SPOUSES DANTE CRUZ and G.R. No.

186312
LEONORA CRUZ,
Petitioners, Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
- versus - BERSAMIN,
ABAD,* and
SUN HOLIDAYS, INC., VILLARAMA, JR., JJ.
Respondent.
Promulgated:
June 29, 2010

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

DECISION
CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC)
of Pasig City for damages arising from the death of their son Ruelito C. Cruz
(Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B
Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental
Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned
and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of
the Coco Beach mountain that was sheltered from the wind where they boarded M/B
Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto
Galera and into the open seas, the rain and wind got stronger, causing the boat to tilt
from side to side and the captain to step forward to the front, leaving the wheel to
one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came
one after the other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the
boat. Upon seeing the captain, Matute and the other passengers who reached the
surface asked him what they could do to save the people who were still trapped under
the boat. The captain replied Iligtas niyo na lang ang sarili niyo (Just save
yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang,
Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two
boats were 22 persons, consisting of 18 passengers and four crew members, who
were brought to PisaIsland. Eight passengers, including petitioners son and his wife,
died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility

for the incident which it considered to be a fortuitous event. It nevertheless offered,
as an act of commiseration, the amount of P10,000 to petitioners upon their signing
of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier

reflected, alleging that respondent, as a common carrier, was guilty of negligence in
allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins issued
by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]

In its Answer,[7] respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B Coco
Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily
requires four conditions to be met before a boat is allowed to sail, to wit: (1) the sea
is calm, (2) there is clearance from the Coast Guard, (3) there is clearance from the
captain and (4) there is clearance from the Resorts assistant manager.[8] He added
that M/B Coco Beach III met all four conditions on September 11, 2000,[9] but
a subasco or squall, characterized by strong winds and big waves, suddenly
occurred, causing the boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.

Petitioners Motion for Reconsideration having been denied by Order

dated September 2, 2005,[12] they appealed to the Court of Appeals.

By Decision of August 19, 2008,[13] the appellate court denied petitioners

appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier which is only required to observe ordinary diligence;
that respondent in fact observed extraordinary diligence in transporting its guests on
board M/B Coco Beach III; and that the proximate cause of the incident was a squall,
a fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution

dated January 16, 2009,[14] they filed the present Petition for Review.[15]

Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence
to prove that it is a common carrier; that the Resorts ferry services for guests cannot
be considered as ancillary to its business as no income is derived therefrom; that it
exercised extraordinary diligence as shown by the conditions it had imposed before
allowing M/B Coco Beach III to sail; that the incident was caused by a fortuitous
event without any contributory negligence on its part; and that the other case wherein
the appellate court held it liable for damages involved different plaintiffs, issues and
evidence.[16]

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing

respondent 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 deliberately refrained from
making such distinctions.

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

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

. . . every person that now or hereafter may own, operate,

manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service
of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar
public services . . .[18] (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined

with its main business as to be properly considered ancillary thereto. The constancy
of respondents ferry services in its resort operations is underscored by its having its
own Coco Beachboats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the same.These services
are thus available to the public.
 That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a regular
basis, or whether it is offered to the general public. The intent of the law is thus to
not consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the carrying
of persons or goods in order to avoid the legal obligations and liabilities of common
carriers.

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the safety
of the passengers transported by them, according to all the circumstances of each
case.[19] They are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.[20]

When a passenger dies or is injured in the discharge of a contract of carriage,

it is presumed that the common carrier is at fault or negligent. In fact, there is even
no need for the court to make an express finding of fault or negligence on the part of
the common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.[21]

Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11,
2000. Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect
the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising
weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]

A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk.The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event does
not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their obligations,
must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid;
(c) the occurrence must have been such as to render it impossible for the debtors to
fulfill their obligation in a normal manner; and (d) the obligor must have been free
from any participation in the aggravation of the resulting injury to the creditor.[24]

To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.[25]

Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence of
squalls was expected under the weather condition of September 11, 2000. Moreover,
evidence shows that M/B Coco Beach III suffered engine trouble before it capsized
and sank.[26] The incident was, therefore, not completely free from human
intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate
that it exercised due diligence to prevent or minimize the loss before, during and
after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger
liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning
capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.[29]

As for damages representing unearned income, the formula for its

computation is:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death][30]

The first factor, i.e., life expectancy, is computed by applying the formula (2/3
x [80 age at death]) adopted in the American Expectancy Table of Mortality or the
Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental
expenses.[32] The loss is not equivalent to the entire earnings of the deceased, but
only such portion as he would have used to support his dependents or heirs. Hence,
to be deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs.[33]
 In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy
as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary
of $900[35] which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net earning
capacity is thus computed as follows:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers

breach of contract of carriage resulted in the death of petitioners son, following
Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to moral
damages.
 Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus warranting
the award too of exemplary damages, which are granted in contractual obligations if
the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.[37]

Under the circumstances, it is reasonable to award petitioners the amount

of P100,000 as moral damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of the
total amount adjudged against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals[40] teaches that when
an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for payment of interest
in the concept of actual and compensatory damages, subject to the following rules,
to wit

1. When the obligation is breached, and it consists in the payment

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

2. When an obligation, not constituting a loan or forbearance of

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

3. When the judgment of the court awarding a sum of money

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

Since the amounts payable by respondent have been determined with certainty only
in the present petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines,
Inc.

WHEREFORE, the Court of Appeals Decision of August 19,

2008 is REVERSED and SET ASIDE. Judgment is rendered in favor of petitioners
ordering respondent to pay petitioners the following: (1) P50,000 as indemnity for
the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos loss of earning
capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5)
10% of the total amount adjudged against respondent as attorneys fees; and (6) the
costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.

SO ORDERED.
 [G.R. No. 147079. December 21, 2004]

A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT

OF APPEALS and FGU INSURANCE
CORPORATION, respondents.

DECISION
CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts

Decision of August 10, 2000 reversing and setting aside the judgment of
[1]

Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B which
dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM
Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives consisting of
86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000
Blisters Trinordiol tablets for delivery to Manila in favor of the consignee, Wyeth-
Suaco Laboratories, Inc. The Femenal tablets were placed in 124 cartons and
[2]

the Nordiol tablets were placed in 20 cartons which were packed together in
one (1) LD3 aluminum container, while the Trinordial tablets were packed in two
pallets, each of which contained 30 cartons. [3]

Wyeth-Suaco insured the shipment against all risks with FGU Insurance
which issued Marine Risk Note No. 4995 pursuant to Marine Open Policy No.
138.[4]

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA), it was discharged without exception and
[5] [6]

delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) located also
at the NAIA for safekeeping. [7]

In order to secure the release of the cargoes from the PSI and the Bureau
of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage which
had been its licensed broker since 1984. As its customs broker, Sanchez
[8]

Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco. [9]

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of

Sanchez Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for
which, Official Receipt No. 016992, was issued. On the receipt, another
[10]

representative of Sanchez Brokerage, M. Sison, acknowledged that he [11]

received the cargoes consisting of three pieces in good condition. [12]

Wyeth-Suaco being a regular importer, the customs examiner did not

inspect the cargoes which were thereupon stripped from the aluminum
[13]

containers and loaded inside two transport vehicles hired by Sanchez

[14]

Brokerage. [15]

Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas, employees of Elite Adjusters[16]

and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and
insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon
Laboratories Inc. in Antipolo City for quality control check. The delivery receipt, [17]

bearing No. 07037 dated July 29, 1992, indicated that the delivery consisted of
one container with 144 cartons of Femenal and Nordiol and 1 pallet containing
Trinordiol. [18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,

acknowledged the delivery of the cargoes by affixing his signature on the
delivery receipt. Upon inspection, however, he, together with Ruben Alonzo of
[19]

Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol

tablets were in bad order. He thus placed a note above his signature on the
[20]

delivery receipt stating that 44 cartons of oral contraceptives were in bad order.
The remaining 160 cartons of oral contraceptives were accepted as complete
and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey
report dated July 31, 1992 stating that 41 cartons of Femenal tablets and 3
[21]

cartons of Nordiol tablets were wetted (sic). [22]

The Elite Surveyors later issued Certificate No. CS-0731-

1538/92 attached to which was an Annexed Schedule whereon it was
[23]

indicated that prior to the loading of the cargoes to the brokers trucks at the
NAIA, they were inspected and found to be in apparent good condition. Also [24]

noted was that at the time of delivery to the warehouse of Hizon Laboratories
Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets. [25]

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction

Report confirming that 38 x 700 blister packs of Femenal tablets, 3 x 700
[26]
blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets
were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection of [27]

38 cartons of Femenal and 3 cartons of Nordiol on the ground that they were
delivered to Hizon Laboratories with heavy water damaged (sic) causing the
cartons to sagged (sic) emitting a foul order and easily attracted flies. [28]

Wyeth-Suaco later demanded, by letter of August 25, 1992, from Sanchez

[29]

Brokerage the payment of P191,384.25 representing the value of its loss arising
from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed
an insurance claim against FGU Insurance which paid Wyeth-Suaco the
amount of P181,431.49 in settlement of its claim under Marine Risk Note
Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt in favor of FGU Insurance.
[30]

On demand by FGU Insurance for payment of the amount of P181,431.49

it paid Wyeth-Suaco, Sanchez Brokerage, by letter of January 7, 1993,
[31]

disclaimed liability for the damaged goods, positing that the damage was due
to improper and insufficient export packaging; that when the sealed containers
were opened outside the PSI warehouse, it was discovered that some of the
loose cartons were wet, prompting its (Sanchez Brokerages) representative
[32]

Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan,

about the condition of the cargoes but that the latter advised to still deliver them
to Hizon Laboratories where an adjuster would assess the damage. [33]

Hence, the filing by FGU Insurance of a complaint for damages before the
Regional Trial Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision of July 29, 1996, dismissed the complaint,
[34]

holding that the Survey Report prepared by the Elite Surveyors is bereft of any
evidentiary support and a mere product of pure guesswork. [35]

On appeal, the appellate court reversed the decision of the trial court, it
holding that the Sanchez Brokerage engaged not only in the business of
customs brokerage but also in the transportation and delivery of the cargo of its
clients, hence, a common carrier within the context of Article 1732 of the New
Civil Code.[36]

Noting that Wyeth-Suaco adduced evidence that the cargoes were

delivered to petitioner in good order and condition but were in a damaged state
when delivered to Wyeth-Suaco, the appellate court held that Sanchez
Brokerage is presumed negligent and upon it rested the burden of proving that
it exercised extraordinary negligence not only in instances when negligence is
directly proven but also in those cases when the cause of the damage is not
known or unknown. [37]

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is

GRANTED. The Decision of the Court a quo is REVERSED. Another Decision
is hereby rendered in favor of the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal

amount of P181, 431.49, with interest thereupon at the rate of
6% per annum, from the date of the Decision of the Court, until
the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount

of P20,000.00 as and by way of attorneys fees; and

3. The counterclaims of the Appellee are DISMISSED. [38]

Sanchez Brokerages Motion for Reconsideration having been denied by the

appellate courts Resolution of December 8, 2000 which was received by
petitioner on January 5, 2001, it comes to this Court on petition for certiorari
filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and
reversible error tantamount to abuse of discretion when it found petitioner a
common carrier within the context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of
action which petitioner should have taken was to file a petition for review on
certiorari since the sole office of a writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion amounting to
lack or excess of jurisdiction and does not include correction of the appellate
courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a
common carrier, failed to overcome the presumption of negligence, it being
documented that petitioner withdrew from the warehouse of PSI the subject
shipment entirely in good order and condition. [39]

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of
Appeals in any case, i.e., regardless of the nature of the action or proceedings
involved, may be appealed to this Court by filing a petition for review, which
would be but a continuation of the appellate process over the original case. [40]

The Resolution of the Court of Appeals dated December 8, 2000 denying

the motion for reconsideration of its Decision of August 10, 2000 was received
by petitioner on January 5, 2001. Since petitioner failed to appeal within 15 days
or on or before January 20, 2001, the appellate courts decision had become
final and executory. The filing by petitioner of a petition for certiorari on March
6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the
petitioner must prove not merely reversible error but also grave abuse of
discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting
aside the decision of the trial court based on its finding that petitioner is liable
for the damage to the cargo as a common carrier. What petitioner is ascribing
is an error of judgment, not of jurisdiction, which is properly the subject of an
ordinary appeal.
Where the issue or question involves or affects the wisdom or legal
soundness of the decision not the jurisdiction of the court to render said decision
the same is beyond the province of a petition for certiorari. The supervisory
[41]

jurisdiction of this Court to issue a cert writ cannot be exercised in order to

review the judgment of lower courts as to its intrinsic correctness, either upon
the law or the facts of the case. [42]

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be
also a common carrier, as defined under Article 1732 of the Civil Code, to wit:

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

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

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez

Brokerage, himself testified that the services the firm offers include the delivery
of goods to the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
 As customs broker, we calculate the taxes that has to be paid in cargos, and those
upon approval of the importer, we prepare the entry together for processing and
claims from customs and finally deliver the goods to the warehouse of the
importer.[43]

Article 1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not a
[44]

common carrier but a customs broker whose principal function is to prepare the
correct customs declaration and proper shipping documents as required by law
is bereft of merit. It suffices that petitioner undertakes to deliver the goods for
pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under
Article 1733 of the Civil Code, extraordinary diligence in the vigilance over the
[45]

goods it transports according to all the circumstances of each case. In the event
that the goods are lost, destroyed or deteriorated, it is presumed to have been
at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence. [46]

The concept of extra-ordinary diligence was explained in Compania

Maritima v. Court of Appeals: [47]

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 characteristics of goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as their nature
requires.[48]

In the case at bar, it was established that petitioner received the cargoes
from the PSI warehouse in NAIA in good order and condition; and that upon [49]

delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were

found to be in bad order, as noted in the Delivery Receipt issued by petitioner,
[50]

and as indicated in the Survey Report of Elite Surveyors and the Destruction
[51]

Report of Hizon Laboratories, Inc. [52]

In an attempt to free itself from responsibility for the damage to the goods,
petitioner posits that they were damaged due to the fault or negligence of the
shipper for failing to properly pack them and to the inherent characteristics of
the goods ; and that it should not be faulted for following the instructions of
[53]

Calicdan of Wyeth-Suaco to proceed with the delivery despite information

conveyed to the latter that some of the cartons, on examination outside the PSI
warehouse, were found to be wet. [54]

While paragraph No. 4 of Article 1734 of the Civil Code exempts a

[55]

common carrier from liability if the loss or damage is due to the character of the
goods or defects in the packing or in the containers, the rule is that if the
improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the
resulting damage. [56]

If the claim of petitioner that some of the cartons were already damaged
upon delivery to it were true, then it should naturally have received the cargo
under protest or with reservations duly noted on the receipt issued by PSI. But
it made no such protest or reservation. [57]

Moreover, as observed by the appellate court, if indeed petitioners

employees only examined the cargoes outside the PSI warehouse and found
some to be wet, they would certainly have gone back to PSI, showed to the
warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage. Or, petitioner would have
[58]

presented, as witness, the employees of the PSI from whom Morales and
Domingo took delivery of the cargo to prove that, indeed, part of the cargoes
was already damaged when the container was allegedly opened outside the
warehouse. [59]

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no

rain fell that day. Instead, it asserts that some of the cargoes were already wet
on delivery by PSI outside the PSI warehouse but such notwithstanding
Calicdan directed Morales to proceed with the delivery to Hizon Laboratories,
Inc.
While Calicdan testified that he received the purported telephone call of
Morales on July 29, 1992, he failed to specifically declare what time he received
the call. As to whether the call was made at the PSI warehouse when the
shipment was stripped from the airport containers, or when the cargoes were
already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time
it received the cargoes, a part of it was wet, damaged or in bad condition. [60]

The 4-page weather data furnished by PAGASA on request of Sanchez

[61]

Brokerage hardly impresses, no witness having identified it and interpreted the

technical terms thereof.
 The possibility on the other hand that, as found by Hizon Laboratories, Inc.,
the oral contraceptives were damaged by rainwater while in transit to Antipolo
City is more likely then. Sanchez himself testified that in the past, there was a
similar instance when the shipment of Wyeth-Suaco was also found to be wet
by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that
arrived at the NAIA were damaged and claimed by the Wyeth-Suaco without any
question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-
Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.[62]

Since petitioner received all the cargoes in good order and condition at the
time they were turned over by the PSI warehouseman, and upon their delivery
to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it was
incumbent on petitioner to prove that it exercised extraordinary diligence in the
carriage of the goods. It did not, however. Hence, its presumed negligence
under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

[G.R. No. 138334. August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF
APPEALS and CARAVAN TRAVEL & TOURSINTERNATIONAL,
INC., respondents.

DECISION
YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of

respondent Caravan Travel and Tours International, Inc. to arrange and
facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of
Europe. The package tour included the countries of England, Holland,
Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included
airfare, and the booking fee was also waived because petitioners niece, Meriam
Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12,
1991 a Wednesday to deliver petitioners travel documents and plane
tickets. Petitioner, in turn, gave Menor the full payment for the package
tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA)
on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hongkong. To petitioners dismay, she discovered that the flight she
was supposed to take had already departed the previous day.She learned that
her plane ticket was for the flight scheduled on June 14, 1991. She thus called
up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the
British Pageant which included England, Scotland and Wales in its itinerary. For
this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00
(at the then prevailing exchange rate of P26.60). She gave respondent US$300
or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the
reimbursement of P61,421.70, representing the difference between the sum
she paid for Jewels of Europe and the amount she owed respondent for the
British Pageant tour. Despite several demands, respondent company refused
to reimburse the amount, contending that the same was non-
refundable. Petitioner was thus constrained to file a complaint against
[1]

respondent for breach of contract of carriage and damages, which was

docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional
Trial Court of Makati City.
In her complaint, petitioner alleged that her failure to join Jewels of Europe
[2]

was due to respondents fault since it did not clearly indicate the departure date
on the plane ticket. Respondent was also negligent in informing her of the
wrong flight schedule through its employee Menor.She insisted that the British
Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioners failure to join the first
tour. Chipeco insisted that petitioner was informed of the correct departure date,
which was clearly and legibly printed on the plane ticket. The travel documents
were given to petitioner two days ahead of the scheduled trip. Petitioner had
only herself to blame for missing the flight, as she did not bother to read or
confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for
Jewels of Europe, considering that the same had already been remitted to its
principal in Singapore, Lotus Travel Ltd., which had already billed the same
even if petitioner did not join the tour. Lotus European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted
industry practice to disallow refund for individuals who failed to take a booked
tour.
[3]

Lastly, respondent maintained that the British Pageant was not a substitute
for the package tour that petitioner missed. This tour was independently
procured by petitioner after realizing that she made a mistake in missing her
flight for Jewels of Europe. Petitioner was allowed to make a partial payment of
only US$300.00 for the second tour because her niece was then an employee
of the travel agency. Consequently, respondent prayed that petitioner be
ordered to pay the balance of P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision, the dispositive
[4]

part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the amount of
Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three
Centavos (P53,989.43) with legal interest thereon at the rate of twelve
 percent (12%) per annum starting January 16, 1992, the date when the
complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED. [5]

The trial court held that respondent was negligent in erroneously advising
petitioner of her departure date through its employee, Menor, who was not
presented as witness to rebut petitioners testimony. However, petitioner should
have verified the exact date and time of departure by looking at her ticket and
should have simply not relied on Menors verbal representation. The trial court
thus declared that petitioner was guilty of contributory negligence and
accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both
parties to be at fault. However, the appellate court held that petitioner is more
negligent than respondent because as a lawyer and well-traveled person, she
should have known better than to simply rely on what was told to her. This being
so, she is not entitled to any form of damages. Petitioner also forfeited her right
to the Jewels of Europe tour and must therefore pay respondent the balance of
the price for the British Pageant tour. The dispositive portion of the judgment
appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated
October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby
ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the
amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per
annum, to be computed from the time the counterclaim was filed until the finality of
this decision. After this decision becomes final and executory, the rate of TWELVE
PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is
DELETED. Costs against the plaintiff-appellee.

SO ORDERED. [6]
 Upon denial of her motion for reconsideration, petitioner filed the instant
[7]

petition under Rule 45 on the following grounds:

I

It is respectfully submitted that the Honorable Court of Appeals committed a

reversible error in reversing and setting aside the decision of the trial court by ruling
that the petitioner is not entitled to a refund of the cost of unavailed Jewels of Europe
tour she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-
ordinary diligence which is higher in degree than the ordinary diligence required of
the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is only contributory while the
private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe
tour was not indivisible and the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential damages
due her as a result of breach of contract of carriage.
[8]

Petitioner contends that respondent did not observe the standard of care
required of a common carrier when it informed her wrongly of the flight
schedule. She could not be deemed more negligent than respondent since the
latter is required by law to exercise extraordinary diligence in the fulfillment of
its obligation. If she were negligent at all, the same is merely contributory and
not the proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its employees
gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such [9]

person or association of persons are regarded as carriers and are classified as

private or special carriers and common or public carriers. A common carrier is
[10]

defined under Article 1732 of the Civil Code as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to
the public.
It is obvious from the above definition that respondent is not an entity
engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf.
Respondents services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of
respondent company, this does not mean that the latter ipso factois a common
carrier. At most, respondent acted merely as an agent of the airline, with whom
petitioner ultimately contracted for her carriage to Europe. Respondents
obligation to petitioner in this regard was simply to see to it that petitioner was
properly booked with the airline for the appointed date and time. Her transport
to the place of destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters
service of arranging and facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of
carriage is the transportation of passengers or goods. It is in this sense that
the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong
assumption.
The nature of the contractual relation between petitioner and respondent is
determinative of the degree of care required in the performance of the latters
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances. As earlier stated, however,
[11]

respondent is not a common carrier but a travel agency. It is thus not bound
under the law to observe extraordinary diligence in the performance of its
obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the
standard of care required of respondent is that of a good father of a family under
Article 1173 of the Civil Code. This connotes reasonable care consistent with
[12]

that which an ordinarily prudent person would have observed when confronted
with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: 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. [13]

In the case at bar, the lower court found Menor negligent when she allegedly
informed petitioner of the wrong day of departure. Petitioners testimony was
accepted as indubitable evidence of Menors alleged negligent act since
respondent did not call Menor to the witness stand to refute the allegation. The
lower court applied the presumption under Rule 131, Section 3 (e) of the Rules
[14]

of Court that evidence willfully suppressed would be adverse if produced and

thus considered petitioners uncontradicted testimony to be sufficient proof of
her claim.
On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioners assertion is belied by the evidence on
record. The date and time of departure was legibly written on the plane ticket
and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the
latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former. Menor
was already working in France at the time of the filing of the complaint, thereby
[15]

making it physically impossible for respondent to present her as a witness. Then

too, even if it were possible for respondent to secure Menors testimony, the
presumption under Rule 131, Section 3(e) would still not apply. The opportunity
and possibility for obtaining Menors testimony belonged to both parties,
considering that Menor was not just respondents employee, but also petitioners
niece. It was thus error for the lower court to invoke the presumption that
respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally
omitted but is simply unavailable, or when the same could have been obtained
by both parties. [16]

In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging
a fact has the burden of proving it and a mere allegation cannot take the place
of evidence. If the plaintiff, upon whom rests the burden of proving his cause
[17]
of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense. [18]

Contrary to petitioners claim, the evidence on record shows that respondent

exercised due diligence in performing its obligations under the contract and
followed standard procedure in rendering its services to petitioner. As correctly
observed by the lower court, the plane ticket issued to petitioner clearly
[19]

reflected the departure date and time, contrary to petitioners contention. The
travel documents, consisting of the tour itinerary, vouchers and instructions,
were likewise delivered to petitioner two days prior to the trip. Respondent also
properly booked petitioner for the tour, prepared the necessary documents and
procured the plane tickets. It arranged petitioners hotel accommodation as well
as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for the
tour. Had petitioner exercised due diligence in the conduct of her affairs, there
would have been no reason for her to miss the flight. Needless to say, after the
travel papers were delivered to petitioner, it became incumbent upon her to take
ordinary care of her concerns. This undoubtedly would require that she at least
read the documents in order to assure herself of the important details regarding
the trip.
The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or
negligence of the obligor consists in his failure to exercise due care and
prudence in the performance of the obligation as the nature of the obligation so
demands. There is no fixed standard of diligence applicable to each and every
[20]

contractual obligation and each case must be determined upon its particular
facts. The degree of diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is a question of fact that
is to be determined after taking into account the particulars of each case.[21]

The lower court declared that respondents employee was negligent. This
factual finding, however, is not supported by the evidence on record. While
factual findings below are generally conclusive upon this court, the rule is
subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case.
[22]

In the case at bar, the evidence on record shows that respondent company
performed its duty diligently and did not commit any contractual breach. Hence,
petitioner cannot recover and must bear her own damage.
 WHEREFORE, the instant petition is DENIED for lack of merit. The decision
of the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly,
petitioner is ordered to pay respondent the amount of P12,901.00 representing
the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the
counterclaim was filed until the finality of this Decision. After this Decision
becomes final and executory, the rate of 12% per annum shall be imposed until
the obligation is fully settled, this interim period being deemed to be by then an
equivalent to a forbearance of credit. [23]

SO ORDERED.

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

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

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

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

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

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

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

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

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

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

1. that private respondent was not a common carrier;

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

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

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

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

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

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

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

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
 ... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or
dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

and contrary to public policy:

xxx xxx xxx

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

(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
 (7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5) hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

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

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT
OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as City
Treasurer of Batangas, respondents.

DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court
of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a
business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code.[3] The respondent City Treasurer assessed a business tax
on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the amount
of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of 1991 x x x x

"Moreover, Transportation contractors are not included in the enumeration of

contractors under Section 131, Paragraph (h) of the Local Government
Code.Therefore, the authority to impose tax 'on contractors and other independent
contractors' under Section 143, Paragraph (e) of the Local Government Code does not
include the power to levy on transportation contractors.

"The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable
for the license fee, the imposition thereof based on gross receipts is violative of the
aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition."[4]

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents City
of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e)
and 151 does not include the authority to collect such taxes on transportation contractors for, as
defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the
City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common carriers
by air, land and water."Respondents assert that pipelines are not included in the term "common
carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:

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

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that
tax exemptions are to be strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be granted only by clear and
unequivocal provisions of law.

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.

"Even the Local Government Code imposes a tax on franchise holders under Sec. 137
of the Local Tax Code. Such being the situation obtained in this case (exemption
being unclear and equivocal) resort to distinctions or other considerations may be of
help:

1. That the exemption granted under Sec. 133 (j) encompasses

only common carriers so as not to overburden the riding public or
commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."

2. The Local Tax Code of 1992 was basically enacted to give more and
effective local autonomy to local governments than the previous
enactments, to make them economically and financially viable to
serve the people and discharge their functions with a concomitant
obligation to accept certain devolution of powers, x x x So,
consistent with this policy even franchise grantees are taxed (Sec.
137) and contractors are also taxed under Sec. 143 (e) and 151 of
the Code."[9]

Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10] On November 29, 1995, the respondent court rendered a decision[11] affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied
on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in
a Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation,
offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public

employment, and must hold himself out as ready to engage in the
 transportation of goods for person generally as a business and not as a
casual occupation;

2. He must undertake to carry goods of the kind to which his business is

confined;

3. He must undertake to carry by the method by which his business is

conducted and over his established roads; and

4. The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for
hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the definition
of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.

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

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

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In fact,
in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources."

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:

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

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in

transporting petroleum products, it is considered a common carrier under Republic
Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed
by Revenue Regulations No. 13-78, as amended."

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government
Units. - Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following :

xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors and persons

engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code."

The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now
Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." x
xx

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of transportation. This

appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not impose
taxes on the business of transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by
local government units on the carrier business. Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]

It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-
called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code.[19] To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. L-9605 September 30, 1957

GAUDIOSO EREZO, ET AL., plaintiff-appellee,

vs.
AGUEDO JEPTE, defendant-appellant.

Gesolgon, Matti and Custodio for appellees.

Aguedo Y. Jepte in his own behalf.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay plaintiff
Gaudioso Erezo P3,000 on the death of Ernesto Erezo, son of plaintiff Gaudioso Erezo.

Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253. On
August, 9, 1949, while the same was being driven by Rodolfo Espino y Garcia, it collided with a
taxicab at the intersection of San Andres and Dakota Streets, Manila. As the truck went off the
street, it hit Ernesto Erezo and another, and the former suffered injuries, as a result of which he died.
The driver was prosecuted for homicide through reckless negligence in criminal case No. 10663 of
the Court of First Instance of Manila. The accused pleaded guilty and was sentenced to suffer
imprisonment and to pay the heirs of Ernesto Erezo the sum of P3,000. As the amount of the
judgment could not be enforced against him, plaintiff brought this action against the registered owner
of the truck, the defendant-appellant. The circumstances material to the case are stated by the court
in its decision.

The defendant does not deny at the time of the fatal accident the cargo truck driven by
Rodolfo Espino y Garcia was registered in his name. He, however, claims that the vehicle
belonged to the Port Brokerage, of which he was the broker at the time of the accident. He
explained, and his explanation was corroborated by Policarpio Franco, the manager of the
corporation, that the trucks of the corporation were registered in his name as a convenient
arrangement so as to enable the corporation to pay the registration fee with his backpay as a
pre-war government employee. Franco, however, admitted that the arrangement was not
known to the Motor Vehicle Office.
The trial court held that as the defendant-appellant represented himself to be the owner of the truck
and the Motor Vehicle Office, relying on his representation, registered the vehicles in his name, the
Government and all persons affected by the representation had the right to rely on his declaration of
ownership and registration. It, therefore, held that the defendant-appellant is liable because he
cannot be permitted to repudiate his own declaration. (Section 68 [a], Rule 123, and Art. 1431, New
Civil Code.).

Against the judgment, the defendant has prosecuted this appeal claiming that at the time of the
accident the relation of employer and employee between the driver and defendant-appellant was not
established, it having been proved at the trial that the owner of the truck was the Port Brokerage, of
which defendant-appellant was merely a broker. We find no merit or justice in the above contention.
In previous decisions, We already have held that the registered owner of a certificate of public
convenience is liable to the public for the injuries or damages suffered by passengers or third
persons caused by the operation of said vehicle, even though the same had been transferred to a
third person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off. Gaz., 108; Roque vs. Malibay Transit
Inc.,1 G. R. No. L- 8561, November 18,1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off.
Gaz., [10], 4606.)The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or presume that the
registered owner is the actual owner thereof, for it would be difficult for the public to enforce the
actions that they may have for injuries caused to them by the vehicles being negligently operated if
the public should be required to prove who the actual owner is. How would the public or third
persons know against whom to enforce their rights in case of subsequent transfers of the vehicles?
We do not imply by this doctrine, however, that the registered owner may not recover whatever
amount he had paid by virtue of his liability to third persons from the person to whom he had actually
sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a public service,
should primarily be responsible to the public or to third persons for injuries caused the latter while
the vehicle is being driven on the highways or streets. The members of the Court are in agreement
that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to
the latter because of the negligence of the driver even if the defendant-appellant was no longer the
owner of the vehicle at the time of the damage because he had previously sold it to another. What is
the legal basis for his (defendant-appellant's) liability?.

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

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used
or operated upon any public highway unless the same is properly registered. It has been stated that
the system of licensing and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the danger of injury to
pedestrians and other travelers from the careless management of automobiles, and to furnish a
means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed
and operation of machines upon the highways (2 R. C. L. 1176). Not only are vehicles to be
registered and that no motor vehicles are to be used or operated without being properly registered
for the current year, but that dealers in motor vehicles shall furnish the Motor Vehicles Office a report
showing the name and address of each purchaser of motor vehicle during the previous month and
the manufacturer's serial number and motor number. (Section 5 [c], Act. No. 3992, as amended.).
Registration is required not to make said registration the operative act by which ownership in
vehicles is transferred, as in land registration cases, because the administrative proceeding of
registration does not bear any essential relation to the contract of sale between the parties
(Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the
vehicle upon any public highway (section 5 [a], Act No. 3992, as amended).The main aim of motor
vehicle registration is to identify the owner so that if any accident happens, or that any damage or
injury is caused by the vehicles on the public highways, responsibility therefore can be fixed on a
definite individual, the registered owner. Instances are numerous where vehicles running on public
highways caused accidents or injuries to pedestrians or other vehicles without positive identification
of the owner or drivers, or with very scant means of identification. It is to forestall those
circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible for damages or injuries
caused on public highways.

One of the principal purposes of motor vehicles legislation is identification of the vehicle and
of the operator, in case of accident; and another is that the knowledge that means of
detection are always available may act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the
violator of the law or of the rules of safety shall not escape because of lack of means to
discover him." The purpose of the statute is thwarted, and the displayed number becomes a
"snare and delusion," if courts will entertain such defenses as that put forward by appellee in
this case. No responsible person or corporation could be held liable for the most outrageous
acts of negligence, if they should be allowed to place a "middleman" between them and the
public, and escape liability by the manner in which they recompense their servants. (King vs.
Brenham Automobile Co., 145 S. W. 278,279.)

With the above policy in mind, the question that defendant-appellant poses is: should not be
registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance
with such proof escape or evade responsibility and lay the same on the person actually owning the
vehicle? We hold with the trial court that the laws does not allow him to do so; the law, with its aim
and policy in mind, does not relieve him directly of the responsibility that the law fixes and places
upon him as an incident or consequence of registration. Were a registered owner allowed to evade
responsibility by proving who the supposed transferee or owner is, it would be easy for him, by
collusion with others or otherwise, to escape said responsibility and transfer the same to an
indefinite person, or to one who possesses no property with which to respond financially for the
damage or injury done. A victim of recklessness on the public highways is usually without means to
discover or identify the person actually causing the injury or damage. He has no means other than
by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The
protection that the law aims to extend to him would become illusory were the registered owner given
the opportunity to escape liability by disproving his ownership. If the policy of the law is to be
enforced and carried out, the registered owner should be allowed to prove the contrary to the
prejudice of the person injured that is, to prove that a third person or another has become the owner,
so that he may thereby be relieved of the responsibility to the injured person. 1wphl.nt

The above policy and application of the law may appear quite harsh and would seem to conflict with
truth and justice. We do not think it is so. A registered owner who has already sold or transferred a
vehicle has the recourse to a third-party complaint, in the same action brought against him to
recover for the damage or injury done, against the vendee or transferee of the vehicle. The
inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price
he pays for failure to comply with the registration that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-
appellant) has a right to be indemnified by the real or actual owner of the amount that he may be
required to pay as damage for the injury caused to the plaintiff-appellant.
1wphl .nt

Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.
Montemayor, J., concurs in the result.

[G.R. No. 125817. January 16, 2002]

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT

OF APPEALS and DONATO H. GONZALES, respondents.

DECISION
BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience

is sold to another who continues to operate it under the same certificate of public
convenience under the so-called kabit system, and in the course thereof the
vehicle meets an accident through the fault of another vehicle, may the new
owner sue for damages against the erring vehicle? Otherwise stated, does the
new owner have any legal personality to bring the action, or is he the real party
in interest in the suit, despite the fact that he is not the registered owner under
the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu
passenger jeepney from Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying the Monumento-
Bulacan route. While private respondent Gonzales continued offering the
jeepney for public transport services he did not have the registration of the
vehicle transferred in his name nor did he secure for himself a certificate of
public convenience for its operation. Thus Vallarta remained on record as its
registered owner and operator.
On 22 July 1990, while the jeepney was running northbound along the North
Diversion Road somewhere in Meycauayan, Bulacan, it collided with a ten-
wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner
Esmadito Gunnaban. Gunnaban owned responsibility for the accident,
explaining that while he was traveling towards Manila the truck suddenly lost its
brakes. To avoid colliding with another vehicle, he swerved to the left until he
reached the center island. However, as the center island eventually came to an
end, he veered farther to the left until he smashed into a Ferroza automobile,
and later, into private respondent's passenger jeepney driven by one Virgilio
Gonzales. The impact caused severe damage to both the Ferroza and the
passenger jeepney and left one (1) passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded,
compensated the heirs of the deceased passenger, and had the Ferroza
restored to good condition. He also negotiated with private respondent and
offered to have the passenger jeepney repaired at his shop.Private respondent
however did not accept the offer so Lim offered him P20,000.00, the
assessment of the damage as estimated by his chief mechanic. Again,
petitioner Lim's proposition was rejected; instead, private respondent
demanded a brand-new jeep or the amount of P236,000.00. Lim increased his
bid to P40,000.00 but private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned; hence, the filing of the
complaint for damages by private respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due
diligence in the selection and supervision of his employees. He further asserted
that as the jeepney was registered in Vallartas name, it was Vallarta and not
private respondent who was the real party in interest. For his part, petitioner
[1]

Gunnaban averred that the accident was a fortuitous event which was beyond
his control.
[2]

Meanwhile, the damaged passenger jeepney was left by the roadside to

corrode and decay. Private respondent explained that although he wanted to
take his jeepney home he had no capability, financial or otherwise, to tow the
damaged vehicle. [3]

The main point of contention between the parties related to the amount of
damages due private respondent. Private respondent Gonzales averred that
per estimate made by an automobile repair shop he would have to
spend P236,000.00 to restore his jeepney to its original condition. On the other
[4]

hand, petitioners insisted that they could have the vehicle repaired
for P20,000.00. [5]

On 1 October 1993 the trial court upheld private respondent's claim and
awarded him P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees. In support of its
decision, the trial court ratiocinated that as vendee and current owner of the
passenger jeepney private respondent stood for all intents and purposes as the
real party in interest. Even Vallarta himself supported private respondent's
assertion of interest over the jeepney for, when he was called to testify, he
dispossessed himself of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident since he panicked in
the face of an emergency which was rather palpable from his act of directing
his vehicle to a perilous streak down the fast lane of the superhighway then
across the island and ultimately to the opposite lane where it collided with the
jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was
premised on his want of diligence in supervising his employees.It was admitted
during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the
fact that he was neither tutored nor trained to handle such task. [6]

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July

1996, affirmed the decision of the trial court. In upholding the decision of the
court a quo the appeals court concluded that while an operator under
the kabit system could not sue without joining the registered owner of the
vehicle as his principal, equity demanded that the present case be made an
exception. Hence this petition.
[7]

It is petitioners' contention that the Court of Appeals erred in sustaining the

decision of the trial court despite their opposition to the well-established doctrine
that an operator of a vehicle continues to be its operator as long as he remains
the operator of record. According to petitioners, to recognize an operator under
the kabit system as the real party in interest and to countenance his claim for
damages is utterly subversive of public policy. Petitioners further contend that
inasmuch as the passenger jeepney was purchased by private respondent for
only P30,000.00, an award of P236,000.00 is inconceivably large and would
amount to unjust enrichment. [8]

Petitioners' attempt to illustrate that an affirmance of the appealed decision

could be supportive of the pernicious kabit system does not persuade. Their
labored efforts to demonstrate how the questioned rulings of the courts a
quo are diametrically opposed to the policy of the law requiring operators of
public utility vehicles to secure a certificate of public convenience for their
operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been
granted a certificate of public convenience allows other persons who own motor
vehicles to operate them under his license, sometimes for a fee or percentage
of the earnings. Although the parties to such an agreement are not outrightly
[9]

penalized by law, the kabit system is invariably recognized as being contrary to

public policy and therefore void and inexistent under Art. 1409 of the Civil Code.
 In the early case of Dizon v. Octavio the Court explained that one of the
[10]

primary factors considered in the granting of a certificate of public convenience

for the business of public transportation is the financial capacity of the holder of
the license, so that liabilities arising from accidents may be duly
compensated. The kabit system renders illusory such purpose and, worse,
may still be availed of by the grantee to escape civil liability caused by a
negligent use of a vehicle owned by another and operated under his license. If
a registered owner is allowed to escape liability by proving who the supposed
owner of the vehicle is, it would be easy for him to transfer the subject vehicle
to another who possesses no property with which to respond financially for the
damage done. Thus, for the safety of passengers and the public who may have
been wronged and deceived through the baneful kabit system, the registered
owner of the vehicle is not allowed to prove that another person has become
the owner so that he may be thereby relieved of responsibility. Subsequent
cases affirm such basic doctrine. [11]

It would seem then that the thrust of the law in enjoining the kabit system is
not so much as to penalize the parties but to identify the person upon whom
responsibility may be fixed in case of an accident with the end view of protecting
the riding public. The policy therefore loses its force if the public at large is not
deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented
in enjoining the kabit system does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages. Second, the case
arose from the negligence of another vehicle in using the public road to whom
no representation, or misrepresentation, as regards the ownership and
operation of the passenger jeepney was made and to whom no such
representation, or misrepresentation, was necessary. Thus it cannot be said
that private respondent Gonzales and the registered owner of the jeepney were
in estoppel for leading the public to believe that the jeepney belonged to the
registered owner. Third, the riding public was not bothered nor inconvenienced
at the very least by the illegal arrangement. On the contrary, it was private
respondent himself who had been wronged and was seeking compensation for
the damage done to him. Certainly, it would be the height of inequity to deny
him his right.
In light of the foregoing, it is evident that private respondent has the right to
proceed against petitioners for the damage caused on his passenger jeepney
as well as on his business. Any effort then to frustrate his claim of damages by
the ingenuity with which petitioners framed the issue should be discouraged, if
not repelled.
 In awarding damages for tortuous injury, it becomes the sole design of the
courts to provide for adequate compensation by putting the plaintiff in the same
financial position he was in prior to the tort. It is a fundamental principle in the
law on damages that a defendant cannot be held liable in damages for more
than the actual loss which he has inflicted and that a plaintiff is entitled to no
more than the just and adequate compensation for the injury suffered. His
recovery is, in the absence of circumstances giving rise to an allowance of
punitive damages, limited to a fair compensation for the harm done. The law
will not put him in a position better than where he should be in had not the wrong
happened. [12]

In the present case, petitioners insist that as the passenger jeepney was
purchased in 1982 for only P30,000.00 to award damages considerably greater
than this amount would be improper and unjustified. Petitioners are at best
reminded that indemnification for damages comprehends not only the value of
the loss suffered but also that of the profits which the obligee failed to obtain. In
other words, indemnification for damages is not limited to damnum
emergens or actual loss but extends to lucrum cessans or the amount of profit
lost.
[13]

Had private respondent's jeepney not met an accident it could reasonably

be expected that it would have continued earning from the business in which it
was engaged. Private respondent avers that he derives an average income
of P300.00 per day from his passenger jeepney and this earning was included
in the award of damages made by the trial court and upheld by the appeals
court. The award therefore of P236,000.00 as compensatory damages is not
beyond reason nor speculative as it is based on a reasonable estimate of the
total damage suffered by private respondent, i.e. damage wrought upon his
jeepney and the income lost from his transportation business. Petitioners for
their part did not offer any substantive evidence to refute the estimate made by
the courts a quo.
However, we are constrained to depart from the conclusion of the lower
courts that upon the award of compensatory damages legal interest should be
imposed beginning 22 July 1990, i.e. the date of the accident. Upon the
provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established
with reasonable certainty." It is axiomatic that if the suit were for damages,
unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, interest at the rate of six percent (6%) per
annum should be from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to be reasonably ascertained). [14]
 In this case, the matter was not a liquidated obligation as the assessment
of the damage on the vehicle was heavily debated upon by the parties with
private respondent's demand for P236,000.00 being refuted by petitioners who
argue that they could have the vehicle repaired easily for P20,000.00. In fine,
the amount due private respondent was not a liquidated account that was
already demandable and payable.
One last word. We have observed that private respondent left his passenger
jeepney by the roadside at the mercy of the elements. Article 2203 of the Civil
Code exhorts parties suffering from loss or injury to exercise the diligence of a
good father of a family to minimize the damages resulting from the act or
omission in question. One who is injured then by the wrongful or negligent act
of another should exercise reasonable care and diligence to minimize the
resulting damage. Anyway, he can recover from the wrongdoer money lost in
reasonable efforts to preserve the property injured and for injuries incurred in
attempting to prevent damage to it. [15]

However we sadly note that in the present case petitioners failed to offer in
evidence the estimated amount of the damage caused by private respondent's
unconcern towards the damaged vehicle. It is the burden of petitioners to show
satisfactorily not only that the injured party could have mitigated his damages
but also the amount thereof; failing in this regard, the amount of damages
awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent
Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees is
MODIFIED. Interest at the rate of six percent (6%) per annum shall be
computed from the time the judgment of the lower court is made until the finality
of this Decision. If the adjudged principal and interest remain unpaid thereafter,
the interest shall be twelve percent (12%) per annum computed from the time
judgment becomes final and executory until it is fully satisfied.
Costs against petitioners.
SO ORDERED.

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

LITA ENTERPRISES, INC., petitioner,

vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO
and FRANCISCA P. GARCIA, respondents.

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: +. wph!1

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim
that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his acts.

The factual background of this case is undisputed.

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

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio
Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries
sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a
civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against
Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of
the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for
damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent
spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one
Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon
and sold at public auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name.
He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to
him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita
Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff
of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of
the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which reads: t.hqw

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita

Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of
Manila are concerned.
 Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of
the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and
2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the
plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for
the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a
month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied
by the court a quo on October 27, 1975. (p. 121, Ibid.)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court
modified the decision by including as part of its dispositive portion another paragraph, to wit: t.hqw

In the event the condition of the three Toyota rears will no longer serve the purpose
of the deed of conveyance because of their deterioration, or because they are no
longer serviceable, or because they are no longer available, then Lita Enterprises,
Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex
"D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying
that: t.hqw

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing,

annulling or amending the decision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the
lower court (CFI) be deleted;

(b) that private respondents be declared liable to petitioner for whatever amount the
latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First
Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante
Galvez, who died as a result ot the gross negligence of private respondents' driver
while driving one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit
system", whereby a person who has been granted a certificate of convenience allows another
person who owns motors vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government . Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices. In the
words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an
imposition upon the goo faith of the government.

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

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

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

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by
ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time
cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States
where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The
proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold or delivered,
or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has
sometimes been laid down as though it was equally universal, that where the parties are in pari
delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain
exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule
should not be applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca
P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of
Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-
Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court,
as well as the decisions rendered therein are hereby annuleled and set aside. No costs.

SO ORDERED. 1w ph1.t

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

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,

vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.

Cirilo A. Diaz, Jr. for petitioner.

Henry V. Briguera for private respondent.

PARAS, J.:

"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim
that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises
vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the respondent court in
its now assailed decision, as follows:

On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete
accessories and a sidecar in the total consideration of P8,000.00 as shown by
Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance
within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in
monthly installments until January 1976 when he stopped paying anymore. The
plaintiff made demands but just the same the defendant failed to comply with the
same thus forcing the plaintiff to consult a lawyer and file this action for his damage
in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation.
The plaintiff also claims that as of February 20, 1978, the total account of the
defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B").
This amount includes not only the balance of P1,700.00 but an additional 12%
interest per annum on the said balance from January 26, 1976 to February 27, 1978;
a 2% service charge; and P 546.21 representing attorney's fees.

In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a

security for the payment of the balance of the purchase price. It has been the
practice of financing firms that whenever there is a balance of the purchase price the
registration papers of the motor vehicle subject of the sale are not given to the buyer.
The records of the LTC show that the motorcycle sold to the defendant was first
mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and
Angel Jaucian are one and the same, because it was made to appear that way only
as the defendant had no franchise of his own and he attached the unit to the
plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation
Commission. Pursuant to this agreement the defendant on February 22, 1976 gave
the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle. The plaintiff, however failed to register the
motorcycle on that year on the ground that the defendant failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the
motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding
the motorcycle from him. Lastly, the plaintiff explained also that though the ownership
of the motorcycle was already transferred to the defendant the vehicle was still
mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the
reason that all motorcycle purchased from the plaintiff on credit was rediscounted
with the bank.

On his part the defendant did not dispute the sale and the outstanding balance of
P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the
plaintiff the motorcycle with the side car because of the condition that the plaintiff
would be the one to register every year the motorcycle with the Land Transportation
Commission. In 1976, however, the plaintfff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the
defendant gave him P90.00 for mortgage fee and registration fee and had the
motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also
by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
 comply with his obligation to register the motorcycle the defendant suffered damages
when he failed to claim any insurance indemnity which would amount to no less than
P15,000.00 for the more than two times that the motorcycle figured in accidents
aside from the loss of the daily income of P15.00 as boundary fee beginning October
1976 when the motorcycle was impounded by the LTC for not being registered.

The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff
the motorcycle resulting in its not being registered. The truth being that the
motorcycle was being used for transporting passengers and it kept on travelling from
one place to another. The motor vehicle sold to him was mortgaged by the plaintiff
with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims
that it is not true that the motorcycle was mortgaged because of re-discounting for
rediscounting is only true with Rural Banks and the Central Bank. The defendant puts
the blame on the plaintiff for not registering the motorcycle with the LTC and for not
giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain
the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx

... it also appears and the Court so finds that defendant purchased the motorcycle in
question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was attached to the
plaintiffs transportation line who had the franchise, so much so that in the registration
certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to
have been agreed, further between the plaintiff and the defendant, that plaintiff would
undertake the yearly registration of the unit in question with the LTC. Thus, for the
registration of the unit for the year 1976, per agreement, the defendant gave to the
plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of
the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with
Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court
rendered judgment in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, decision is hereby rendered dismissing the counterclaim and

ordering the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid
balance of the purchase price with legal rate of interest from the date of the filing of
the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as
attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to
pay the costs.

SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the
said Court promulgated its decision, the pertinent portion of which reads

However, as the purchase of the motorcycle for operation as a trimobile under the
franchise of the private respondent Jaucian, pursuant to what is commonly known as
the "kabit system", without the prior approval of the Board of Transportation (formerly
 the Public Service Commission) was an illegal transaction involving the fictitious
registration of the motor vehicle in the name of the private respondent so that he may
traffic with the privileges of his franchise, or certificate of public convenience, to
operate a tricycle service, the parties being in pari delicto, neither of them may bring
an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].

xxx xxx xxx

WHEREFORE, the decision under review is hereby set aside. The complaint of
respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of
petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of
Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are
dismissed. No pronouncement as to costs.

SO ORDERED.

The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel
Jaucian presenting a lone assignment of error whether or not respondent court erred in applying
the doctrine of "pari delicto."

We find the petition devoid of merit.

Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a certificate of public convenience allows another
person who owns motor vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government. Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil
Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract,
but will leave both where it finds then. Upon this premise it would be error to accord the parties relief
from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:

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

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

The defect of in existence of a contract is permanent and cannot be cured by ratification or by

prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the
Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.
NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO
and LEANDRO LUIS R. DOMINGO, respondents.

DECISION
CORONA, J.:

This is a petition to review the decision of the Court of Appeals in CA-G.R.

[1]

CV No. 52203 affirming in turn the decision of the trial court finding petitioner
liable to respondent for damages. The dispositive portion read:

WHEREFORE, the appealed decision is hereby AFFIRMED except the award of

attorneys fees including appearance fees which is DELETED.

SO ORDERED. [2]

The facts of the case, as summarized by the Court of Appeals, are as

follows:

[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi

Lancer Car model 1980 bearing plate No. NDW 781 91 with [co-respondent] Leandro
Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was then
the registered owner of a green Mitsubishi Lancer bearing Plate No. PHK 201 91.

On 22 October 1991 at about 9:45 in the evening, following a green traffic light,
[respondent] Priscilla Domingos silver Lancer car with Plate No. NDW 781 91 then
driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle
lane of South Superhighway at moderate speed from north to south. Suddenly, a green
Mitsubishi Lancer with plate No. PHK 201 91 driven by Renato Dela Cruz Ocfemia
darted from Vito Cruz Street towards the South Superhighway directly into the path of
NDW 781 91 thereby hitting and bumping its left front portion. As a result of the
impact, NDW 781 91 hit two (2) parked vehicles at the roadside, the second hitting
another parked car in front of it.

Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido,
Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic
breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the
filing of information for reckless imprudence resulting to (sic) damage to property and
physical injuries.

The original complaint was amended twice: first, impleading Auto Palace Car
Exchange as commercial agent and/or buyer-seller and second, impleading Albert
Jaucian as principal defendant doing business under the name and style of Auto
Palace Car Exchange.

Except for Ocfemia, all the defendants filed separate answers to the complaint.
[Petitioner] Nostradamus Villanueva claimed that he was no longer the owner of the
car at the time of the mishap because it was swapped with a Pajero owned by Albert
Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared that her
presence at the scene of the accident was upon the request of the actual owner of the
Mitsubishi Lancer (PHK 201 91) [Albert Jaucian] for whom she had been working as
agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert
Jaucian claimed that he was not the registered owner of the car. Moreover, it could not
be held subsidiary liable as employer of Ocfemia because the latter was off-duty as
utility employee at the time of the incident. Neither was Ocfemia performing a duty
related to his employment.[3]

After trial, the trial court found petitioner liable and ordered him to pay
respondent actual, moral and exemplary damages plus appearance and
attorneys fees:

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus

Villanueva to pay the amount of P99,580 as actual damages, P25,000.00 as moral
damages, P25,000.00 as exemplary damages and attorneys fees in the amount
of P10,000.00 plus appearance fees of P500.00 per hearing with legal interest counted
from the date of judgment. In conformity with the law on equity and in accordance
with the ruling in First Malayan Lending and Finance Corporation vs. Court of
Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus
Villanueva for whatever amount the latter is hereby ordered to pay under the
judgment.

SO ORDERED. [4]

The CA upheld the trial courts decision but deleted the award for
appearance and attorneys fees because the justification for the grant was not
stated in the body of the decision. Thus, this petition for review which raises a
singular issue:

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE

FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS
MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS
BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE? [5]

Yes.
 We have consistently ruled that the registered owner of any vehicle is
directly and primarily responsible to the public and third persons while it is being
operated. The rationale behind such doctrine was explained way back in 1957
[6]

in Erezo vs. Jepte : [7]

The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or presume
that the registered owner is the actual owner thereof, for it would be difficult for the
public to enforce the actions that they may have for injuries caused to them by the
vehicles being negligently operated if the public should be required to prove who the
actual owner is. How would the public or third persons know against whom to enforce
their rights in case of subsequent transfers of the vehicles? We do not imply by his
doctrine, however, that the registered owner may not recover whatever amount he had
paid by virtue of his liability to third persons from the person to whom he had actually
sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a
public service, should primarily be responsible to the public or to third persons for
injuries caused the latter while the vehicle is being driven on the highways or streets.
The members of the Court are in agreement that the defendant-appellant should be
held liable to plaintiff-appellee for the injuries occasioned to the latter because of the
negligence of the driver, even if the defendant-appellant was no longer the owner of
the vehicle at the time of the damage because he had previously sold it to another.
What is the legal basis for his (defendant-appellants) liability?

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

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle
may be used or operated upon any public highway unless the same is property
registered. It has been stated that the system of licensing and the requirement that each
machine must carry a registration number, conspicuously displayed, is one of the
precautions taken to reduce the danger of injury to pedestrians and other travelers
from the careless management of automobiles. And to furnish a means of ascertaining
the identity of persons violating the laws and ordinances, regulating the speed and
operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be
registered and that no motor vehicles are to be used or operated without being
properly registered for the current year, but that dealers in motor vehicles shall furnish
thee Motor Vehicles Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturers serial number and
motor number. (Section 5(c), Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil.
888), but to permit the use and operation of the vehicle upon any public highway
(section 5 [a], Act No. 3992, as amended). The main aim of motor vehicle registration
is to identify the owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefore can be fixed on
a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very scant
means of identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily ordained, in
the interest of the determination of persons responsible for damages or injuries caused
on public highways:

One of the principal purposes of motor vehicles legislation is identification of the

vehicle and of the operator, in case of accident; and another is that the knowledge that
means of detection are always available may act as a deterrent from lax observance of
the law and of the rules of conservative and safe operation. Whatever purpose there
may be in these statutes, it is subordinate at the last to the primary purpose of
rendering it certain that the violator of the law or of the rules of safety shall not escape
because of lack of means to discover him. The purpose of the statute is thwarted, and
the displayed number becomes a share and delusion, if courts would entertain such
defenses as that put forward by appellee in this case. No responsible person or
corporation could be held liable for the most outrageous acts of negligence, if they
should be allowed to pace a middleman between them and the public, and escape
liability by the manner in which they recompense servants. (King vs. Brenham
Automobile Co., Inc. 145 S.W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should
not the registered owner be allowed at the trial to prove who the actual and real owner
is, and in accordance with such proof escape or evade responsibility by and lay the
same on the person actually owning the vehicle? We hold with the trial court that the
law does not allow him to do so; the law, with its aim and policy in mind, does not
relieve him directly of the responsibility that the law fixes and places upon him as an
incident or consequence of registration. Were a registered owner allowed to evade
responsibility by proving who the supposed transferee or owner is, it would be easy
for him, by collusion with others or otherwise, to escape said responsibility and
transfer the same to an indefinite person, or to one who possesses no property with
which to respond financially for the damage or injury done. A victim of recklessness
on the public highways is usually without means to discover or identify the person
actually causing the injury or damage. He has no means other than by a recourse to
the registration in the Motor Vehicles Office to determine who is the owner. The
protection that the law aims to extend to him would become illusory were the
registered owner given the opportunity to escape liability by disproving his
ownership. If the policy of the law is to be enforced and carried out, the registered
owner should not be allowed to prove the contrary to the prejudice of the person
injured, that is, to prove that a third person or another has become the owner, so that
he may thereby be relieved of the responsibility to the injured person.

The above policy and application of the law may appear quite harsh and would seem
to conflict with truth and justice. We do not think it is so. A registered owner who has
already sold or transferred a vehicle has the recourse to a third-party complaint, in the
same action brought against him to recover for the damage or injury done, against the
vendee or transferee of the vehicle. The inconvenience of the suit is no justification
for relieving him of liability; said inconvenience is the price he pays for failure to
comply with the registration that the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is

primarily responsible for the damage caused to the vehicle of the plaintiff-appellee,
but he (defendant-appellant) has a right to be indemnified by the real or actual owner
of the amount that he may be required to pay as damage for the injury caused to the
plaintiff-appellant.
[8]

Petitioner insists that he is not liable for damages since the driver of the
vehicle at the time of the accident was not an authorized driver of the new
(actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing
and Finance Corporation vs. CA implies that to hold the registered owner liable
[9]

for damages, the driver of the vehicle must have been authorized, allowed and
permitted by its actual owner to operate and drive it. Thus, if the vehicle is driven
without the knowledge and consent of the actual owner, then the registered
owner cannot be held liable for damages.
He further argues that this was the underlying theory behind Duavit vs.
CA wherein the court absolved the registered owner from liability after finding
[10]

that the vehicle was virtually stolen from the owners garage by a person who
was neither authorized nor employed by the owner. Petitioner concludes that
the ruling in Duavit and not the one in First Malayan should be applicable to
him.
 Petitioners argument lacks merit. Whether the driver is authorized or not by
the actual owner is irrelevant to determining the liability of the registered owner
who the law holds primarily and directly responsible for any accident, injury or
death caused by the operation of the vehicle in the streets and highways. To
require the driver of the vehicle to be authorized by the actual owner before
the registered owner can be held accountable is to defeat the very purpose why
motor vehicle legislations are enacted in the first place.
Furthermore, there is nothing in First Malayan which even remotely
suggests that the driver must be authorized before the registered owner can be
held accountable. In First Malayan, the registered owner, First Malayan
Corporation, was held liable for damages arising from the accident even if the
vehicle involved was already owned by another party:

This Court has consistently ruled that regardless of who the actual owner is of a motor
vehicle might be, the registered owner is the operator of the same with respect to the
public and third persons, and as such, directly and primarily responsible for the
consequences of its operation. In contemplation of law, the owner/operator of
record is the employer of the driver, the actual operator and employer being
considered merely as his agent (MYC-Agro-Industrial Corporation vs. Vda. de Caldo,
132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105
Phil. 949).

We believe that it is immaterial whether or not the driver was actually employed by
the operator of record. It is even not necessary to prove who the actual owner of the
vehicle and the employer of the driver is. Granting that, in this case, the father of the
driver is the actual owner and that he is the actual employer, following the well-settled
principle that the operator of record continues to be the operator of the vehicle in
contemplation of law, as regards the public and third person, and as such is
responsible for the consequences incident to its operation, we must hold and consider
such owner-operator of record as the employer, in contemplation of law, of the driver.
And, to give effect to this policy of law as enunciated in the above cited decisions of
this Court, we must now extend the same and consider the actual operator and
employer as the agent of the operator of record.[11]

Contrary to petitioners position, the First Malayan ruling is applicable to him

since the case involves the same set of facts the registered owner had
previously sold the vehicle to someone else and was being driven by an
employee of the new (actual) owner. Duavit is inapplicable since the vehicle
there was not transferred to another; the registered and the actual owner was
one and the same person. Besides, in Duavit, the defense of the registered
owner, Gilberto Duavit, was that the vehicle was practically stolen from his
garage by Oscar Sabiano, as affirmed by the latter:

Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from
the garage of defendant Duavit without the consent and authority of the latter. He
testified further that Duavit even filed charges against him for the theft of the jeep but
which Duavit did not push through as his (Sabianos) parents apologized to Duavit on
his behalf. [12]

As correctly pointed out by the CA, the Duavit ruling is not applicable to
petitioners case since the circumstance of unauthorized use was not present.
He in fact voluntarily delivered his car to Albert Jaucian as part of the
downpayment for a vehicle he purchased from Jaucian. Thus, he could not
claim that the vehicle was stolen from him since he voluntarily ceded
possession thereof to Jaucian. It was the latter, as the new (actual) owner, who
could have raised the defense of theft to prove that he was not liable for the
acts of his employee Ocfemia. Thus, there is no reason to apply
the Duavit ruling to this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation
vs. CA and more recently in Aguilar, Sr. vs. Commercial Savings
[13]

Bank. In BA Finance, we held the registered owner liable even if, at the time
[14]

of the accident, the vehicle was leased by another party and was driven by the
lessees employee. In Aguilar, the registered owner-bank answered for
damages for the accident even if the vehicle was being driven by the Vice-
President of the Bank in his private capacity and not as an officer of the Bank,
as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the
owner who can be held responsible for any accident, damage or injury caused
by the vehicle. Easy identification prevents inconvenience and prejudice to a
third party injured by one who is unknown or unidentified. To allow a registered
owner to escape liability by claiming that the driver was not authorized by the
new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the
accident was authorized is not at all relevant to determining the liability of the
registered owner. This must be so if we are to comply with the rationale and
principle behind the registration requirement under the motor vehicle law.
WHEREFORE, the petition is hereby DENIED. The January 26, 2000
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
 [G.R. No. 160286. July 30, 2004]

SPOUSES FRANCISCO M. HERNANDEZ and ANICETA ABEL-

HERNANDEZ and JUAN GONZALES, petitioners, vs. SPOUSES
LORENZO DOLOR and MARGARITA DOLOR, FRED PANOPIO,
JOSEPH SANDOVAL, RENE CASTILLO, SPOUSES FRANCISCO
VALMOCINA and VIRGINIA VALMOCINA, SPOUSES VICTOR
PANOPIO and MARTINA PANOPIO, and HON. COURT OF
APPEALS, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the decision of the Court of Appeals, dated April 29, 2003, in CA-
[1]

G.R. CV No. 60357, which affirmed with modification the amount of damages
awarded in the November 24, 1997 decision of the Regional Trial Court of
[2]

Batangas City, Branch IV.

The undisputed facts are as follows:
At about 3:00 p.m. of December 19, 1986, Lorenzo Menard Boyet Dolor, Jr.
was driving an owner-type jeepney with plate no. DEB 804 owned by her
mother, Margarita, towards Anilao, Batangas. As he was traversing the road at
Barangay Anilao East, Mabini, Batangas, his vehicle collided with a passenger
jeepney bearing plate no. DEG 648, driven by petitioner Juan Gonzales and
owned by his co-petitioner Francisco Hernandez, which was travelling towards
Batangas City.
Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the
collision. Fred Panopio, Rene Castillo and Joseph Sandoval, who were also on
board the owner-type jeep, which was totally wrecked, suffered physical
injuries. The collision also damaged the passenger jeepney of Francisco
Hernandez and caused physical injuries to its passengers, namely, Virgie
Cadavida, Fiscal Artemio Reyes and Francisca Corona. [3]

Consequently, respondents commenced an action for damages against

[4]

petitioners before the Regional Trial Court of Batangas City, alleging that driver
Juan Gonzales was guilty of negligence and lack of care and that the
Hernandez spouses were guilty of negligence in the selection and supervision
of their employees.[5]
 Petitioners countered that the proximate cause of the death and injuries
sustained by the passengers of both vehicles was the recklessness of Boyet
Dolor, the driver of the owner-type jeepney, who was driving in a zigzagging
manner under the influence of alcohol. Petitioners also alleged that Gonzales
was not the driver-employee of the Hernandez spouses as the former only
leased the passenger jeepney on a daily basis. The Hernandez spouses further
claimed that even if an employer-employee relationship is found to exist
between them, they cannot be held liable because as employers they exercised
due care in the selection and supervision of their employee.
During the trial of the case, it was established that the drivers of the two
vehicles were duly licensed to drive and that the road where the collision
occurred was asphalted and in fairly good condition. The owner-type jeep was
[6]

travelling uphill while the passenger jeepney was going downhill. It was further
established that the owner-type jeep was moderately moving and had just
passed a road bend when its passengers, private respondents Joseph
Sandoval and Rene Castillo, saw the passenger jeepney at a distance of three
meters away. The passenger jeepney was traveling fast when it bumped the
owner type jeep. Moreover, the evidence presented by respondents before the
[7]

trial court showed that petitioner Juan Gonzales obtained his professional
drivers license only on September 24, 1986, or three months before the
accident. Prior to this, he was holder of a student drivers permit issued on April
10, 1986. [8]

On November 24, 1997, the trial court rendered a decision in favor of

respondents, the dispositive portion of which states:

Premises duly considered and the plaintiffs having satisfactorily convincingly and
credibly presented evidence clearly satisfying the requirements of preponderance of
evidence to sustain the complaint, this Court hereby declares judgment in favor of the
plaintiffs and against the defendants. Defendants-spouses Francisco Hernandez and
Aniceta Abel Hernandez and Juan Gonzales are therefore directed to pay jointly and
severally, the following:

1) To spouses Lorenzo Dolor and Margarita Dolor:

a) P50,000.00 for the death of their son, Lorenzo Menard Boyet Dolor, Jr.;
b) P142,000.00 as actual and necessary funeral expenses;
c) P50,000.00 reasonable value of the totally wrecked owner-type jeep
with plate no. DEB 804 Phil 85;
d) P20,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorneys fees.
2) To spouses Francisco Valmocina and Virginia Valmocina:

a) P50,000.00 for the death of their son, Oscar Balmocina (sic);

b) P20,000.00 as moral damages;
c) P18,400.00 for funeral expenses;
d) P10,000.00 for litigation expenses and attorneys fees.

3) To spouses Victor Panopio and Martina Panopio:

a) P10,450.00 for the cost of the artificial leg and crutches being used by their son
Fred Panopio;
b) P25,000.00 for hospitalization and medical expenses they incurred for the treatment
of their son, Fred Panopio.

4) To Fred Panopio:

a) P25,000.00 for the loss of his right leg;

b) P10,000.00 as moral damages.

5) To Joseph Sandoval:

a) P4,000.00 for medical treatment.

The defendants are further directed to pay the costs of this proceedings.

SO ORDERED. [9]

Petitioners appealed the decision to the Court of Appeals, which affirmed

[10]

the same with modifications as to the amount of damages, actual expenses and
attorneys fees awarded to the private respondents. The decretal portion of the
decision of the Court of Appeals reads:

WHEREFORE, the foregoing premises considered, the appealed decision

is AFFIRMED. However, the award for damages, actual expenses and attorneys fees
shall be MODIFIED as follows:

1) To spouses Lorenzo Dolor and Margarita Dolor:

a) P50,000.00 civil indemnity for their son Lorenzo Menard Dolor, Jr.;
b) P58,703.00 as actual and necessary funeral expenses;
c) P25,000,00 as temperate damages;
d) P100,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorneys fees.
2) To Spouses Francisco Valmocina and Virginia Valmocina:

a) P50,000.00 civil indemnity for the death of their son, Oscar

Valmocina;
b) P100,000.00 as moral damages;
c) P10,000.00 as temperate damages;
d) P10,000.00 as reasonable litigation expenses and attorneys fees.

3) To Spouses Victor Panopio and Martina Panopio:

a) P10,352.59 as actual hospitalization and medical expenses;

b) P5,000.00 as temperate damages.

4) To Fred Panopio:

a) P50,000.00 as moral damages.

5) To Joseph Sandoval:

a) P3,000.00 as temperate damages.

SO ORDERED. [11]

Hence the present petition raising the following issues:

1. Whether the Court of Appeals was correct when it pronounced the Hernandez
spouses as solidarily liable with Juan Gonzales, although it is of record that they were
not in the passenger jeepney driven by latter when the accident occurred;

2. Whether the Court of Appeals was correct in awarding temperate damages to

private respondents namely the Spouses Dolor, Spouses Valmocina and Spouses
Panopio and to Joseph Sandoval, although the grant of temperate damages is not
provided for in decision of the court a quo;

3. Whether the Court of Appeals was correct in increasing the award of moral
damages to respondents, Spouses Dolor, Spouses Valmocina and Fred Panopio;

4. Whether the Court of Appeals was correct in affirming the grant of attorneys fees to
Spouses Dolor and to Spouses Valmocina although the lower court did not specify the
fact and the law on which it is based.

Petitioners contend that the absence of the Hernandez spouses inside the
passenger jeepney at the time of the collision militates against holding them
solidarily liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of
the Civil Code, which provides:

ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of the due
diligence, prevented the misfortune. It is disputably presumed that a driver was
negligent, if he had been found guilty of reckless driving or violating traffic
regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.

The Hernandez spouses argues that since they were not inside the jeepney
at the time of the collision, the provisions of Article 2180 of the Civil Code, which
does not provide for solidary liability between employers and employees, should
be applied.
We are not persuaded.
Article 2180 provides:

ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.

The father and, in case of his death or incapacity, the mother, are responsible for the
damages caused by the minor children who live in their company.

Guardians are liable for damages caused by the minors or incapacitated persons who
are under their authority and live in their company.

The owners and managers of an establishment or enterprise are likewise responsible

for damages caused by their employees in the service of the branches in which the
latter are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.

The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they remain in
their custody.

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage. (Underscoring supplied)

On the other hand, Article 2176 provides

Whoever by act or omission causes damage to another, there being fault or

negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.

While the above provisions of law do not expressly provide for solidary
liability, the same can be inferred from the wordings of the first paragraph of
Article 2180 which states that the obligation imposed by article 2176 is
demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
Moreover, Article 2180 should be read with Article 2194 of the same Code,
which categorically states that the responsibility of two or more persons who
are liable for quasi-delict is solidary. In other words, the liability of joint
tortfeasors is solidary. Verily, under Article 2180 of the Civil Code, an
[12]

employer may be held solidarily liable for the negligent act of his employee. [13]

The solidary liability of employers with their employees for quasi-delicts

having been established, the next question is whether Julian Gonzales is an
employee of the Hernandez spouses. An affirmative answer will put to rest any
issue on the solidary liability of the Hernandez spouses for the acts of Julian
Gonzales. The Hernandez spouses maintained that Julian Gonzales is not their
employee since their relationship relative to the use of the jeepney is that of a
lessor and a lessee. They argue that Julian Gonzales pays them a daily rental
of P150.00 for the use of the jeepney. In essence, petitioners are practicing
[14]

the boundary system of jeepney operation albeit disguised as a lease

agreement between them for the use of the jeepney.
We hold that an employer-employee relationship exists between the
Hernandez spouses and Julian Gonzales.
Indeed to exempt from liability the owner of a public vehicle who operates it
under the boundary system on the ground that he is a mere lessor would be not
only to abet flagrant violations of the Public Service Law, but also to place the
riding public at the mercy of reckless and irresponsible drivers reckless because
the measure of their earnings depends largely upon the number of trips they
make and, hence, the speed at which they drive; and irresponsible because
most if not all of them are in no position to pay the damages they might cause. [15]

Anent the award of temperate damages to the private respondents, we hold

that the appellate court committed no reversible error in awarding the same to
the respondents.
Temperate or moderate damages are damages which are more than
nominal but less than compensatory which may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot, from
the nature of the case, be proved with certainty. Temperate damages are
[16]

awarded for those cases where, from the nature of the case, definite proof of
pecuniary loss cannot be offered, although the court is convinced that there has
been such loss. A judge should be empowered to calculate moderate damages
in such cases, rather than the plaintiff should suffer, without redress, from the
defendants wrongful act. The assessment of temperate damages is left to the
[17]

sound discretion of the court provided that such an award is reasonable under
the circumstances. [18]

We have gone through the records of this case and we find that, indeed,
respondents suffered losses which cannot be quantified in monetary
terms. These losses came in the form of the damage sustained by the owner
type jeep of the Dolor spouses; the internment and burial of Oscar Valmocina;
the hospitalization of Joseph Sandoval on account of the injuries he sustained
from the collision and the artificial leg and crutches that respondent Fred
Panopio had to use because of the amputation of his right leg. Further, we find
that the amount of temperate damages awarded to the respondents were
reasonable under the circumstances.
As to the amount of moral damages which was awarded to respondents, a
review of the records of this case shows that there exists no cogent reason to
overturn the action of the appellate court on this aspect.
Under Article 2206, the spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental anguish
for the death of the deceased. The reason for the grant of moral damages has
been explained, thus:

. . . the award of moral damages is aimed at a restoration, within the limits possible, of
the spiritual status quo ante; and therefore, it must be proportionate to the suffering
inflicted. The intensity of the pain experienced by the relatives of the victim is
proportionate to the intensity of affection for him and bears no relation whatsoever
with the wealth or means of the offender. [19]

Moral damages are emphatically not intended to enrich a plaintiff at the

expense of the defendant. They are awarded to allow the former to obtain
means, diversion or amusements that will serve to alleviate the moral suffering
he has undergone due to the defendants culpable action and must, perforce,
be proportional to the suffering inflicted. [20]

Truly, the pain of the sudden loss of ones offspring, especially of a son who
was in the prime of his youth, and who holds so much promise waiting to be
fulfilled is indeed a wellspring of intense pain which no parent should be made
to suffer. While it is true that there can be no exact or uniform rule for measuring
the value of a human life and the measure of damages cannot be arrived at by
a precise mathematical calculation, we hold that the Court of Appeals award
[21]

of moral damages of P100,000.00 each to the Spouses Dolor and Spouses

Valmocina for the death of their respective sons, Boyet Dolor and Oscar
Valmocina, is in full accord with prevailing jurisprudence. [22]

With respect to the award of attorneys fees to respondents, no sufficient

basis was established for the grant thereof.
It is well settled that attorneys fees should not be awarded in the absence
of stipulation except under the instances enumerated in Article 2208 of the Civil
Code. As we have held in Rizal Surety and Insurance Company v. Court of
Appeals: [23]

Article 2208 of the Civil Code allows attorneys fees to be awarded by a court when its
claimant is compelled to litigate with third persons or to incur expenses to protect his
interest by reason of an unjustified act or omission of the party from whom it is
sought. While judicial discretion is here extant, an award thereof demands,
nevertheless, a factual, legal or equitable justification. The matter cannot and should
not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337;
Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).

In the case at bench, the records do not show enough basis for sustaining the award
for attorneys fees and to adjudge its payment by petitioner. x x x.

Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals
that:

In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157
SCRA 57], the Court had occasion to state that [t]he reason for the award of attorneys
fees must be stated in the text of the courts decision, otherwise, if it is stated only in
the dispositive portion of the decision, the same must be disallowed on appeal. x x x. [24]

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

of Appeals is AFFIRMED with the MODIFICATION that the grant of attorneys
fees is DELETED for lack of basis.
Costs against petitioners.
SO ORDERED.

FEB LEASING AND FINANCE G.R. No. 181398

CORPORATION (now BPI

LEASING CORPORATION) , Present:

Petitioner,

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,*

BRION,

- versus - PEREZ, and

SERENO, JJ.

SPOUSES SERGIO P. BAYLON

and MARITESS VILLENA-BAYLON,

BG HAULER, INC., and Promulgated:

MANUEL Y. ESTILLOSO,

Respondents. June 29, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
 DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 of the 9 October 2007 Decision2 and the 18
January 2008 Resolution3 of the Court of Appeals in CA-G.R. CV No. 81446. The 9
October 2007 Decision affirmed the 30 October 2003 Decision4 of the Regional Trial
Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner to pay
respondents damages. The 18 January 2008 Resolution denied petitioners motion for
reconsideration.

The Facts

On 2 September 2000, an Isuzu oil tanker running along Del Monte Avenue in
Quezon City and bearing plate number TDY 712 hit Loretta V. Baylon (Loretta),
daughter of respondent spouses Sergio P. Baylon and Maritess Villena-
Baylon (spouses Baylon). At the time of the accident, the oil tanker was registered 5 in
the name of petitioner FEB Leasing and Finance Corporation6 (petitioner). The oil
tanker was leased7 to BG Hauler, Inc. (BG Hauler) and was being driven by the latters
driver, Manuel Y. Estilloso. The oil tanker was insured8 by FGU Insurance Corp.
(FGU Insurance).
The accident took place at around 2:00 p.m. as the oil tanker was coming
from Balintawak and heading towards Manila. Upon reaching the intersection
of Bonifacio Street and Del Monte Avenue, the oil tanker turned left. While the driver
of the oil tanker was executing a left turn side by side with another vehicle towards
Del Monte Avenue, the oil tanker hit Loretta who was then crossing Del Monte
Avenue coming from Mayon Street. Due to the strong impact, Loretta was violently
thrown away about three to five meters from the point of impact. She fell to the
ground unconscious. She was brought for treatment to the Chinese General Hospital
where she remained in a coma until her death two days after.9

The spouses Baylon filed with the RTC (Branch 35) of Gapan City a Complaint10 for
damages against petitioner, BG Hauler, the driver, and FGU Insurance. Petitioner
filed its answer with compulsory counterclaim while FGU Insurance filed its answer
with counterclaim. On the other hand, BG Hauler filed its answer with compulsory
counterclaim and cross-claim against FGU Insurance.

Petitioner claimed that the spouses Baylon had no cause of action against it because
under its lease contract with BG Hauler, petitioner was not liable for any loss,
damage, or injury that the leased oil tanker might cause. Petitioner claimed that no
employer-employee relationship existed between petitioner and the driver.

BG Hauler alleged that neither do the spouses Baylon have a cause of action against it
since the oil tanker was not registered in its name. BG Hauler contended that the
victim was guilty of contributory negligence in crossing the street. BG Hauler claimed
that even if its driver was at fault, BG Hauler exercised the diligence of a good father
of a family in the selection and supervision of its driver. BG Hauler also contended
that FGU Insurance is obliged to assume all liabilities arising from the use of the
insured oil tanker.

For its part, FGU Insurance averred that the victim was guilty of contributory
negligence. FGU Insurance concluded that the spouses Bayloncould not expect to be
paid the full amount of their claims. FGU Insurance pointed out that the insurance
policy covering the oil tanker limited any claim to a maximum of P400,000.00.
During trial, FGU Insurance moved that (1) it be allowed to deposit in court the
amount of P450,000.00 in the joint names of the spouses Baylon, petitioner, and BG
Hauler and (2) it be released from further participating in the proceedings. After the
RTC granted the motion, FGU Insurance deposited in the Branch Clerk of Court a
check in the names of the spouses Baylon, petitioner, and BG Hauler. The RTC then
released FGU Insurance from its contractual obligations under the insurance policy.

The Ruling of the RTC

After weighing the evidence submitted by the parties, the RTC found that the death of
Loretta was due to the negligent act of the driver. The RTC held that BG Hauler, as
the employer, was solidarily liable with the driver. The RTC further held that
petitioner, as the registered owner of the oil tanker, was also solidarily liable.

The RTC found that since FGU Insurance already paid the amount of P450,000.00 to
the spouses Baylon, BG Hauler, and petitioner, the insurers obligation has been
satisfactorily fulfilled. The RTC thus dismissed the cross-claim of BG Hauler against
FGU Insurance. The decretal part of the RTCs decision reads:

Wherefore, premises considered, judgment is hereby rendered in favor of the

plaintiffs and against defendants FEB Leasing (now BPI Leasing), BG Hauler,
and Manuel Estilloso, to wit:

1. Ordering the defendants, jointly and severally, to pay plaintiffs the

following:

a. the amount of P62,000.00 representing actual expenses incurred by the

plaintiffs;

b. the amount of P50,000.00 as moral damages;

 c. the amount of P2,400,000.00 for loss of earning capacity of the deceased
victim, Loretta V. Baylon;

d. the sum of P50,000.00 for death indemnity;

e. the sum of P50,000.00 for and as attorneys fees; and

f. with costs against the defendants.

2. Ordering the dismissal of defendants counter-claim for lack of merit and the
cross claim of defendant BG Hauler against defendant FGU Insurance.

SO ORDERED.11

Petitioner, BG Hauler, and the driver appealed the RTC Decision to the Court of
Appeals. Petitioner claimed that as financial lessor, it is exempt from liability
resulting from any loss, damage, or injury the oil tanker may cause while being
operated by BG Hauler as financial lessee.

On the other hand, BG Hauler and the driver alleged that no sufficient evidence
existed proving the driver to be at fault. They claimed that the RTC erred in finding
BG Hauler negligent despite the fact that it had exercised the diligence of a good
father of a family in the selection and supervision of its driver and in the maintenance
of its vehicles. They contended that petitioner, as the registered owner of the oil
tanker, should be solely liable for Lorettas death.

The Ruling of the Court of Appeals

The Court of Appeals held that petitioner, BG Hauler, and the driver
are solidarily liable for damages arising from Lorettas death. Petitioners liability arose
from the fact that it was the registered owner of the oil tanker while BG Haulers
liability emanated from a provision in the lease contract providing that the lessee shall
be liable in case of any loss, damage, or injury the leased oil tanker may cause.
Thus, the Court of Appeals affirmed the RTC Decision but with the modification that
the award of attorneys fees be deleted for being speculative. The dispositive part of
the appellate courts Decision reads:

WHEREFORE, in the light of the foregoing, the instant appeal is DENIED.

Consequently, the assailed Decision of the lower court is AFFIRMED with the
MODIFICATION that the award of attorneys fees is DELETED.

IT IS SO ORDERED.12

Dissatisfied, petitioner and BG Hauler, joined by the driver, filed two separate
motions for reconsideration. In its 18 January 2008 Resolution, the Court of Appeals
denied both motions for lack of merit.

Unconvinced, petitioner alone filed with this Court the present petition for review on
certiorari impleading the spouses Baylon, BG Hauler, and the driver as respondents.13

The Issue

The sole issue submitted for resolution is whether the registered owner of a financially
leased vehicle remains liable for loss, damage, or injury caused by the vehicle
notwithstanding an exemption provision in the financial lease contract.

The Courts Ruling

Petitioner contends that the lease contract between BG Hauler and petitioner
specifically provides that BG Hauler shall be liable for any loss, damage, or injury the
leased oil tanker may cause even if petitioner is the registered owner of the said oil
tanker. Petitioner claims that the Court of Appeals erred in holding
petitioner solidarily liable with BG Hauler despite having found the latter liable under
the lease contract.

For their part, the spouses Baylon counter that the lease contract between petitioner
and BG Hauler cannot bind third parties like them. The spouses Baylon maintain that
the existence of the lease contract does not relieve petitioner of direct responsibility as
the registered owner of the oil tanker that caused the death of their daughter.

On the other hand, BG Hauler and the driver argue that at the time petitioner and BG
Hauler entered into the lease contract, Republic Act No. 598014 was still in effect.
They point out that the amendatory law, Republic Act No. 8556,15 which exempts
from liability in case of any loss, damage, or injury to third persons the registered
owners of vehicles financially leased to another, was not yet enacted at that time.

In point is the 2008 case of PCI Leasing and Finance, Inc. v. UCPB General
Insurance Co., Inc.16 There, we held liable PCI Leasing and Finance, Inc., the
registered owner of an 18-wheeler Fuso Tanker Truck leased to Superior Gas &
Equitable Co., Inc. (SUGECO) and being driven by the latters driver, for damages
arising from a collision. This despite an express provision in the lease contract to the
effect that the lessee, SUGECO, shall indemnify and hold the registered owner free
from any liabilities, damages, suits, claims, or judgments arising from SUGECOs use
of the leased motor vehicle.

In the instant case, Section 5.1 of the lease contract between petitioner and BG Hauler
provides:

Sec. 5.1. It is the principle of this Lease that while the title or ownership of the
EQUIPMENT, with all the rights consequent thereof, are retained by the
LESSOR, the risk of loss or damage of the EQUIPMENT from whatever
source arising, as well as any liability resulting from the ownership,
operation and/or possession thereof, over and above those actually
compensated by insurance, are hereby transferred to and assumed by the
 LESSEE hereunder which shall continue in full force and effect. 17 (Emphasis
supplied)

If it so wishes, petitioner may proceed against BG Hauler to seek enforcement of the

latters contractual obligation under Section 5.1 of the lease contract. In the present
case, petitioner did not file a cross-claim against BG Hauler. Hence, this Court cannot
require BG Hauler to reimburse petitioner for the latters liability to the
spouses Baylon. However, as the registered owner of the oil tanker, petitioner may not
escape its liability to third persons.

Under Section 5 of Republic Act No. 4136,18 as amended, all motor vehicles used or
operated on or upon any highway of the Philippines must be registered with the
Bureau of Land Transportation (now Land Transportation Office) for the current
year.19 Furthermore, any encumbrances of motor vehicles must be recorded with the
Land Transportation Office in order to be valid against third parties.20

In accordance with the law on compulsory motor vehicle registration, this Court has
consistently ruled that, with respect to the public and third persons, the registered
owner of a motor vehicle is directly and primarily responsible for the consequences of
its operation regardless of who the actual vehicle owner might be.21 Well-settled is the
rule that the registered owner of the vehicle is liable for quasi-delicts resulting from its
use. Thus, even if the vehicle has already been sold, leased, or transferred to another
person at the time the vehicle figured in an accident, the registered vehicle owner
would still be liable for damages caused by the accident. The sale, transfer or lease of
the vehicle, which is not registered with the Land Transportation Office, will not bind
third persons aggrieved in an accident involving the vehicle. The compulsory motor
vehicle registration underscores the importance of registering the vehicle in the name
of the actual owner.

The policy behind the rule is to enable the victim to find redress by the expedient
recourse of identifying the registered vehicle owner in the records of the Land
Transportation Office. The registered owner can be reimbursed by the actual owner,
lessee or transferee who is known to him. Unlike the registered owner, the innocent
victim is not privy to the lease, sale, transfer or encumbrance of the vehicle. Hence,
the victim should not be prejudiced by the failure to register such transaction or
encumbrance. As the Court held in PCI Leasing:

The burden of registration of the lease contract is minuscule compared to the

chaos that may result if registered owners or operators of vehicles are freed
from such responsibility. Petitioner pays the price for its failure to obey the law
on compulsory registration of motor vehicles for registration is a pre-requisite
for any person to even enjoy the privilege of putting a vehicle on public
roads.22

In the landmark case of Erezo v. Jepte,23 the Court succinctly laid down the public
policy behind the rule, thus:

The main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the vehicle on
the public highways, responsibility therefor can be fixed on a definite
individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very
scant means of identification. It is to forestall these circumstances, so
inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible
for damages or injuries caused on public highways.

xxx

Were a registered owner allowed to evade responsibility by proving who the

supposed transferee or owner is, it would be easy for him, by collusion with
 others or, or otherwise, to escape said responsibility and transfer the same to an
indefinite person, or to one who possesses no property with which to respond
financially for the damage or injury done. A victim of recklessness on the
public highways is usually without means to discover or identify the person
actually causing the injury or damage. He has no means other than by a
recourse to the registration in the Motor Vehicles Office to determine who is
the owner. The protection that the law aims to extend to him would become
illusory were the registered owner given the opportunity to escape liability by
disproving his ownership. If the policy of the law is to be enforced and carried
out, the registered owner should not be allowed to prove the contrary to the
prejudice of the person injured, that is to prove that a third person or another
has become the owner, so that he may be thereby be relieved of the
responsibility to the injured person.24

In this case, petitioner admits that it is the registered owner of the oil tanker that
figured in an accident causing the death of Loretta. As the registered owner, it cannot
escape liability for the loss arising out of negligence in the operation of the oil tanker.
Its liability remains even if at the time of the accident, the oil tanker was leased to BG
Hauler and was being driven by the latters driver, and despite a provision in the lease
contract exonerating the registered owner from liability.

As a final point, we agree with the Court of Appeals that the award of attorneys fees
by the RTC must be deleted for lack of basis. The RTC failed to justify the award
of P50,000 attorneys fees to respondent spouses Baylon. The award of attorneys fees
must have some factual, legal and equitable bases and cannot be left to speculations
and conjectures.25 Consistent with prevailing jurisprudence,26 attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code.27 Thus, the award of attorneys fees is the exception rather than the rule.
Attorneys fees are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate.28
WHEREFORE, we DENY the petition. We AFFIRM the 9 October 2007 Decision
and the 18 January 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
81446 affirming with modification the 30 October 2003 Decision of the Regional
Trial Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner
FEB Leasing and Finance Corporation, BG Hauler, Inc., and driver Manuel
Y. Estilloso to solidarily pay respondent spouses Sergio
P. Baylon and Maritess Villena-Baylon the following amounts:

a. P62,000.00 representing actual expenses incurred by the plaintiffs;

b. P50,000.00 as moral damages;

c. P2,400,000.00 for loss of earning capacity of the deceased victim, Loretta

V. Baylon; and

d. P50,000.00 for death indemnity.

Costs against petitioner.

SO ORDERED.

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.

DECISION

BERSAMIN, J.:

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

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 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:

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
 (2) Spouses Zarate engaged the services of spouses 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;

(3) During the effectivity of the contract of 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;

(4) At the time of the vehicular/train collision, the subject site of the vehicular/train collision
was a railroad crossing used by motorists for crossing the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no appropriate and safety
warning signs and railings at the site commonly used for railroad crossing;

(6) At the material time, countless number of Makati 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;

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

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

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

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

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

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

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;
 (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;

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

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

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

(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;

(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;

(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;

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

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.

Ruling of the RTC

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

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:

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

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

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

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

(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.

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

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.

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

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.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to 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 59,502.76; Moral Damages is reduced to 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
280.00/day to compute Aarons gross annual salary to be 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 4,351,164.30, from which his estimated expenses in the sum of
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
2,109,071.00, the amount expressly prayed for by them, was granted.

On April 4, 2003, the CA denied the Pereas motion for reconsideration.8

Issues

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

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 PNR jointly
and severally liable for damages?

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,9primarily 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,15viz:

"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:

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, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services. x
x x.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 air-conditioned 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.28He thereby violated a specific traffic regulation on right
of way, by virtue of which he was immediately presumed to be negligent.29
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

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

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.
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 for loss of
Aarons earning capacity proper?

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 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. They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
1wphi1

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 good-paying jobs had they graduated in due time, and that their
jobs would probably pay them high monthly salaries from 10,000.00 to 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 2,500,000.00 and 1,000,000.00 on the ground that such amounts
were excessive.

The plea is unwarranted.

The moral damages of 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 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.