violate the legal rights of other persons. Article
21 of the Civil Code provides that any person who wilfully 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. The provision covers a situation where a person has a legal right which was
violated by another in a manner contrary to morals, good customs or public policy. It
presupposes loss or injury, material or otherwise, which one may suffer as a result of such
violation. It is clear form the facts of this case that petitioner formed a barricade and forcibly
took over the motor units and personnel of the respondent corporation. This paralyzed the
usual activities and earnings of the latter during the period of ten days and violated the right of
respondent Lungsod Corp. To conduct its operations thru its authorized officers.
As to the propriety of damages in favor of respondent Lungsod Corp., the respondent appellate
court stated:
. . . it does not necessarily follow that plaintiff-appellee is entitled to
actual damages and attorney's fees. While there may have been allegations
from plaintiff-cooperative showing that it did in fact suffer some from of
injury . . . it is legally unprecise to order the payment of P50,000.00 as
actual damages for lack of concrete proof therefor. There is, however, no
denying of the act of usurpation by defendants-appellants which
constituted an invasion of plaintiffs'-appellees' property right. For this,
nominal damages in the amount of P10,000.00 may be granted. (Article
2221, Civil Code). (p. 18, Rollo)
No compelling reason exists to justify the reversal of the ruling of the respondent appellate
court in the case at bar. Article 2222 of the Civil Code states that the court may award nominal
damages in every obligation arising from any source enumerated in Article 1157, or in every
case where any property right has been invaded. Considering the circumstances of the case,
the respondent corporation is entitled to the award of nominal damages.
ACCORDINGLY, the petition is DENIED and the assailed decision of the respondent
appellate court dated May 27, 1991 is AFFIRMED.
SO ORDERED.
14. G.R. Nos. L-45660 and 45661

July 25, 1938

THE
AUCAL
AUTOCALESA
CO.,
INC.,
petitioner-appellant,
vs. ISABEL ABLAZA and NATIVIDAD Z. DE CASTRO, respondents-appellees.

48 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

This being a question in which petitioners in cases Nos. 40763 and 41323 of the Public
Service Commission were equally interested, said commission jointly decided the petitions of
said two petitioners. It granted and approved that of Natividad Z. de Castro and Isabel Ablaza
and denied that of the Aucal Autocalesa Co., Inc., which appealed from the decision. We,
therefore, have now before us the two cases aforementioned which are respectively known by
the registration numbers indicated in the title of this decision.
In the first case (No. 40763 of the P. S. C.; G. R. No. 45660 of the S. C.) it appears that
Natividad Z. de Castro and Isabel Ablaza applied for the approval by the Public Service
Commission of the sale and transfer made by the latter to the former on May 29, 1934, of the
certificate of public convenience which had been issued in her favor in case No. 35318 of the
Public Service Commission, for the establishment and maintenance of an autocalesa
transportation service. Their petition was filed on June 9, 1934.
In the second case (No. 41323 of the P. S. C.; G. R. No. 45661 of the S. C.), it appears, on the
other hand, that the Aucal Autocalesa Co., Inc., having acquired all rights, interest and
participation of Isabel Ablaza in her aforesaid autocalesa business by means of a sale at a
public auction, it prayed, in turn, on the 23d of the same month and year, that the sale of the
said business thus made in its favor be approved by the commission.
In support of its appeal the Aucal Autocalesa Co., Inc., now alleges that the commission
committed the following errors:

to put in the business acquired by her, if she has not already done so, the sum of P20,000 to
place said business in better conditions; while appellant confined itself to saying that should its
petition be granted, it would draw money from its present business to invest the same in the
maintenance of what it has bought in the manner already set forth.
Section 16, subsection (h), of Act No. 3108 as amended by section 20, subsection (g), of
Commonwealth Act No. 146, empowers the Public Service Commission to approve or
disapprove the transfers or sales which may be made of a certificate, privileges or rights for
the purpose of carrying on the business of a common carrier. Such sales or transfers may be
made without the prior approval required by law from the commission. Construing the scope
of the legal provision aforementioned, this court said that if the approval takes place after the
sale or transfer, the effect thereof is or may be retroactive (Zamboanga Transportation Co. vs.
Public Utility Commission, 50 Phil., 237; Zamboanga Transportation Company vs. Bachrach
Motor Company, 52 Phil., 244). The consideration that should guide the commission in these
cases of sale or transfer, in the exercise of its power to approve or disapprove them, is whether
the public will be prejudiced thereby, or whether the service sold will fail to operate or
function better for the public convenience. Priority in the case of two sales of the same
certificate of public convenience is of secondary importance. A sale which combines the
requisites that it makes the service which may be rendered the public by virtue of said
certificate more stable or certain and more satisfactory, is to that extent superior to another. As
may be deduced from the established facts, these are precisely the considerations which
guided the commission in deciding the question raised as it did, and, of course, its act merits
approval.

1. In finding that the certificate of public convenience in favor of Isabel Ablaza had
long become the property of Natividad Z. de Castro prior to being attached and sold
to it at public auction;

Wherefore, the decision appealed from is affirmed with costs against the appellant. So
ordered.

2. In applying the principle of public convenience instead of that of the better right;

15. G.R. No. L-37661

3. In taking into account the prior filing of the petition of the two respondents; and
1vvphl.nt

LUZON
BROKERAGE
CO.,
INC.,
petitioner,
vs.
THE PUBLIC SERVICE COMMISSION and A. D. WILLIAMS, Director of the Bureau
of Public Works, respondents.

4. In adjudicating the ownership of the certificate of public convenience in question


to Natividad Z. de Castro, instead of to the appellant.
As the Public Service Commission has well said in its decision appealed from which, in truth,
is what appears from the evidence of record, the sale or transfer made on May 29, 1934 by
Isabel Ablaza of her certificate of public convenience to Natividad Z. de Castro, took place
much prior not only to the sale at public auction of said certificate carried out by the sheriff on
August 9, of the same year, in which appellant was the highest bidder, but also to the
attachment which was effected only on the 28th of the previous month. This, however, is not
important for the purposes of the decision of the real question. What is important, as the
commission likewise declared, relying on the evidence, is that Natividad Z. de Castro offered

November 16, 1932

This is an action within the original jurisdiction of this court in which the petitioner prays for a
writ of prohibition ordering the respondents, their officers, representatives and subordinates to
desist and refrain from requiring the petitioner to comply with the resolutions and orders of the
Public Service Commission to the effect that the petitioner file an application with the
commission for a certificate of public convenience and necessity for the operation of its autotrucks and notifying the petitioner that upon failure to comply therewith, the Director of Public
Works will be instructed immediately to confiscate the TH automobile license plates issued to
the petitioner for the operation of the auto-trucks in question.

49 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

The same petitioner filed an almost identical petition for writ of prohibition against the same
respondents in a former suit, G. R. No. 36752, which was denied by this court under date of
February 5, 1932, on the ground that the suit was premature, in view of the fact that at that
time, apart from the promulgation of a general circular (Exhibit A) in that case, no action had
been taken by the Public Service Commission to determine if the petitioner is a public utility
or a public service within the legal meaning of said terms, and no decision had been rendered
by the Public Service Commission to determine if it had jurisdiction over the particular
business conducted by the petitioner. Since that decision, the Public Service Commission
addressed to the petitioner the following letter:
May 9, 1932
GENTLEMEN: In accordance with the ruling of the Supreme Court, and by virtue
of the indorsement of the Director of Public Works of April 14, 1932, relative to
your filing an application with this Commission for the operation of a TH truck
service, you are hereby given thirty (30) days from the date hereof within which to
file an application with this Commission for a certificate of public convenience for
the operation of a TH truck service, as provided for in section 13 of Act No. 3108, as
amended.
The fact that your trucks are registered under the TH denomination indicates that the
said trucks are devoted to the transportation of cargoes for compensation.
Very respectfully,
(Sgd.)
R.
A.
CRUZ
Acting Commissioner
THE LUZON BROKERAGE COMPANY, Manila
To this letter, the petitioner, under date of June 3, 1932, through its counsel, replied that it
could not see its way clear to comply with the requirement of the commission that if file
within a period of thirty days an application for a certificate of public convenience and
necessity for the operation of its TH trucks; that "it has taken and consistently maintains the
position that it is not a public service or a public utility within the meaning of the Public
Service Law, and, therefore, may not be obliged to obtain a certificate of public convenience".
Upon receipt of the said communication from the petitioner, the commission adopted the
following resolution:
Considering the fact that the auto-trucks owned and operated by the Luzon
Brokerage Co. are registered in the Bureau of Public Works under TH denomination,
and are offered for hire or compensation to the public, even taking for granted that
they are so offered to a limited or specified number of individuals and firms as

alleged in the said communication, it appears clear or manifest that the said
transportation service comes under the provisions of article 13 of Act No. 3108, as
amended.
The Commission is, therefore, of the opinion, and so rules, that the operation of the
auto-trucks in question comes well within the jurisdiction of the Commission, in
accordance with said provisions of article 13 of Act No. 3108. The Luzon Brokerage
Co. is hereby ordered and required to file within fifteen days from notice hereof, the
corresponding application for authority to operate the said auto-trucks. Upon the
expiration of the said period of fifteen days and should the said company fail to
comply with the terms of this order, the matter will be endorsed to the Director of
Public Works with instructions to immediately confiscate the TH plates issued to the
Luzon Brokerage Co. for the auto-trucks in question." On June 22, 1932, the
petitioner filed this action for writ of prohibition and on the same day the Vacation
Justice issued a preliminary injunction as prayed for and required the respondents to
answer the petition.
On July 1, 1932, the Attorney-General filed an answer on behalf of the respondents in the
nature of a general denial admitting, however, "that for approximately twenty years last past
the petitioner has been and still is conducting the business of customs broker and that it has
been and is maintaining and operating a fleet of trucks in connection with said business,
furnishing transportation service for which it makes and collects charges". The answer of the
respondents sets up the following special defense:
The respondents contend that even admitting that the petitioner uses its trucks in
question exclusively for the carriage of goods or cargo belonging to its patrons who
pay for such transportation service upon the basis of previous or existing agreement
or contract, and that it does not solicit nor accept from the public indiscriminately
goods or cargo for transportation on its aforementioned trucks, yet said trucks said
are subject to the jurisdiction and control of the respondent Public Service
Commission by virtue of the provisions of section 13 of Act No. 3108 as amended
by section 6 of Act No. 3316, inasmuch as the petitioner maintains and operates
them for hire or compensation." On July 26, 1932, the parties filed in this court the
following agreed statement of facts which is set out in full because no other
evidence was taken and the decision of this case turns upon the facts as set out in
said stipulation:
AGREED STATEMENT OF FACTS
1. That the petitioner is a corporation duly organized and existing under the laws of
the Philippine Islands and having its principal office and place of business therein in
the City of Manila; that the respondent, Public Service Commission, is a tribunal or
board created by statute and exercising judicial functions under and by virtue of Act
No. 3108, as amended, of the Philippine Legislature, and the other respondent, A. D.

50 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

Williams, is the duly appointed, qualified and acting director of the Bureau of Public
Works of the Government of the Philippine Islands, which bureau is charged by law
with the functions, among other things, of registering motor vehicles of all kinds and
licensing the operators of such vehicles.
2. That for approximately twenty years last past, the petitioner has been and still is
conducting the business of customs broker and that in connection therewith, the
petitioner conducts business of receiving, storing, forwarding and delivering cargoes
of all kinds; that in connection with said business and not otherwise, the petitioner
has been and is maintaining and operating a fleet of trucks designed and utilized
exclusively for the carriage of goods or cargo of its particular customers, which from
time to time are landed and received from vessels and delivered to the consignees or
owners thereof, or are forwarded and delivered to such vessels for shipment.
3. That the petitioner does not solicit nor accept nor hold itself out as ready or
willing to accept from the public indiscriminately goods or cargo for transportation
on its aforesaid trucks, and has no intention of doing so; and that all the transporting,
carrying, and delivering business conducted by the petitioner is limited and confined
to the articles, goods, and wares of its patrons as customs broker.
4. That for brokerage services rendered by the petitioner including receiving,
storing, loading or unloading, placement and delivery of cargo or goods, it makes
and collect charges, the amount of which is determined in each instance upon the
basis of previous or existing special contract had with the particular patron or
customer for whom such services are rendered; that the petitioner receives
compensation for its transportation and delivery services in addition to its customary
customs brokerage fees.
5. That during the years that the petitioner has been doing business as aforesaid up to
and including the current year 1932, it has caused all of its trucks used in connection
therewith to be duly registered and licensed in the Bureau of Public Works under the
so-called TH denomination, paying therefor the corresponding annual registration
and license fees, in accordance with the requirements of said bureau.
6. That the petitioner has been conducting exactly the same nature of business as
aforesaid in the Philippine Islands, particularly in the City of Manila therein, for the
past twenty years, without having ever been required directly, except in the instance
hereinafter adverted to, by the Public Service Commission or the predecessors
thereof to secure a certificate of public convenience for the operation of its trucks, or
otherwise to submit this incidental aspect of its business to the jurisdiction,
regulation and control of said commission.
7. That a few months after the petitioner had secured from the respondent Director
of Public Works the registration and licensing for the current year of its trucks

aforesaid, it received from the Honorable R. A. Cruz, then Acting Commissioner of


the Public Service Commission, a letter dated May 9, 1932, requiring the petitioner
to file with the commission within a period convenience for the operation of said
trucks for the alleged reason that said trucks were devoted to the transportation of
cargo for compensation as provided in section 13 of the Public Service Law. A copy
of said letter has been attached as Exhibit A to the petition filed herein, and is hereby
referred to for greater certainty.
8. That, to the Acting Commissioner's communication above-mentioned, the
petitioner through its attorney made reply under date of June 3, 1932, wherein the
Public Service Commission was informed, among other things, that the petitioner is
not a "public service" or "public utility" in contemplation of law in view of the facts
and circumstances in said reply more particularly set forth, and the suggestion was
made that the question of whether or not the petitioner operates a public service be
first determined definitely after appropriate hearing before requiring said petitioner
to obtain a certificate of public convenience. A copy of said reply appears attached
as Exhibit B to the petition filed herein, and is hereby referred to for greater
certainty.
9. That in its session of June 9, 1932, the respondent Public Service Commission,
acting and passing upon the merits of the petitioner's contention as set forth in the
latter's reply referred to as Exhibit B, adopted a resolution whereby said commission
ruled that the operation by the herein petitioner of the trucks above mentioned came
well within the jurisdiction of the Public Service Commission by virtue of the
provisions of section 13 of Act No. 3108, as amended, and in view thereof ordered
the petitioner to file within fifteen (15) days from date of notification the proper
application for authority to operate said trucks, with the admonition that upon noncompliance by the petitioner with said order, the Director of Public Works would be
instructed to confiscate the license plates issued to the petitioner for the trucks in
question. A certified copy of said resolution and order, which was served upon the
petitioner through its attorney on June 11, 1932, appears attached as Exhibit C to the
petition filed herein and is hereby referred to for greater certainty.
10. That immediately upon promulgation of the aforesaid resolution and order, a
copy thereof was furnished the respondent Director of Public Works for attention
and execution and that said respondent director manifested his readiness and
willingness to carry out the instructions of the commission relative to the
confiscation of the license plates for 1932 of the trucks operated by the petitioner.
11. That, according to established practice and existing regulations of the Bureau of
Public Works, motor trucks may be registered in said bureau under either of the
following denominations: (a) T for trucks devoted exclusively to the carriage of
owner's goods or cargo; (b) TH for trucks carrying cargo only, for compensation or
hire; (c) TG for trucks duly licensed as garage by the municipal or city authorities

51 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

concerned and authorized to be operated as such by Public Service Commission; and


(d) TPU for trucks which are devoted to public use or service for the carriage of
passengers and freight or cargo and are operated under certificate of public
convenience. That since January 1, 1932, the Public Service Commission, invoking
the provisions of section 13 of Act No. 3108 as amended, has required all owners or
operators of TH trucks to submit to the jurisdiction of said commission and to obtain
certificates of public convenience for the operation of such trucks. That the herein
petitioner has challenged, still challenges, and has never submitted to, the
jurisdiction of the Public Service Commission insofar as the same pertains to the
operation of petitioner's trucks aforesaid, and questions the validity and
constitutionality of the law relied on by the commission in respect to and insofar as
it may affect the operation of petitioner's trucks in the conduct of its business.
Although the petitioner has been operating its trucks in connection with its business as
customs broker for approximately twenty years last past, it does not appear that the Public
Utility Commission undertook to assume any jurisdiction over the operation of said trucks
prior to the amendment of the Public Act by Act No. 3316 which took effect on December 4,
1926; or that there was any attempt to subject said business to regulation under Acts Nos.
2307, 2362 or 2694 with relation to the regulation of public utilities. In other words, it seems
to be conceded that the Public Utility Acts Nos. 2307, 2362, 2694 and 3108 which took effect
on December 19, 1913, February 28, 1914 March 9, 1917, and March 19, 1923 respectively,
did not give jurisdiction and control over the said auto-trucks of the petitioner which were
being operated on the dates of said Acts and thereafter in connection with the petitioner's
business as customs broker in the same manner as they are now. It follows that the respondents
and the Government of the Philippine Islands did not regard said trucks as common carriers or
a public utility as defined in said Acts. As it does not appear that there is any difference in the
character or operation of said business since the amendments made by Act No. 3316, it
follows that if the said amendatory Act now embraces said business, a material extension and
enlargement of the business previously subject to the jurisdiction of the commission was
accomplished by the said amendments. As Acts Nos. 2307, 2362, 2694 and 3108 included
"any common carrier" as a public utility and neither the Public Utility Commission nor any
officer made any attempt to subject the petitioner to regulation as such, the conclusion seems
inescapable that the business of the petitioner was not regarded as falling within the
classification of a common carrier. Section 13 as amended by Act No. 3316, likewise includes
in the definition of a public service "any common carrier". As neither the nature of the
petitioner's business nor the accepted definition of "any common carrier" is any different from
what it was before said Act took effect, it follows that the operation of the petitioner's autotrucks is no more a common carrier business since Act No. 3316 took effect than it was before.
In other words, what was not a common carrier business under Act No. 3108 is not a common
carrier business under Act No. 3316. Moreover, paragraph 3 of the agreed statement of facts
seems to us to take the operation of petitioner's trucks out of the classification of common
carriers. (Cf. U. S. vs. Tan Piaco, 40 Phil., 853; and Iloilo Ice and Cold Storage Co. vs. Public
Utility Board, 44 Phil., 551.) Although the respondents' brief contends that the petitioner is not
a private carrier, we do not understand that the respondents go so far as to contend that the
petitioner is a common carrier. In respondents' brief, page 19, it is stated:

The law in question (section 6 of Act No. 3316) does not convert it (the petitioner)
into a common carrier. It simply declares the operation and maintenance of its fleet
of trucks a public service and as such it merely requires it to secure a certificate of
public convenience and pay the corresponding fee." The brief likewise distinguishes
our statute from other statutes which were declared unsconstitutional "because such
statutes converted the parties affected into common carriers when in truth and in
fact they were not". It is further stated in respondents' brief, page 6, referring to the
omission of the phrase "for public use" in Act No. 3316:
This means that under the new law it is not necessary that the petitioner herein
maintains and operates its trucks 'for public use' in order that the respondent Public
Service Commission can assume jurisdiction and control over them. It is enough that
it maintains and operates them "for hire or compensation" in whatever manner or
form. Public use or use by the public is no longer a requisite under the new law.
"Hire or compensation" is ill that is necessary. That, we submit, is the intention of
the Legislature by amending section 13 of Act No. 3108 by section 6 of Act No.
3316.
Eliminating therefore as contrary to the facts agreed upon the contention that the respondents
may now take jurisdiction over the petitioner's business because it is a common carrier, we
pass to the consideration of the question whether the amendments introduced into section 13
of Act No. 3108 by Act No. 3316 conferred jurisdiction on the respondents over the
petitioner's business, although it is not a common carrier.
The respondents rely on the changes in the wording of section 13 of Act No. 3108 made by
Act No. 3316. Section 13, as amended, reads as follows:
"The commission shall have general supervision and regulation of, jurisdiction and
control over, all public services, and also over their property, property rights,
equipment, facilities and franchises so far as may be necessary for the purposes of
carrying out the provisions of this Act. The term "public service" is hereby defined
to include every individual, copartnership, association, corporation, or joint-stock
company, whether domestic or foreign, their lessees, trustees, or receivers appointed
by any court whatsoever, or any municipality, province, or other department of the
Government of the Philippine Islands, that now or hereafter may own, operate,
manage, or control within the Philippine Islands, for hire or compensation, any
common carrier, railroad, street railway, traction railway, subway, freight and or
passenger motor vehicles, with or without fixed route, freight or any other car
service, express service, steamboat or steamship line, ferries, small water craft, such
as lighters, pontines, lorchas, and others, engaged in the transportation of passengers
or cargo, shipyard, marine railway, marine repair shop, public warehouse, public
wharf or dock not under the jurisdiction of the Insular Collector of Customs, ice,
refrigeration, canal, irrigation, pipe line, gas, electric light, heat, power, water, oil,
sewer, telephone, wire or wireless telegraph system, plant or equipment: Provided,

52 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience

That as regards such common carriers, by land or by water, whose equipment is used
principally or secondarily in furtherance of their private business, the net earnings of
the latter business shall be considered in connection with their common carrier
business for the purposes of rate fixing: Provided, further, That the Commission
shall have no jurisdiction over ice plants, cold storage plants, or any of the other
services above mentioned, operated by the Federal Government exclusively for its
own use and not to serve private persons for pay or compensation, nor over animaldrawn carts or ferries below two tons engaged principally in carrying freights."
The material amendments of section 13 of Act No. 3108, made by Act No. 3316, are the
following: The term "public service" is substituted for the term "public utility" and the phrase
"for public use" is eliminated and the phrase "for hire or compensation" is inserted in the
definition of a public service. In view of these changes in the definition of a "public service",
the respondents contend that any person who operates a freight and or passenger motor vehicle
with or without fixed route, for hire or compensation, is now subject to the supervision,
regulation, jurisdiction and control of the Public Service Commission and must comply with
all the provisions of the Public Service Law. It is contended that if the business enumerated in
section 13 are carried on for "hire or compensation", that is all that is necessary to subject
them to the supervision, regulation and control of the commission. We cannot accept the view
that the Legislature intended such a sweeping change in the law by the verbal changes made in
section 13.
The mere omission from section 13 of the phrase "for public use" in the definition of a public
service does not seem to us to warrant the inference that the Legislature meant to extend the
jurisdiction of the Public Service Commission to private enterprises not devoted to public use.
The idea of public use is implicit in the term "public service". A public service is a service for
public use. The insertion of the phrase "for hire or compensation" throws no light on whether
the Legislature intended to include private businesses in the definition of a public service. This
is a stock phrase found in most definitions of a common carrier and a public utility.

It is of special significance that notwithstanding the changes in the wording of the definition of
the term "public service" introduced by Act No. 3316, there were no alterations whatever
made in the basic provisions of sections 14, 15, 16, 17, 18, 19, 20, 21 and 22 of Act No. 3108.
The fact that these basic provisions were drafted with relation to common carriers and that no
amendment of them was made to adapt them to private carriers like the petitioner clearly
indicates that the Legislature, in the verbal amendments made by Act No. 3316 in section 13,
did not contemplate the radical change which would discard the element of public use as an
essential feature of every public service. Had the Legislature intended to bring under the
jurisdiction of the Public Service Commission enterprises not operated for public use, it would
not have left these enterprises to guess their way through a statute applicable to public utilities,
at their peril and with "no standard of conduct that it was possible to know". Indeed, a serious
doubt would arise whether we should not be obliged to hold a statute void pro tanto for
uncertainty, which attempted to subject private carriers to the identical requirements and
penalties to which the statute and the commission's regulations subject common carriers; and
we cannot assume that the Legislature intended to leave such a cloud upon the statute. (Cf.
Smith vs. Cahoon, 238 U. S., 553, 564; and Continental Baking Company vs. Woodring, 76 L.
ed., 816, 822.)
In arriving at the conclusion that it was not the intention of the Legislature, in making the
verbal changes in section 13 of Act No. 3108 above indicated, to enlarge the supervision,
regulation and control of the Public Service Commission so as to include businesses like that
described in the agreed statement of facts, we do not mean to intimate that it would be beyond
the power of the Legislature to do so by appropriate language. Our view of the case renders
unnecessary the consideration of the constitutional questions presented at great length in the
memoranda of the petitioner and the respondents.
The writ of prohibition will be granted as prayed for, each party to bear its own costs. So
ordered.

53 TRANSPO CASES: Common Carries & Significance of Certificate of Public Convenience