A.

General Considerations

[G.R. No. 122494. October 8, 1998]

EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and HERNANDEZ
TRADING CO. INC.,respondents.
DECISION
MARTINEZ, J.:

Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the
decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the
decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding
petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO
C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading),
a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to
Manila on board ADELFAEVERETTE, a vessel owned by petitioners principal, Everett Orient Lines. The
said crates were covered byBill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to
private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo
amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the
amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay
only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the
covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil
Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer
and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private respondent, ordering
petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value
of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and as
contingent attorneys fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome the
presumption of negligence and fault, the Court conclusively finds defendant liable to the
plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should be held liable for the whole
value for the loss of the goods in the amount of Y1,552,500.00 because the terms appearing at
the back of the bill of lading was so written in fine prints and that the same was not signed by
plaintiff or shipper thus, they are not bound by the clause stated in paragraph 18 of the bill of
lading. On the other hand, defendant merely admitted that it lost the shipment but shall be liable
only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code -
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been fairly and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the circumstances
and has been fairly and freely agreed upon. The requirements provided in Art. 1750 of the New
Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary
liability in case of loss, destruction or deterioration of the goods it has undertaken to transport.

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 In the case at bar, the Court is of the view that the requirements of said article have not been
met. The fact that those conditions are printed at the back of the bill of lading in letters so small
that they are hard to read would not warrant the presumption that the plaintiff or its supplier was
aware of these conditions such that he had fairly and freely agreed to these conditions. It can
not be said that the plaintiff had actually entered into a contract with the defendant, embodying
the conditions as printed at the back of the bill of lading that was issued by the defendant to
plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed the trial courts
findings with the additional observation that private respondent can not be bound by the terms and
conditions of the bill of lading because it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee
(Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper named in the
Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett Steamship Corp.)
contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the
bill of lading when it delivered the cargo to the appellant, still it does not necessarily follow that
appellee Hernandez Trading Company as consignee is bound thereby considering that the latter
was never privy to the shipping contract.
xxxxxxxxx
Never having entered into a contract with the appellant, appellee should therefore not be bound
by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of
which is not the breach of contract as appellee was never a privy to the any contract with the
appellant, but is based on Article 1735 of the New Civil Code, there being no evidence to prove
satisfactorily that the appellant has overcome the presumption of negligence provided for in the
law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of
the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations
binding upon it; (2) in holding that the carriers limited package liability as stipulated in the bill of lading
does not apply in the instant case; and (3) in allowing private respondent to fully recover the full alleged
value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo
to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provide:
ART. 1749. A stipulation that the common carriers liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of
cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court[4], we ruled:

It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity
and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a
greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to

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questioning the justness and fairness of the law itself, and this the private respondent does not pretend to
do. But over and above that consideration, the just and reasonable character of such stipulation is implicit
in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading..

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carriers liability for loss must be reasonable and just under the circumstances, and has been freely and
fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the
shippers net invoice cost plus freight and insurance premiums, if paid, and in no event shall the
carrier be liable for any loss of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods
in an amount exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or
its equivalent in any other currency per package or customary freight unit (whichever is
least) unless the value of the goods higher than this amount is declared in writing by the shipper
before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is
paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it
clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and freely agreed to the
limited liability clause in the bill of lading because the said conditions were printed in small letters does
not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the matter reveals the
consistent holding of the court that contracts of adhesion are not invalid per se and that it has on
numerous occasions upheld the binding effect thereof. Also, in Philippine American General Insurance
Co., Inc. vs. Sweet Lines , Inc.[6] this Court , speaking through the learned Justice Florenz D. Regalado,
held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of adhesion wherein one
party imposes a ready-made form of contract on the other x x x are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres he gives his consent. In the present case, not even an allegation of ignorance of a party
excuses non-compliance with the contractual stipulations since the responsibility for ensuring full
comprehension of the provisions of a contract of carriage devolves not on the carrier but on the
owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in contracts of adhesion
are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is nevertheless bound
by the provisions thereof. Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latters lack of knowledge
or assent to the regulation. It is what is known as a contract of adhesion, in regards which it has
been said that contracts of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his
consent. x x x , a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence. (Emphasis
supplied)

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 Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that
the said contracts must be carefully scrutinized in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,[8] such as the bill of lading in question. The
stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the Civil
Code which mandates that (i)n all contractual, property or other relations, when one of the parties is at
a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading
business. It can not be said to be ignorant of the business transactions it entered into involving the
shipment of its goods to its customers. The shipper could not have known, or should know the stipulations
in the bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover,
Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing to
ship the cargo in petitioners vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a
signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if
the consignee was not a signatory to the contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to
recover from the carrier or shipper for loss of, or damage to goods being transported under said
bill, although that document may have been- as in practice it oftentimes is-drawn up only
by the consignor and the carrier without the intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the
shipper and the carrier, springs from either a relation of agency that may exist between
him and the shipper or consignor, or his status as stranger in whose favor some
stipulation is made in said contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In
neither capacity can he assert personally, in bar to any provision of the bill of lading, the
alleged circumstance that fair and free agreement to such provision was vitiated by its
being in such fine print as to be hardly readable. Parenthetically, it may be observed that in
one comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64
SCRA 15) where this Court found that a similar package limitation clause was printed in the
smallest type on the back of the bill of lading, it nonetheless ruled that the consignee was
bound thereby on the strength of authority holding that such provisions on liability
limitation are as much a part of a bill of lading as though physically in it and as though
placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-
agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier
to an agreed valuation unless the shipper declares a higher value and inserts it into said
contract or bill. This proposition, moreover, rests upon an almost uniform weight of authority.
(Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods from petitioner and
subsequently filed a case against the latter based on the very same bill of lading, it (private respondent)
accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to
court to enforce it.[9] Thus, private respondent cannot now reject or disregard the carriers limited liability
stipulation in the bill of lading. In other words, private respondent is bound by the whole stipulations in the
bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of the lost
cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared

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the shipment x x x, the contents of each crate, the dimensions, weight and value of the contents,"[10] as
shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents, quantity and
value of "the shipment which consisted of three pre-packed crates described in Bill of Lading No. NGO-
53MN merely as 3 CASES SPARE PARTS.[11]
The bill of lading in question confirms petitioners contention. To defeat the carriers limited liability,
the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing a
higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in the
bill of lading, with the extra freight paid. These requirements in the bill of lading were never complied
with by the shipper, hence, the liability of the carrier under the limited liability clause stands. The
commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has
knowledge of the value of the cargo as contended by private respondent. No other evidence was
proffered by private respondent to support is contention. Thus, we are convinced that petitioner should be
liable for the full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand
(Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No.
42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 92288 February 9, 1993

BRITISH AIRWAYS, INC., petitioner,
vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST INTERNATIONAL TRADING AND
GENERAL SERVICES, respondents.
Quasha, Asperilla, Ancheta, Peña & Nolasco for petitioner.
Monina P. Lee for private respondent.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision dated November 15, 1989 of
the Court of Appeals 1 affirming the decision of the trial court 2 in ordering petitioner British Airways, Inc. to
pay private respondent First International Trading and General Services actual damages, moral
damages, corrective or exemplary damages, attorney's fees and the costs as well as the Resolution
dated February 15, 1990 3 denying petitioner's Motion for Reconsideration in the appealed decision.

It appears on record that on February 15, 1981, private respondent First International Trading and
General Services Co., a duly licensed domestic recruitment and placement agency, received a telex
message from its principal ROLACO Engineering and Contracting Services in Jeddah, Saudi Arabia to
recruit Filipino contract workers in behalf of said principal. 4

During the early part of March 1981, said principal paid to the Jeddah branch of petitioner British Airways,
Inc. airfare tickets for 93 contract workers with specific instruction to transport said workers to Jeddah on
or before March 30, 1981.

As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the 93 workers,
private respondent was immediately informed by petitioner that its principal had forwarded 93 prepaid
tickets. Thereafter, private respondent instructed its travel agent, ADB Travel and Tours. Inc., to book the
93 workers with petitioner but the latter failed to fly said workers, thereby compelling private respondent to
borrow money in the amount of P304,416.00 in order to purchase airline tickets from the other airlines as
evidenced by the cash vouchers (Exhibits "B", "C" and "C-1 to C-7") for the 93 workers it had recruited

Page 5 of 71
who must leave immediately since the visas of said workers are valid only for 45 days and the Bureau of
Employment Services mandates that contract workers must be sent to the job site within a period of 30
days.

Sometime in the first week of June, 1981, private respondent was again informed by the petitioner that it
had received a prepaid ticket advice from its Jeddah branch for the transportation of 27 contract workers.
Immediatety, private respondent instructed its travel agent to book the 27 contract workers with the
petitioner but the latter was only able to book and confirm 16 seats on its June 9, 1981 flight. However, on
the date of the scheduled flight only 9 workers were able to board said flight while the remaining 7
workers were rebooked to June 30, 1981 which bookings were again cancelled by the petitioner without
any prior notice to either private respondent or the workers. Thereafter, the 7 workers were rebooked to
the July 4,1981 flight of petitioner with 6 more workers booked for said flight. Unfortunately, the confirmed
bookings of the 13 workers were again cancelled and rebooked to July 7, 1981.

On July 6, 1981, private respondent paid the travel tax of the said workers as required by the petitioner
but when the receipt of the tax payments was submitted, the latter informed private respondent that it can
only confirm the seats of the 12 workers on its July 7, 1981 flight. However, the confirmed seats of said
workers were again cancelled without any prior notice either to the private respondent or said workers.
The 12 workers were finally able to leave for Jeddah after private respondent had bought tickets from the
other airlines.

As a result of these incidents, private respondent sent a letter to petitioner demanding compensation for
the damages it had incurred by the latter's repeated failure to transport its contract workers despite
confirmed bookings and payment of the corresponding travel taxes.

On July 23, 1981, the counsel of private respondent sent another letter to the petitioner demanding the
latter to pay the amount of P350,000.00 representing damages and unrealized profit or income which was
denied by the petitioner.

On August 8, 1981, private respondent received a telex message from its principal cancelling the hiring of
the remaining recruited workers due to the delay in transporting the workers to Jeddah. 5

On January 27, 1982, private respondent filed a complaint for damages against petitioner with the
Regional Trial Court of Manila, Branch 1 in Civil Case No. 82-4653.

On the other hand, petitioner, alleged in its Answer with counterclaims that it received a telex message
from Jeddah on March 20, 1981 advising that the principal of private respondent had prepaid the airfares
of 100 persons to transport private respondent's contract workers from Manila to Jeddah on or before
March 30, 1981. However, due to the unavailability of space and limited time, petitioner had to return to
its sponsor in Jeddah the prepaid ticket advice consequently not even one of the alleged 93 contract
workers were booked in any of its flights.

On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract workers of
private respondent to Jeddah but the travel agent of the private respondent booked only 10 contract
workers for petitioner's June 9, 1981 flight. However, only 9 contract workers boarded the scheduled flight
with 1 passenger not showing up as evidenced by the Philippine Airlines' passenger manifest for Flight
BA-020 (Exhibit "7", "7-A", "7-B" and "7-C"). 6

Thereafter, private respondent's travel agent booked seats for 5 contract workers on petitioner's July 4,
1981 flight but said travel agent cancelled the booking of 2 passengers while the other 3 passengers did
not show up on said flight.

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Sometime in July 1981, the travel agent of the private respondent booked 7 more contract workers in
addition to the previous 5 contract workers who were not able to board the July 4, 1981 flight with the
petitioner's July 7, 1981 flight which was accepted by petitioner subject to reconfirmation.

However on July 6, 1981, petitioner's computer system broke down which resulted to petitioner's failure to
get a reconfirmation from Saudi Arabia Airlines causing the automatic cancellation of the bookings of
private respondent's 12 contract workers. In the morning of July 7, 1981, the computer system of the
petitioner was reinstalled and immediately petitioner tried to reinstate the bookings of the 12 workers with
either Gulf Air or Saudi Arabia Airlines but both airlines replied that no seat was available on that date and
had to place the 12 workers on the wait list. Said information was duly relayed to the private respondent
and the 12 workers before the scheduled flight.

After due trial on or on August 27, 1985, the trial court rendered its decision, the dispositive portion of
which reads as follows:

WHEREFORE, in view of all the foregoing, this Court renders judgment:

1. Ordering the defendant to pay the plaintiff actual damages in the sum of P308,016.00;
2. Ordering defendant to pay moral damages to the plaintiff in the amount of P20,000.00;
3. Ordering the defendant to pay the plaintiff P10,000.00 by way of corrective or
exemplary damages;
4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as attorney's
fees; and
5. To pay the costs. 7
On March 13, 1986, petitioner appealed said decision to respondent appellate court after the trial court
denied its Motion for Reconsideration on February 28, 1986.
On November 15, 1989, respondent appellate court affirmed the decision of the trial court, the dispositive
portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against the
appellant. 8

On December 9, 1989, petitioner filed a Motion for Reconsideration which was also denied.

Hence, this petition.

It is the contention of petitioner that private respondent has no cause of action against it there being no
perfected contract of carriage existing between them as no ticket was ever issued to private respondent's
contract workers and, therefore, the obligation of the petitioner to transport said contract workers did not
arise. Furthermore, private respondent's failure to attach any ticket in the complaint further proved that it
was never a party to the alleged transaction.

Petitioner's contention is untenable.

Private respondent had a valid cause of action for damages against petitioner. A cause of action is an act
or omission of one party in violation of the legal right or rights of the other. 9 Petitioner's repeated failures
to transport private respondent's workers in its flight despite confirmed booking of said workers clearly
constitutes breach of contract and bad faith on its part. In resolving petitioner's theory that private
respondent has no cause of action in the instant case, the appellate court correctly held that:

In dealing with the contract of common carriage of passengers for purpose of accuracy,
there are two (2) aspects of the same, namely: (a) the contract "to carry (at some future
time)," which contract is consensual and is necessarily perfected by mere consent (See
Article 1356, Civil Code of the Philippines), and (b) the contract "of carriage" or "of
common carriage" itself which should be considered as a real contract for not until the

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carrier is actually used can the carrier be said to have already assumed the obligation of
a carrier. (Paras, Civil Code Annotated, Vol. V, p. 429, Eleventh Ed.)

In the instant case, the contract "to carry" is the one involved which is consensual and is
perfected by the mere consent of the parties.

There is no dispute as to the appellee's consent to the said contract "to carry" its contract
workers from Manila to Jeddah. The appellant's consent thereto, on the other hand, was
manifested by its acceptance of the PTA or prepaid ticket advice that ROLACO
Engineering has prepaid the airfares of the appellee's contract workers advising the
appellant that it must transport the contract workers on or before the end of March, 1981
and the other batch in June, 1981.

Even if a PTA is merely an advice from the sponsors that an airline is authorized to issue
a ticket and thus no ticket was yet issued, the fact remains that the passage had already
been paid for by the principal of the appellee, and the appellant had accepted such
payment. The existence of this payment was never objected to nor questioned by the
appellant in the lower court. Thus, the cause or consideration which is the fare paid for
the passengers exists in this case.

The third essential requisite of a contract is an object certain. In this contract "to carry",
such an object is the transport of the passengers from the place of departure to the place
of destination as stated in the telex.

Accordingly, there could be no more pretensions as to the existence of an oral contract of

carriage imposing reciprocal obligations on both parties.

In the case of appellee, it has fully complied with the obligation, namely, the payment of
the fare and its willingness for its contract workers to leave for their place of destination.

On the other hand, the facts clearly show that appellant was remiss in its obligation to
transport the contract workers on their flight despite confirmation and bookings made by
appellee's travelling agent.

xxx xxx xxx

Besides, appellant knew very well that time was of the essence as the prepaid ticket
advice had specified the period of compliance therewith, and with emphasis that it could
only be used if the passengers fly on BA. Under the circumstances, the appellant should
have refused acceptance of the PTA from appellee's principal or to at least inform
appellee that it could not accommodate the contract workers.

xxx xxx xxx

While there is no dispute that ROLACO Engineering advanced the payment for the
airfares of the appellee's contract workers who were recruited for ROLACO Engineering
and the said contract workers were the intended passengers in the aircraft of the
appellant, the said contract "to carry" also involved the appellee for as recruiter he had to
see to it that the contract workers should be transported to ROLACO Engineering in
Jeddah thru the appellant's transportation. For that matter, the involvement of the
appellee in the said contract "to carry" was well demonstrated when
the appellant upon receiving the PTA immediately advised the appellee thereof. 10

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Petitioner also contends that the appellate court erred in awarding actual damages in the amount of
P308,016.00 to private respondent since all expenses had already been subsequently reimbursed by the
latter's principal.

In awarding actual damages to private respondent, the appellate court held that the amount of
P308,016.00 representing actual damages refers to private respondent's second cause of action involving
the expenses incurred by the latter which were not reimbursed by ROLACO Engineering. However, in the
Complaint 11 filed by private respondent, it was alleged that private respondent suffered actual damages
in the amount of P308,016.00 representing the money it borrowed from friends and financiers which is
P304,416.00 for the 93 airline tickets and P3,600.00 for the travel tax of the 12 workers. It is clear
therefore that the actual damages private respondent seeks to recover are the airline tickets and travel
taxes it spent for its workers which were already reimbursed by its principal and not for any other
expenses it had incurred in the process of recruiting said contract workers. Inasmuch as all expenses
including the processing fees incurred by private respondent had already been paid for by the latter's
principal on a staggered basis as admitted in open court by its managing director, Mrs. Bienvenida
Brusellas. 12 We do not find anymore justification in the appellate court's decision in granting actual
damages to private respondent.

Thus, while it may be true that private respondent was compelled to borrow money for the airfare tickets
of its contract workers when petitioner failed to transport said workers, the reimbursements made by its
principal to private respondent failed to support the latter's claim that it suffered actual damages as a
result of petitioner's failure to transport said workers. It is undisputed that private respondent had
consistently admitted that its principal had reimbursed all its expenses.

Article 2199 of the Civil Code provides that:

Except as provided by law or by stipulations, one is entitled to an adequate compensation

only for such pecuniary loss suffered by him as he has duly proved. Such compensation
is referred to as actual or compensatory damages.

Furthermore, actual or compensatory damages cannot be presumed, but must be duly proved, and
proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork
as to the fact and amount of damages, but must depend upon competent proof that they have suffered
and on evidence of the actual amount thereof. 13

However, private respondent is entitled to an award of moral and exemplary damages for the injury
suffered as a result of petitioner's failure to transport the former's workers because of the latter's patent
bad faith in the performance of its obligation. As correctly pointed out by the appellate court:

As evidence had proved, there was complete failure on the part of the appellant to
transport the 93 contract workers of the appellee on or before March 30, 1981 despite
receipt of the payment for their airfares, and acceptance of the same by the appellant,
with specific instructions from the appellee's principal to transport the contract workers on
or before March 30, 1981. No previous notice was ever registered by the appellant that it
could not comply with the same. And then followed the detestable act of appellant in
unilaterally cancelling, booking and rebooking unreasonably the flight of appellee's
contract workers in June to July, 1981 without prior notice. And all of these actuations of
the appellant indeed constitute malice and evident bad faith which had caused damage
and besmirched the reputation and business image of the appellee. 14

As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record shows that
no claim for said damages was ever made by the petitioner immediately after their alleged occurrence
therefore said counterclaims were mere afterthoughts when private respondent filed the present case.

Page 9 of 71
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the award of
actual damages be deleted from said decision.

SO ORDERED.

Common carrier under Art. 1732

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.

Page 10 of 71
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this
Court by way of a Petition for Review assigning as errors the following conclusions of the Court of
Appeals:

1. that private respondent was not a common carrier;

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

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

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

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

Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.

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

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

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

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

Page 11 of 71
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.

Page 12 of 71
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.

Page 13 of 71
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. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,
vs.
SUN HOLIDAYS, INC., Respondent.

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 Pisa Island. Eight passengers, including
petitioners’ son and his wife, died during the incident.

Page 14 of 71
At the time of Ruelito’s 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 respondent’s 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 attorney’s 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 Resort’s
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
respondent’s 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 Resort’s 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

Page 15 of 71
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 respondent’s ferry services in its resort
operations is underscored by its having its own Coco Beach boats. 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 respondent’s 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 carrier’s principal

Page 16 of 71
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. Respondent’s 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 people’s 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.

Respondent’s 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 respondent’s 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.

Page 17 of 71
Article 176427 vis-à-vis Article 220628 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.
Borja34teaches 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 $90035 which, when
converted to Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,36 amounts
to P39,600. Ruelito’s net earning capacity is thus computed as follows:

Net Earning = life expectancy x (gross annual income - reasonable and necessary living
Capacity expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning
= P8,316,000
Capacity

Page 18 of 71
Respecting the award of moral damages, since respondent common carrier’s breach of contract of
carriage resulted in the death of petitioners’ son, following Article 1764 vis-à-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 andP100,000 as exemplary damages.381avvphi1

Pursuant to Article 220839 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 Ruelito’s 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.

Page 19 of 71
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. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,
vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
Modesto S. Bascos for petitioner.
Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. —

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." . . . The
holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the
Civil Code, it held thus: "The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguished
between a carrier offering its services to the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the general population.
We think that Article 1732 deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN

PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. — Common carriers are obliged to observe extraordinary diligence
in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault
or to have acted negligently if the goods are lost, destroyed or deteriorated. There are very few instances
when the presumption of negligence does not attach and these instances are enumerated in Article 1734.
In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption . . . The presumption of negligence was
raised against petitioner. It was petitioner's burden to overcome it. Thus, contrary to her assertion, private
respondent need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient
proof of extraordinary diligence made the presumption conclusive against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED
FROM LIABILITY. — In De Guzman vs. Court of Appeals, the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and
thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from
liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or
irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which
provides: "Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy . . . (6) That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violences or force, is dispensed with or
diminished"; In the same case, the Supreme Court also held that: "Under Article 1745 (6) above, a
common carrier is held responsible — and will not be allowed to divest or to diminish such responsibility
— even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted

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"with grave of irresistible threat, violence of force," We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case, petitioner

herself has made the admission that she was in the trucking business, offering her trucks to those with
cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. — Petitioner presented
no other proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS

WITNESSES. — While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned from the contents of the
petition. Affidavits are not considered the best evidence if the affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE. —
Granting that the said evidence were not self-serving, the same were not sufficient to prove that the
contract was one of lease. It must be understood that a contract is what the law defines it to be and not
what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A.
CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs.
ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-
appellant," C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby
affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the
latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of
Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo
Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya
bean meal worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per
metric ton. Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid
Jibfair Shipping Agency the amount of the lost goods in accordance with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-
delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed
a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of a
contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5
which contained the following allegations:

Page 21 of 71
"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court, whereby a
writ of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to do so, with
intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of carriage since
CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE
was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo
was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was
immediately reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the
hijacked properties; that after preliminary investigation, an information for robbery and carnapping were
filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from
any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter
to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be counted
from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is
DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP
BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT
LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT
THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS
CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE
THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY,
HIJACKING.

Page 22 of 71
III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT
PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN
RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and (2)
was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her
answer that she did business under the name A.M. Bascos Trucking and that said admission dispensed
with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner was a common
carrier. The respondent Court also adopted in toto the trial court's decision that petitioner was a common
carrier, Moreover, both courts appreciated the following pieces of evidence as indicators that petitioner
was a common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the cargo
consisting of 400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay;
the fact that the truck helper, Juanito Morden, was also an employee of petitioner; and the fact that
control of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she
alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE,
was lease of the truck. She cited as evidence certain affidavits which referred to the contract as "lease".
These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus
Bascos confirmed in his testimony his statement that the contract was a lease contract. 10 She also
stated that: she was not catering to the general public. Thus, in her answer to the amended complaint,
she said that she does business under the same style of A.M. Bascos Trucking, offering her trucks for
lease to those who have cargo to move, not to the general public but to a few customers only in view of
the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." 12 In this
case, petitioner herself has made the admission that she was in the trucking business, offering her trucks
to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 13

But petitioner argues that there was only a contract of lease because they offer their services only to a
select group of people and because the private respondents, plaintiffs in the lower court, did not object to
the presentation of affidavits by petitioner where the transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:

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

Page 23 of 71
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the appellate
court's factual conclusions. Yet, granting that the said evidence were not self-serving, the same were not
sufficient to prove that the contract was one of lease. It must be understood that a contract is what the law
defines it to be and not what it is called by the contracting parties. 15 Furthermore, petitioner presented
no other proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.
16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to force
majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted negligently
if the goods are lost, destroyed or deteriorated. 18 There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. 19 In those cases where
the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability
for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and
thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from
liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or
irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which
provides:

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

xxx xxx xxx

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

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

"Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest
or to diminish such responsibility — even for acts of strangers like thieves or robbers except where such
thieves or robbers in fact acted with grave 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."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus Bascos'
affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court of Appeals
have concluded that these affidavits were not enough to overcome the presumption. Petitioner's affidavit
about the hijacking was based on what had been told her by Juanito Morden. It was not a first-hand
account. While it had been admitted in court for lack of objection on the part of private respondent, the
respondent Court had discretion in assigning weight to such evidence. We are bound by the conclusion of
the appellate court. In a petition for review on certiorari, We are not to determine the probative value of
evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the
hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck,
was presented as evidence in court, he himself was a witness as could be gleaned from the contents of
the petition. Affidavits are not considered the best evidence if the affiants are available as witnesses. 25

Page 24 of 71
The subsequent filing of the information for carnapping and robbery against the accused named in said
affidavits did not necessarily mean that the contents of the affidavits were true because they were yet to
be determined in the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it.
Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We find no
reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has been
rendered moot and academic by the decision on the merits.

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

SO ORDERED.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New
York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16
June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki
Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as
evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued on the date of
departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-
party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from

National Cargo Bureau inspector or substitute appointed by charterers for his account
certifying the vessel's readiness to receive cargo spaces. The vessel's hold to be properly
swept, cleaned and dried at the vessel's expense and the vessel to be presented clean

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 for use in bulk to the satisfaction of the inspector before daytime commences. (emphasis
supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then
tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with
the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump
trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the
terms and conditions of the charter-partly (which provided for an F.I.O.S. clause). 6 The hatches remained
open throughout the duration of the discharge. 7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the
warehouse, the trucks were made to pass through a weighing scale where they were individually weighed
for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain portions of
the route to the warehouse were sandy and the weather was variable, raining occasionally while the
discharge was in progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI)
sheets, with an opening at the front where the dump trucks entered and unloaded the fertilizer on the
warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain
spillages of the ferilizer. 9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th
and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was
hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to
and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974
revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18
M/T was contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged
Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of
94.839 M/T and about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust
and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA),
the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in
the goods shipped and the diminution in value of that portion said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and not a
formal claim, and that this "request" was denied by them because they "had nothing to do with the
discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court of
First Instance of Manila. The defendant carrier argued that the strict public policy governing common
carriers does not apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the carrier
of the goods and to delivery by it of less than what it received. After that, the burden of
proving that the loss or damage was due to any of the causes which exempt him from
liability is shipted to the carrier, common or private he may be. Even if the provisions of
the charter-party aforequoted are deemed valid, and the defendants considered private

Page 26 of 71
 carriers, it was still incumbent upon them to prove that the shortage or contamination
sustained by the cargo is attributable to the fault or negligence on the part of the shipper
or consignee in the loading, stowing, trimming and discharge of the cargo. This they
failed to do. By this omission, coupled with their failure to destroy the presumption of
negligence against them, the defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability
for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance
Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun
Plum" owned by private respondent KKKK was a private carrier and not a common carrier by reason of
the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set forth a
presumption of negligence do not find application in the case at bar. Thus —

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to

adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in
its complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the
burden of proving his cause of action, fails to show in a satisfactory manner the facts
upon which he bases his claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing
Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its
cause of action, i.e. the alleged negligence of defendant carrier. It appears that the
plaintiff was under the impression that it did not have to establish defendant's negligence.
Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing
its obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because
the issue raised therein is the validity of a stipulation in the charter-party delimiting the liability of the
shipowner for loss or damage to goods cause by want of due deligence on its part or that of its manager
to make the vessel seaworthy in all respects, and not whether the presumption of negligence provided
under the Civil Code applies only to common carriers and not to private carriers. 19 Petitioner further
argues that since the possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for the negligence of the captain and crew.
In fine, PPI faults the appellate court in not applying the presumption of negligence against respondent
carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on the part
of the carrier, when he was not even at hand to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to prove
that he had exercised that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we
find it fitting to first define important terms which are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; 20 a contract of affreightment by which the owner
of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance
of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties are of two
types: (a) contract of affreightment which involves the use of shipping space on vessels leased by the
owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by
the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and

Page 27 of 71
possession and consequent control over its navigation, including the master and the crew, who are his
servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In
both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time or
for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the
master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a "private or special carrier"
lies in the character of the business, such that if the undertaking is a single transaction, not a part of the
general business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case
of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On
the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the
carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun
Plum", the ship captain, its officers and compliment were under the employ of the shipowner and
therefore continued to be under its direct supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer
did not have any control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks, the determination of the course of the voyage and other
technical incidents of maritime navigation were all consigned to the officers and crew who were screened,
chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in
the case of a time-charter or voyage-charter. It is only when the charter includes both the vessel and its
crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her holds may, for the moment, be the property of the
charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity of a
stipulation in the charter-party exempting the shipowners from liability for loss due to the negligence of its
agent, and not the effects of a special charter on common carriers. At any rate, the rule in the United
States that a ship chartered by a single shipper to carry special cargo is not a common carrier, 29 does not
find application in our jurisdiction, for we have observed that the growing concern for safety in the
transportation of passengers and /or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —

Page 28 of 71
 As a matter of principle, it is difficult to find a valid distinction between cases in which a
ship is used to convey the goods of one and of several persons. Where the ship herself is
let to a charterer, so that he takes over the charge and control of her, the case is
different; the shipowner is not then a carrier. But where her services only are let, the
same grounds for imposing a strict responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his servants, the freighter in each case
is usually without any representative on board the ship; the same opportunities for fraud
or collusion occur; and the same difficulty in discovering the truth as to what has taken
place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same was
in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before
the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before
the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After
completing the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and
sealed with iron lids, then covered with three (3) layers of serviceable tarpaulins which were tied with
steel bonds. The hatches remained close and tightly sealed while the ship was in transit as the weight of
the steel covers made it impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When
M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded, and in the
presence of a representative of the shipowner, the foreman, the stevedores, and a cargo surveyor
representing CSCI, opened the hatches and inspected the condition of the hull of the vessel. The
stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole
operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the
cargo. This was confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing
its obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses
clearly show absence of negligence by the defendant carrier; that the hull of the vessel at
the time of the discharge of the cargo was sealed and nobody could open the same
except in the presence of the owner of the cargo and the representatives of the vessel
(TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and it was
overlaid with tarpaulins, three layers of tarpaulins and therefore their contents were
protected from the weather (TSN, 5 April 1978, p. 24); and, that to open these hatches,
the seals would have to be broken, all the seals were found to be intact (TSN, 20 July
1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence required of it as a
public carrier began from the time the cargo was unconditionally placed in its charge after the vessel's

Page 29 of 71
holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its
destination and its hull was reexamined by the consignee, but prior to unloading. This is clear from the
limitation clause agreed upon by the parties in the Addendum to the standard "GENCON" time charter-
party which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the
cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a
shipowner is liable for damage to the cargo resulting from improper stowage only when the stowing is
done by stevedores employed by him, and therefore under his control and supervision, not when the
same is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and deterioration
which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the
inherent defect of the goods, shall be for the account and risk of the shipper, and that proof of these
accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and
damage resulting from the preceding causes if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established among
careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and
the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas
Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not normally evaporate even on a long voyage,
provided that the temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr.
Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is deemed
"normal" or "tolerable." The primary cause of these spillages is the clamped shell which does not seal
very tightly. Also, the wind tends to blow away some of the materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in
water, either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form
still remains potent and usable although no longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was
made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical
effects of the elements and the grimy condition of the various pieces of equipment used in transporting
and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into
the vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches
were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the
cargo she was chartered for. If there was loss or contamination of the cargo, it was more likely to have
occurred while the same was being transported from the ship to the dump trucks and finally to the
consignee's warehouse. This may be gleaned from the testimony of the marine and cargo surveyor of
CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as
contained in their report to PPI was just an approximation or estimate made by them after the fertilizer
was discharged from the vessel and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It
rained from time to time at the harbor area while the cargo was being discharged according to the supply
officer of PPI, who also testified that it was windy at the waterfront and along the shoreline where the
dump trucks passed enroute to the consignee's warehouse.

Page 30 of 71
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries
with it the risk of loss or damage. More so, with a variable weather condition prevalent during its
unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further contributed to
the loss. On the other hand, no proof was adduced by the petitioner showing that the carrier was remise
in the exercise of due diligence in order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed
the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance,
now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS

SHIPPING, INC.,respondents.
[G.R. No. 112350. December 12, 1997]
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION,respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees. The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals,
are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila,
Branch 163 in Civil Case No. 23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as
follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the
legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

Page 31 of 71
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo
or shipment for the general public. Its services are available only to specific persons who enter into a
special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in
this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of
voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1)
whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within
fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours,
Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for Freight In and Out including Stevedoring and Trading, which means that
the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under

Page 32 of 71
Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. x x x(Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to
make the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and
to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the
cargo; insufficiency of packing; xxx; latent defects not discoverable by due diligence; any other cause
arising without the actual fault or privity of Owners or without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric
tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and
signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following
day, August 13, 1974, when the vessels three (3) hatches containing the shipment were opened by
plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and
rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain
which interrupted the unloading operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment
by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975
(Exhibit G), MASCO made a report of its ocular inspection conducted on the cargo, both while it was still
on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo
was taken and stored.MASCO reported that it found wetting and rusting of the packages of hot rolled
sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents;
that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that rusting
of the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit
F). It was also reported that MASCOs surveyors drew at random samples of bad order packing materials
of the tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31,
1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The
analysis of bad order samples of packing materials xxx shows that wetting was caused by contact with
SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant
its claim for damages suffered due to the downgrading of the damaged tinplates in the amount
of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but
defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976
which was docketed as Civil Case No. 23317, CFI, Rizal.

Page 33 of 71
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and crew in the management of the vessel as well as
the want of due diligence on the part of the defendant to make the vessel seaworthy and to make the
holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception,
carriage and preservation -- all in violation of defendants undertaking under their Contract of Voyage
Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was
seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common
carrier inasmuch as she was under voyage charter contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I encountered
very rough seas, strong winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch covers; that under
the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the officers of said MV VLASONS I exercised
due diligence and proper seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST terms which means that
the vessel was free of risk and expense in connection with the loading and discharging of the cargo; that
the damage, if any, was due to the inherent defect, quality or vice of the cargo or to the insufficient
packing thereof or to latent defect of the cargo not discoverable by due diligence or to any other cause
arising without the actual fault or privity of defendant and without the fault of the agents or servants of
defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo
in Manila were negligent and did not exercise due care in the discharge of the cargo; and that the cargo
was exposed to rain and seawater spray while on the pier or in transit from the pier to plaintiffs
warehouse after discharge from the vessel; and that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges of the tinplates were magnified
and considered total loss of the cargo. Finally, defendant claimed that it had complied with all its duties
and obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter
Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands
made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum
of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting
for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in
the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following findings which
were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available
for hire only under special contracts of charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV
VLASONS I was covered by the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4);
Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate from the
Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine Coast
Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine Coast

Page 34 of 71
Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh.
9). That being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a higher
degree of seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter
Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the Philippine
Coast Guard. In fact, subject voyage was the vessels first voyage after the drydocking. The evidence
shows that the MV VLASONS I was seaworthy and properly manned, equipped and supplied when it
undertook the voyage. It had all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were
water tight. Furthermore, under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage to
the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of
witness Vicente Angliongto that tinplates sweat by themselves when packed even without being in
contract (sic) with water from outside especially when the weather is bad or raining. The rust caused by
sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be
held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for
loss or damage arising from the character of the goods x x x. All the 1,769 skids of the tinplates could not
have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the
tinplates themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected
by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing
the hatch openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus
allowing rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents
to cover the hatch openings in case of rain so that it would be easy for them to resume work when the
rains stopped by just removing the tent or canvas. Because of this improper covering of the hatches by
the stevedores during the discharging and unloading operations which were interrupted by rains,
rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI
[sic] Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant
carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather while en route from
Iligan City to Manila causing sea water to splash on the ships deck on account of which the master of the
vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be invoked
by defendant as a force majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement,
then it could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party
contract when it loaded not only steel products, i.e. steel bars, angular bars and the like but also tinplates
and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to
ship high grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof,
fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of
lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands.The evidence also showed that the plaintiff was required and bound under paragraph 7 of the

Page 35 of 71
same Voyage Charter Hire contract to pay demurrage ofP8,000.00 per day of delay in the unloading of
the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant for
demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or
character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 toP44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution[5] dated October 20,
1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions
for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation
of these petitions.[6]

The Issues

In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:
Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12)
were admissible in evidence and constituted evidence of the vessels seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for
cargo damage.
Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs
cargo;

Page 36 of 71
 3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on
their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs
tinplates.

In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors
of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which
there exist[s] a presumption of negligence against the common carrier in case of loss or damage to the
cargo are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as
a private carrier. The resolution of this preliminary question determines the law, standard of diligence and
burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public. It has been held that the true test of a
common carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail
themselves of its transportation service for a fee. [11] A carrier which does not qualify under the above test
is deemed a private carrier.Generally, private carriage is undertaken by special agreement and the carrier
does not hold himself out to carry goods for the general public. The most typical, although not the only
form of private carriage, is the charter party, a maritime contract by which the charterer, a party other than
the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found
by the Regional Trial Court, it carried passengers or goods only for those it chose under a special
contract of charter party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a
common but a private carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their
respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party.[15] Recently, in Valenzuela Hardwood and Industrial Supply,
Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, [16] the Court ruled:

Page 37 of 71
x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common carriers. [17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be
responsible for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI
Charter Party, which was incorporated in the parties contract of transportation, further provided that the
shipowner shall not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness,
unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that
the same was properly manned, equipped and supplied, and to make the holds and all other parts of the
vessel in which cargo [was] carried, fit and safe for its reception, carriage and preservation. [18] The
NANYOZAI Charter Party also provided that [o]wners shall not be responsible for split, chafing and/or any
damage unless caused by the negligence or default of the master or crew.[19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSIs willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo.Ineluctably, the burden of
proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not
been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous
event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of
the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud
in the bill of lading, making him to believe that the goods were of a class or quality different from what
they really were.

Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places
the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove
that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in
the carriers custody does not put the burden of proof on the carrier.

Page 38 of 71
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of
the goods committed to its care, the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carriers possession does not cast on it the
burden of proving proper care and diligence on its part or that the loss occurred from an excepted cause
in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee,
and since the carrier is in a better position to know the cause of the loss and that it was not one involving
its liability, the law requires that it come forward with the information available to it, and its failure to do so
warrants an inference or presumption of its liability. However, such inferences and presumptions, while
they may affect the burden of coming forward with evidence, do not alter the burden of proof which
remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage,
the burden of going forward with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach
thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the
goods were lost or damaged while in the carriers possession does not cast on it the burden of proving
seaworthiness. x x x Where the contract of carriage exempts the carrier from liability for unseaworthiness
not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due
diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position
in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause
10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation
of Clause 12 is not even correct), it argues that a careful examination of the evidence will show that VSI
miserably failed to comply with any of these obligations as if defendant-appellee [VSI] had the burden of
proof.[21]
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the
rusting of the tinplates was caused by its own sweat or by contact with seawater.

These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The
findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings
of both the trial court and the Court of Appeals coincide, the same are binding on this Court. [22] We stress
that, subject to some exceptional instances, [23] only questions of law -- not questions of fact -- may be
raised before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough
review of the case at bar, we find no reason to disturb the lower courts factual findings, as indeed NSC
has not successfully proven the application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit
for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under
the contract of voyage charter hire. [24] The vessels voyage from Iligan to Manila was the vesselsfirst
voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted
and equipped; it met all requirements for trading as cargo vessel. [25] The Court of Appeals itself sustained
the conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse
this finding of both the trial and the appellate courts.

Who Were Negligent: Seamen or Stevedores?

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 As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the
negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the
carriage of tinplates. NSC failed to discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults
the Court of Appeals for failing to consider such claim as an uncontroverted fact [26] and denies that MV
Vlasons I was equipped with new canvas covers in tandem with the old ones as indicated in the Marine
Protest xxx. [27] We disagree.

The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition
to the new one used primarily to make the ships hatches watertight. The foregoing are clear from the
marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships
boatswain, Jose Pascua. The salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that
before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about
August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse weather conditions
encountered; that in the morning of August 10, 1974, the weather condition changed to worse and strong
winds and big waves continued pounding the vessel at her port side causing sea water to overflow on
deck andhatch (sic) covers and which caused the first layer of the canvass covering to give way while the
new canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-
secured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching
Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
xxx xxx xxx [28]
And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we
place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a
stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch
opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO

Page 40 of 71
 Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put
on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas
covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give
way and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based on overwhelming evidence,
that the MV VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on
board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving safely at North Harbor, Port
Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were
negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering, however,
was clearly inadequate for keeping rain and seawater away from the hatches of the ship. Vicente
Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:

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Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on
board the vessel upon notice from the National Steel Corporation in order to conduct the
inspection of the cargo. During the course of the investigation, did you chance to see the
discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the
pier but majority of the tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript
of stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed
at the opening of the hatches to protect the cargo from the rain. Now, will you describe [to]
the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at
the middle with the whole side separated down to the hatch, the size of the hatch and it is
soaks [sic] at the middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the
hatch tent was not good enough to hold all of it to prevent the water soaking through the
canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and
soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure
adopted by its stevedores in discharging the cargo particularly in this tent covering of the
hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores
did not mind at all, so, I called the attention of the representative of the National Steel but
nothing was done, just the same. Finally, I wrote a letter to them. [31]

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 NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores negligence on the first day of unloading, pointing out that he wrote his
letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the
attention of the stevedores, then the NSCs representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with
common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the
stevedores attention first and then the NSCs representative on location before formally informing NSC of
the negligence he had observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this
point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by
NSC were negligent in the unloading of NSCs shipment. We do not think so. Such negligence according
to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV VLASONS I
when rains occurred during the discharging of the cargo thus allowing rain water and seawater spray to
enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores merely set up
temporary tents or canvas to cover the hatch openings when it rained during the unloading operations so
that it would be easier for them to resume work after the rains stopped by just removing said tents or
canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC]
calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days
and the improper closing of the hatches which allowed continuous heavy rain water to leak through and
drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos
rains with strong winds that the hatches be totally closed down and covered with canvas and the hatch
tents lowered. (Exh 13). This letter was received by [NSC] on 22 August 1974 while discharging
operations were still going on (Exhibit 13-A). [33]

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be noted
that the NSC may seek indemnification, subject to the laws on prescription, from the stevedoring
company at fault in the discharge operations. A stevedore company engaged in discharging cargo xxx
has the duty to load the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo
caused by its negligence xxx and where the officers and members and crew of the vessel do nothing and
have no responsibility in the discharge of cargo by stevedores xxx the vessel is not liable for loss of, or
damage to, the cargo caused by the negligence of the stevedores xxx [34] as in the instant case.
Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by
themselves when packed even without being in contact with water from outside especially when the
weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding.

A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater
which the stevedores negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons
I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the latters willful negligence. We do not find

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anything in the charter party that would make the liability of VSI for damage to the cargo contingent on or
affected in any manner by NSCs obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of
the certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:

1. Certificate of Inspection of the Philippine Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public
officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true
copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12
are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates
issued by private parties, but they have not been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7,
8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been
demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in the
performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an original
certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the
effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for
inspection x x x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel
VLASONS I, a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for
trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10,
1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its
duty of proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its
cargo.Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel
was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]
The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:

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Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running
days, this means days when the ship would be run continuously, and holidays are not excepted. A
qualification of weather permitting excepts only those days when bad weather reasonably prevents the
work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable weather
interfered with the unloading of cargo. [43] Consequently, NSC may not be held liable for demurrage as the
four-day laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of
the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the
Court of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days,
specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable
weather or rain which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to
VSI for demurrage, even if it reduced the amount by half.
Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause x x x. [44] Moreover, attorneys fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is tantamount to imposing a
premium on ones right to litigate or seek judicial redress of legitimate grievances.[45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain and seawater seeped through the
cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that factual
findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage Charter Hire -- placed the
burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation,
while disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not
one of common carriage. Basic too is the doctrine that courts cannot relieve a party from the effects of a
private contract freely entered into, on the ground that it is allegedly one-sided or unfair to the
plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price which is determined not only by
the actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or
damage to the cargo. In recognition of such factors, the parties even stipulated that the shipper should
insure the cargo to protect itself from the risks it undertook under the charter party. That NSC failed or
neglected to protect itself with such insurance should not adversely affect VSI, which had nothing to do
with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.

REGISTERED OWNER RULE AND KABIT SYSTEM

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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.

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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

Page 47 of 71
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.1âwphïl.nêt

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.

G.R. No. 82318 May 18, 1989

GILBERTO M. DUAVIT, petitioner,

vs.
THE HON. COURT OF APPEALS, Acting through the Third Division, as Public Respondent, and
ANTONIO SARMIENTO, SR. & VIRGILIO CATUAR respondents.
Rodolfo d. Dela Cruz for petitioner.
Bito, Lozada, Ortega & Castillo for respondents.

GUTIERREZ, JR., J.:

This petition raises the sole issue of whether or not the owner of a private vehicle which figured in an
accident can be held liable under Article 2180 of the Civil Code when the said vehicle was neither driven
by an employee of the owner nor taken with the consent of the latter.

The facts are summarized in the contested decision, as follows:

From the evidence adduced by the plaintiffs, consisting of the testimonies of witnesses
Virgilio Catuar, Antonio Sarmiento, Jr., Ruperto Catuar, Jr. and Norberto Bernarte it
appears that on July 28, 1971 plaintiffs Antonio Sarmiento, Sr. and Virgilio Catuar were
aboard a jeep with plate number 77-99-F-I Manila, 1971, owned by plaintiff, Ruperto
Catuar was driving the said jeep on Ortigas Avenue, San Juan, Rizal; that plaintiff's jeep,
at the time, was running moderately at 20 to 35 kilometers per hour and while
approaching Roosevelt Avenue, Virgilio Catuar slowed down; that suddenly, another jeep
with plate number 99-97-F-J Manila 1971 driven by defendant Oscar Sabiniano hit and
bumped plaintiff's jeep on the portion near the left rear wheel, and as a result of the
impact plaintiff's jeep fell on its right and skidded by about 30 yards; that as a result
plaintiffs jeep was damaged, particularly the windshield, the differential, the part near the
left rear wheel and the top cover of the jeep; that plaintiff Virgilio Catuar was thrown to the
middle of the road; his wrist was broken and he sustained contusions on the head; that

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 likewise plaintiff Antonio Sarmiento, Sr. was trapped inside the fallen jeep, and one of his
legs was fractured.

Evidence also shows that the plaintiff Virgilio Catuar spent a total of P2,464.00 for repairs
of the jeep, as shown by the receipts of payment of labor and spare parts (Exhs. H to H-7
Plaintiffs likewise tried to prove that plaintiff Virgilio Catuar, immediately after the accident
was taken to Immaculate Concepcion Hospital, and then was transferred to the National
Orthopedic Hospital; that while plaintiff Catuar was not confined in the hospital, his wrist
was in a plaster cast for a period of one month, and the contusions on his head were
under treatment for about two (2) weeks; that for hospitalization, medicine and allied
expenses, plaintiff Catuar spent P5,000.00.

Evidence also shows that as a result of the incident, plaintiff Antonio Sarmiento, Sr.
sustained injuries on his leg; that at first, he was taken to the National Orthopedic
Hospital (Exh. K but later he was confined at the Makati Medical Center from July 29, to
August 29, 1971 and then from September 15 to 25, 1971; that his leg was in a plaster
cast for a period of eight (8) months; and that for hospitalization and medical attendance,
plaintiff Antonio Sarmiento, Sr. spent no less than P13,785.25 as evidenced by receipts
in his possession. (Exhs. N to N-1).

Proofs were adduced also to show that plaintiff Antonio sarmiento Sr. is employed as
Assistant Accountant of the Canlubang Sugar Estate with a salary of P1,200.00 a month;
that as sideline he also works as accountant of United Haulers Inc. with a salary of
P500.00 a month; and that as a result of this incident, plaintiff Sarmiento was unable to
perform his normal work for a period of at least 8 months. On the other hand, evidence
shows that the other plaintiff Virgilio Catuar is a Chief Clerk in Canlubang Sugar Estate
with a salary of P500.00 a month, and as a result of the incident, he was incapacitated to
work for a period of one (1) month.

The plaintiffs have filed this case both against Oscar Sabiniano as driver, and against
Gualberto Duavit as owner of the jeep.

Defendant Gualberto Duavit, while admitting ownership of the other jeep (Plate No. 99-
07-F-J Manila, 1971), denied that the other defendant (Oscar Sabiniano) was his
employee. Duavit claimed that he has not been an employer of defendant Oscar
Sabiniano at any time up to the present.

On the other hand documentary and testimonial evidence show that defendant Oscar
Sabiniano was an employee of the Board of Liquidators from November 14, 1966 up to
January 4, 1973 (Annex A of Answer).

Defendant Sabiniano, in his testimony, categorically admitted that he took the jeep from
the garage of defendant Duavit without the consent or authority of the latter (TSN,
September 7, 1978, p. 8). He testified further, that Duavit even filed charges against him
for theft of the jeep, but which Duavit did not push through as his (Sabiniano's) parents
apologized to Duavit on his behalf.

Defendant Oscar Sabiniano, on the other hand in an attempt to exculpate himself from
liability, makes it appear that he was taking all necessary precaution while driving and the
accident occurred due to the negligence of Virgilio Catuar. Sabiniano claims that it was
plaintiffs vehicle which hit and bumped their jeep. (Reno, pp. 21-23)

The trial court found Oscar Sabiniano negligent in driving the vehicle but found no employer-employee
relationship between him and the petitioner because the latter was then a government employee and he

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took the vehicle without the authority and consent of the owner. The petitioner was, thus, absolved from
liability under Article 2180 of the Civil Code.

The private respondents appealed the case.

On January 7, 1988, the Court of Appeals rendered the questioned decision holding the petitioner jointly
and severally liable with Sabiniano. The appellate court in part ruled:

We cannot go along with appellee's argument. It will be seen that in Vargas v. Langcay,
supra, it was held that it is immaterial whether or not the driver was actually employed by
the operator of record or registered owner, and it is even not necessary to prove who the
actual owner of the vehicle and who the employer of the driver is. When the Supreme
Court ruled, thus: 'We must hold and consider such owner-operator of record (registered
owner) as the employer in contemplation of law, of the driver,' it cannot be construed
other than that the registered owner is the employer of the driver in contemplation of law.
It is a conclusive presumption of fact and law, and is not subject to rebuttal of proof to the
contrary. Otherwise, as stated in the decision, we quote:

The purpose of the principles evolved by the decisions in these matters will be defeated
and thwarted if we entertain the argument of petitioner that she is not liable because the
actual owner and employer was established by the evidence. . . .

Along the same vein, the defendant-appellee Gualberto Duavit cannot be allowed to prove that the driver
Sabiniano was not his employee at the time of the vehicular accident.

The ruling laid down in Amar V. Soberano (1966), 63 O.G. 6850, by this Court to the
effect that the burden of proving the non-existence of an employer-employee relationship
is upon the defendant and this he must do by a satisfactory preponderance of evidence,
has to defer to the doctrines evolved by the Supreme Court in cases of damages arising
from vehicular mishaps involving registered motor vehicle. (See Tugade v. Court of
Appeals, 85 SCRA 226, 230). (Rollo, pp. 26-27)

The appellate court also denied the petitioner's motion for reconsideration. Hence, this petition.

The petitioner contends that the respondent appellate court committed grave abuse of discretion in
holding him jointly and severally liable with Sabiniano in spite of the absence of an employer-employee
relationship between them and despite the fact that the petitioner's jeep was taken out of his garage and
was driven by Sabiniano without his consent.

As early as in 1939, we have ruled that an owner of a vehicle cannot be held liable for an accident
involving the said vehicle if the same was driven without his consent or knowledge and by a person not
employed by him. Thus, in Duquillo v. Bayot (67 Phil. 131-133-134) [1939] we said:

Under the facts established, the defendant cannot be held liable for anything. At the time
of the accident, James McGurk was driving the truck, and he was not an employee of the
defendant, nor did he have anything to do with the latter's business; neither the
defendant nor Father Ayson, who was in charge of her business, consented to have any
of her trucks driven on the day of the accident, as it was a holy day, and much less by a
chauffeur who was not in charge of driving it; the use of the defendant's truck in the
circumstances indicated was done without her consent or knowledge; it may, therefore,
be said, that there was not the remotest contractual relation between the deceased Pio
Duquillo and the defendant. It necessarily follows from all this that articles 1101 and
following of the Civil Code, cited by the appellant, have no application in this case, and,
therefore, the errors attributed to the inferior court are without basis.

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The Court upholds the above ruling as still relevant and better applicable to present day circumstances.

The respondent court's misplaced reliance on the cases of Erezo v. Jepte (102 Phil. 103 [1957]
and Vargas v. Langcay (6 SCRA 174 [1962]) cannot be sustained. In the Erezo case, Jepte, the
registered owner of the truck which collided with a taxicab, and which resulted in the killing of Erezo,
claimed that at the time of the accident, the truck belonged to the Port Brokerage in an arrangement with
the corporation but the same was not known to the Motor Vehicles Office. This Court sustained the trial
court's ruling that since Jepte represented himself to be the owner of the truck and the Motor Vehicles
Office, relying on his representation, registered the vehicle in his name, the Government and all persons
affected by the representation had the right to rely on his declaration of ownership and registration. Thus,
even if Jepte were not the owner of the truck at the time of the accident, he was still held liable for the
death of Erezo significantly, the driver of the truck was fully authorized to drive it.

Likewise, in the Vargas case, just before the accident occurred Vargas had sold her jeepney to a third
person, so that at the time of the accident she was no longer the owner of the jeepney. This court,
nevertheless, affirmed Vargas' liability since she failed to surrender to the Motor Vehicles Office the
corresponding AC plates in violation of the Revised Motor Vehicle Law and Commonwealth Act No. 146.
We further ruled that the operator of record continues to be the operator of the vehicle in contemplation of
law, as regards the public and third persons, and as such is responsible for the consequences incident to
its operator. The vehicle involved was a public utility jeepney for hire. In such cases, the law does not only
require the surrender of the AC plates but orders the vendor operator to stop the operation of the jeepney
as a form of public transportation until the matter is reported to the authorities.

As can be seen, the circumstances of the above cases are entirely different from those in the present
case. Herein petitioner does not deny ownership of the vehicle involved in tire mishap but completely
denies having employed the driver Sabiniano or even having authorized the latter to drive his jeep. The
jeep was virtually stolen from the petitioner's garage. To hold, therefore, the petitioner liable for the
accident caused by the negligence of Sabiniano who was neither his driver nor employee would be
absurd as it would be like holding liable the owner of a stolen vehicle for an accident caused by the
person who stole such vehicle. In this regard, we cannot ignore the many cases of vehicles forcibly taken
from their owners at gunpoint or stolen from garages and parking areas and the instances of service
station attendants or mechanics of auto repair shops using, without the owner's consent, vehicles
entrusted to them for servicing or repair.

We cannot blindly apply absolute rules based on precedents whose facts do not jibe four square with
pending cases. Every case must be determined on its own peculiar factual circumstances. Where, as in
this case, the records of the petition fail to indicate the slightest indicia of an employer-employee
relationship between the owner and the erring driver or any consent given by the owner for the vehicle's
use, we cannot hold the owner liable.

We, therefore, find that the respondent appellate court committed reversible error in holding the petitioner
jointly and severally liable with Sabiniano to the private respondent.

WHEREFORE, the petition is GRANTED and the decision and resolution appealed from are hereby
ANNULLED and SET ASIDE. The decision of the then Court of First Instance (now Regional Trial Court)
of Laguna, 8th Judicial District, Branch 6, dated July 30, 1981 is REINSTATED.

SO ORDERED.

G.R. No. 162267 July 4, 2008

PCI LEASING AND FINANCE, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC., respondent.

Page 51 of 71
 DECISION
AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking a
reversal of the Decision1 of the Court of Appeals (CA) dated December 12, 2003 affirming with
modification the Decision of the Regional Trial Court (RTC) of Makati City which ordered petitioner and
Renato Gonzaga (Gonzaga) to pay, jointly and severally, respondent the amount of P244,500.00 plus
interest; and the CA Resolution2 dated February 18, 2004 denying petitioner's Motion for
Reconsideration.

The facts, as found by the CA, are undisputed:

On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate Number PHD-206
owned by United Coconut Planters Bank was traversing the Laurel Highway, Barangay
Balintawak, Lipa City. The car was insured with plantiff-appellee [UCPB General Insurance Inc.],
then driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank, was hit
and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737 and Trailer Plate No.
NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc. allegedly leased to and
operated by defendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its
employee, defendant appellant Renato Gonzaga.

The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the
rear part of the car. The driver and passenger suffered physical injuries. However, the driver
defendant-appellant Gonzaga continued on its [sic] way to its [sic] destination and did not bother
to bring his victims to the hospital.

Plaintiff-appellee paid the assured UCPB the amount of P244,500.00 representing the insurance
coverage of the damaged car.

As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were
made by plaintiff-appellee for the payment of the aforesaid amounts. However, no payment was
made. Thus, plaintiff-appellee filed the instant case on March 13, 1991.3

PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could not be held liable for the
collision, since the driver of the truck, Gonzaga, was not its employee, but that of its co-defendant
Superior Gas & Equitable Co., Inc. (SUGECO).4 In fact, it was SUGECO, and not petitioner, that was the
actual operator of the truck, pursuant to a Contract of Lease signed by petitioner and
SUGECO.5 Petitioner, however, admitted that it was the owner of the truck in question.6

After trial, the RTC rendered its Decision dated April 15, 1999,7 the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff UCPB

General Insurance [respondent], ordering the defendants PCI Leasing and Finance, Inc.,
[petitioner] and Renato Gonzaga, to pay jointly and severally the former the following amounts:
the principal amount ofP244,500.00 with 12% interest as of the filing of this complaint until the
same is paid; P50,000.00 as attorney's fees; and P20,000.00 as costs of suit.

SO ORDERED.8

Aggrieved by the decision of the trial court, petitioner appealed to the CA.

In its Decision dated December 12, 2003, the CA affirmed the RTC's decision, with certain modifications,
as follows:

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 WHEREFORE, the appealed decision dated April 15, 1999 is hereby AFFIRMED with
modification that the award of attorney's fees is hereby deleted and the rate of interest shall be
six percent (6%) per annum computed from the time of the filing of the complaint in the trial court
until the finality of the judgment. If the adjudged principal and the interest remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the
judgment becomes final and executory until it is fully satisfied.

SO ORDERED.9

Petitioner filed a Motion for Reconsideration which the CA denied in its Resolution dated February 18,
2004.

Hence, herein Petition for Review.

The issues raised by petitioner are purely legal:

Whether petitioner, as registered owner of a motor vehicle that figured in a quasi-delict may be
held liable, jointly and severally, with the driver thereof, for the damages caused to third parties.

Whether petitioner, as a financing company, is absolved from liability by the enactment of

Republic Act (R.A.) No. 8556, or the Financing Company Act of 1998.

Anent the first issue, the CA found petitioner liable for the damage caused by the collision since under the
Public Service Act, if the property covered by a franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continues to be responsible under the franchise in relation to the
operation of the vehicle, such as damage or injury to third parties due to collisions. 10

Petitioner claims that the CA's reliance on the Public Service Act is misplaced, since the said law applies
only to cases involving common carriers, or those which have franchises to operate as public utilities. In
contrast, the case before this Court involves a private commercial vehicle for business use, which is not
offered for service to the general public.11

Petitioner's contention has partial merit, as indeed, the vehicles involved in the case at bar are not
common carriers, which makes the Public Service Act inapplicable.

However, the registered owner of the vehicle driven by a negligent driver may still be held liable under
applicable jurisprudence involving laws on compulsory motor vehicle registration and the liabilities of
employers for quasi-delicts under the Civil Code.

The principle of holding the registered owner of a vehicle liable for quasi-delicts resulting from its use is
well-established in jurisprudence. Erezo v. Jepte,12 with Justice Labrador as ponente, wisely explained
the reason behind this principle, thus:

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 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

Page 53 of 71
 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 'snare 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 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 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 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.13

The case is still good law and has been consistently cited in subsequent cases. 14 Thus, there is no good
reason to depart from its tenets.

For damage or injuries arising out of negligence in the operation of a motor vehicle, the registered owner
may be held civilly liable with the negligent driver either 1) subsidiarily, if the aggrieved party seeks relief

Page 54 of 71
based on a delictor crime under Articles 100 and 103 of the Revised Penal Code; or 2) solidarily, if the
complainant seeks relief based on a quasi-delict under Articles 2176 and 2180 of the Civil Code. It is the
option of the plaintiff whether to waive completely the filing of the civil action, or institute it with the
criminal action, or file it separately or independently of a criminal action; 15 his only limitation is that he
cannot recover damages twice for the same act or omission of the defendant.16

In case a separate civil action is filed, the long-standing principle is that the registered owner of a motor
vehicle is primarily and directly responsible for the consequences of its operation, including the
negligence of the driver, with respect to the public and all third persons.17 In contemplation of law, the
registered owner of a motor vehicle is the employer of its driver, with the actual operator and employer,
such as a lessee, being considered as merely the owner's agent. 18 This being the case, even if a sale has
been executed before a tortious incident, the sale, if unregistered, has no effect as to the right of the
public and third persons to recover from the registered owner. 19The public has the right to conclusively
presume that the registered owner is the real owner, and may sue accordingly. 20

In the case now before the Court, there is not even a sale of the vehicle involved, but a mere lease, which
remained unregistered up to the time of the occurrence of the quasi-delict that gave rise to the case.
Since a lease, unlike a sale, does not even involve a transfer of title or ownership, but the mere use or
enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the
law, which is to protect the unwitting public and provide it with a definite person to make accountable for
losses or injuries suffered in vehicular accidents.21 This is and has always been the rationale behind
compulsory motor vehicle registration under the Land Transportation and Traffic Code and similar laws,
which, as early as Erezo, has been guiding the courts in their disposition of cases involving motor
vehicular incidents. It is also important to emphasize that such principles apply to all vehicles in general,
not just those offered for public service or utility.22

The Court recognizes that the business of financing companies has a legitimate and commendable
purpose.23 In earlier cases, it considered a financial lease or financing lease a legal contract, 24 though
subject to the restrictions of the so-called Recto Law or Articles 1484 and 1485 of the Civil Code.25 In
previous cases, the Court adopted the statutory definition of a financial lease or financing lease, as:

[A] mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental
expenses and a margin of profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property, x x x but with no obligation or
option on his part to purchase the leased property from the owner-lessor at the end of the lease
contract. 26

Petitioner presented a lengthy discussion of the purported trend in other jurisdictions, which apparently
tends to favor absolving financing companies from liability for the consequences of quasi-delictual acts or
omissions involving financially leased property.27 The petition adds that these developments have been
legislated in our jurisdiction in Republic Act (R.A.) No. 8556, 28 which provides:

Section 12. Liability of lessors. - Financing companies shall not be liable for loss, damage or
injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased
to a third person or entity except when the motor vehicle, aircraft, vessel, equipment or other
property is operated by the financing company, its employees or agents at the time of the loss,
damage or injury.1avvphi1

Petitioner's argument that the enactment of R.A. No. 8556, especially its addition of the new Sec. 12 to
the old law, is deemed to have absolved petitioner from liability, fails to convince the Court.

Page 55 of 71
These developments, indeed, point to a seeming emancipation of financing companies from the
obligation to compensate claimants for losses suffered from the operation of vehicles covered by their
lease. Such, however, are not applicable to petitioner and do not exonerate it from liability in the present
case.

The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or
repeal the law on compulsory motor vehicle registration. No part of the law expressly repeals Section 5(a)
and (e) of R.A. No. 4136, as amended, otherwise known as the Land Transportation and Traffic Code, to
wit:

Sec. 5. Compulsory registration of motor vehicles. - (a) All motor vehicles and trailer of any
type used or operated on or upon any highway of the Philippines must be registered with the
Bureau of Land Transportation (now the Land Transportation Office, per Executive Order No.
125, January 30, 1987, and Executive Order No. 125-A, April 13, 1987) for the current year in
accordance with the provisions of this Act.

xxxx

(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other encumbrances of

motor vehicles, in order to be valid against third parties must be recorded in the Bureau (now
the Land Transportation Office). Voluntary transactions or voluntary encumbrances shall likewise
be properly recorded on the face of all outstanding copies of the certificates of registration of the
vehicle concerned.

Cancellation or foreclosure of such mortgages, attachments, and other encumbrances shall

likewise be recorded, and in the absence of such cancellation, no certificate of registration shall
be issued without the corresponding notation of mortgage, attachment and/or other
encumbrances.

x x x x (Emphasis supplied)

Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by implication is frowned upon,
unless there is clear showing that the later statute is so irreconcilably inconsistent and repugnant to the
existing law that they cannot be reconciled and made to stand together. 29 There is nothing in R.A. No.
4136 that is inconsistent and incapable of reconciliation.

Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not registered
with the Land Transportation Office, still does not bind third persons who are aggrieved in tortious
incidents, for the latter need only to rely on the public registration of a motor vehicle as conclusive
evidence of ownership.30 A lease such as the one involved in the instant case is an encumbrance in
contemplation of law, which needs to be registered in order for it to bind third parties. 31 Under this policy,
the evil sought to be avoided is the exacerbation of the suffering of victims of tragic vehicular accidents in
not being able to identify a guilty party. A contrary ruling will not serve the ends of justice. The failure to
register a lease, sale, transfer or encumbrance, should not benefit the parties responsible, to the
prejudice of innocent victims.

The non-registration of the lease contract between petitioner and its lessee precludes the former from
enjoying the benefits under Section 12 of R.A. No. 8556.

This ruling may appear too severe and unpalatable to leasing and financing companies, but the Court
believes that petitioner and other companies so situated are not entirely left without recourse. They may
resort to third-party complaints against their lessees or whoever are the actual operators of their vehicles.
In the case at bar, there is, in fact, a provision in the lease contract between petitioner and SUGECO to
the effect that the latter shall indemnify and hold the former free and harmless from any "liabilities,

Page 56 of 71
damages, suits, claims or judgments" arising from the latter's use of the motor vehicle.32 Whether
petitioner would act against SUGECO based on this provision is its own option.

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.

WHEREFORE, the petition is DENIED. The Decision dated December 12, 2003 and Resolution dated
February 18, 2004 of the Court of Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.

[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.

Page 57 of 71
 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. [1] For his part, petitioner
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. [4] On the other 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.[7] Hence this petition.
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.[9] Although the parties to such an agreement are not outrightly
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[10] the Court explained that one of the 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

Page 58 of 71
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

Page 59 of 71
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-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:

Page 60 of 71
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

Page 61 of 71
 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.

Page 62 of 71
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.

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.

"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

Page 63 of 71
Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of
public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00
per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner
Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and
maintained the same under the name Acme Taxi, petitioner's trade name.

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

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

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

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

Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are
concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the
three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-
585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff.

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

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

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

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

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying
that: têñ.£îhqwâ£

Page 64 of 71
 1. ...

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

annulling or amending the decision of public respondent so that:

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

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

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

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

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

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

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

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

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P.
Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila
and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus

Page 65 of 71
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.

BALIWAG TRANSIT, INC., petitioner, vs. COURT OF APPEALS, SPOUSES ANTONIO GARCIA &
LETICIA GARCIA, A & J TRADING, AND JULIO RECONTIQUE, respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; SPECIAL CONTRACTS; COMMON CARRIERS; LIABILITY FOR
DAMAGES; ESTABLISHED IN CASE AT BAR. As a common carrier, Baliwag breached its contract
of carriage when it failed to deliver its passengers, Leticia and Allan Garcia to their destination safe
and sound. A common carrier is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of a very cautious person, with due regard for all
the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or
was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court
need not even 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 as prescribed in Articles 1733 and 1755 of the Civil Code. The records are bereft of any
proof to show that Baliwag exercised extraordinary diligence. On the contrary, the evidence
demonstrates its driver's recklessness. Leticia Garcia testified that the bus was running at a very
high speed despite the drizzle and the darkness of the highway. The passengers pleaded for its
driver to slow down, but their plea was ignored. Leticia also revealed that the driver was smelling of
liquor. She could smell him as she was seated right behind the driver. Another passenger, Felix Cruz
testified that immediately before the collision, the bus driver was conversing with a co-employee. All
these prove the bus driver's wanton disregard for the physical safety of his passengers, which make
Baliwag as a common carrier liable for damages under Article 1759 of the Civil Code.
2. ID.; ID.; ID.; ID.; LAND TRANSPORTATION AND TRAFFIC CODE; SECTION 34(g) THEREOF;
SUBSTANTIALLY COMPLIED WITH IN CASE AT BAR. Baliwag cannot evade its liability by
insisting that the accident was caused solely by the negligence of A & J Trading and Julio
Recontique. It harps on their alleged non use of early warning device as testified to by Col. Demetrio
dela Cruz, the station commander of Gapan, Nueva Ecija who investigated the incident, and
Francisco Romano, the bus conductor. The records do not bear out Baliwag's contention. Col. dela
Cruz and Romano testified that they did not see any early warning device at the scene of the
accident. They were referring to the triangular reflectorized plates in red and yellow issued by the
Land Transportation Office. However, the evidence shows that Recontique and Ecala placed a
kerosene lamp or torch at the edge of the road, near the rear portion of the truck to serve as an early
warning device. This substantially complies with Section 34 (g) of the Land Transportation and
Traffic Code, to wit: "(g) lights and reflector when parked or disabled. Appropriate parking lights or
flares visible one hundred meters away shall be displayed at the corner of the vehicle whenever such
vehicle is parked on highways or in places that are not well-lighted or, is placed in such manner as to
endanger passing traffic. Furthermore, every motor vehicle shall be provided at all times with built-in
reflectors or other similar warning devices either pasted, painted or attached at its front and back
which shall likewise be visible at night at least one hundred meters away. No vehicle not provided
with any of the requirements mentioned in this subsection shall be registered." Baliwag's argument
that the kerosene lamp or torch does not substantially comply with the law is untenable. The
aforequoted law clearly allows the use not only of an early warning device of the triangular
reflectorized plates variety but also parking lights or flares visible one hundred meters away. Indeed,
Col. dela Cruz himself admitted that a kerosene lamp is an acceptable substitute for the reflectorized
plates. No negligence, therefore, may be imputed to A & J Trading and its driver, Recontique.
3. ID.; DAMAGES; To PROVE ACTUAL DAMAGES, THE BEST EVIDENCE AVAILABLE TO THE
PARTIES MUST BE PRESENTED. The propriety of the amount awarded as hospitalization and
medical fees. The award of P25,000.00 is not supported by the evidence on record. The Garcias
presented receipts marked as Exhibits "B-1 " to "B-42" but their total amounted only to P5,017.74. To

Page 66 of 71
 be sure, Leticia testified as to the extra amount spent for her medical needs but without more reliable
evidence, her lone testimony cannot justify the award of P25,000.00. To prove actual damages, the
best evidence available to the injured party must be presented. The court cannot rely on
uncorroborated testimony whose truth is suspect, but must depend upon competent proof that
damages have been actually suffered. Thus, we reduce the actual damages for medical and
hospitalization expenses to P5,017.74.
4. ID.; ID.; MORAL DAMAGES; RECOVERABLE IF THE CARRIER THROUGH ITS AGENT, ACTED
FRAUDULENTLY OR IN BAD FAITH. The award of moral damages is in accord with law. In a
breach of contract of carriage, moral damages are recoverable if the carrier, through its agent, acted
fraudulently or in bad faith. The evidence shows the gross negligence of the driver of Baliwag bus
which amounted to bad faith. Without doubt, Leticia and Allan experienced physical suffering, mental
anguish and serious anxiety by reason of the accident.
APPEARANCES OF COUNSEL
Leopoldo C. Sta. Maria for Baliwag Transit, Inc.
Arturo D. Vallar for Sps. Antonio & Leticia Garcia.
Allan A. Leynes for A & J Trading, and Julio Recontique.

DECISION
PUNO, J.:

This is a petition for certiorari to review the Decision[1] of the Court of Appeals in CA-G.R. CV-31246
awarding damages in favor of the spouses Antonio and Leticia Garcia for breach of contract of
carriage.[2] filed by the spouses Garcia questioning the same Court of Appeals' Decision which reduced
their award of damages. On November 13, 1995, we denied their petition for review.
The records show that on July 31, 1980, Leticia Garcia, and her five-year old son, Allan Garcia,
boarded Baliwag Transit Bus No. 2036 bound for Cabanatuan City driven by Jaime Santiago. They took
the seat behind the driver.
At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus passengers saw a cargo
truck parked at the shoulder of the national highway. Its left rear portion jutted to the outer lane, the
shoulder of the road was too narrow to accommodate the whole truck. A kerosene lamp appeared at the
edge of the road obviously to serve as a warning device. The truck driver, Julio Recontique, and his
helper, Arturo Escala, were then replacing a flat tire. The truck is owned by respondent A & J Trading.
Bus driver Santiago was driving at an inordinately fast speed and failed to notice the truck and the
kerosene lamp at the edge of the road. Santiago's passengers urged him to slow down but he paid them
no heed. Santiago even carried animated conversations with his co-employees while driving. When the
danger of collision became imminent, the bus passengers shouted "Babangga tayo!". Santiago stepped
on the brake, but it was too late. His bus rammed into the stalled cargo truck. It caused the instant death
of Santiago and Escala, and injury to several others. Leticia and Allan Garcia were among the injured
passengers.
Leticia suffered a fracture in her pelvis and right leg. They rushed her to the provincial hospital in
Cabanatuan City where she was given emergency treatment. After three days, she was transferred to the
National Orthopedic Hospital where she was confined for more than a month. [3] She underwent an
operation for partial hip prosthesis.[4]
Allan, on the other hand, broke a leg. He was also given emergency treatment at the provincial
hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J Trading and Julio Recontique
for damages in the Regional Trial Court of Bulacan.[5] Leticia sued as an injured passenger of Baliwag
and as mother of Allan. At the time of the complaint, Allan was a minor, hence, the suit initiated by his
parents in his favor.

Page 67 of 71
 Baliwag, A & J Trading and Recontique disclaimed responsibility for the mishap. Baliwag alleged that
the accident was caused solely by the fault and negligence of A & J Trading and its driver,
Recontique. Baliwag charged that Recontigue failed to place an early warning device at the corner of the
disabled cargo truck to warn oncoming vehicles.[6] On the other hand, A & J Trading and Recontique
alleged that the accident was the result of the negligence and reckless driving of Santiago, bus driver of
Baliwag.[7]
After hearing, the trial court found all the defendants liable, thus:

xxxxxxxxx

"In view thereof, the Court holds that both defendants should be held liable; the defendant Baliwag
Transit, Inc. for having failed to deliver the plaintiff and her son to their point of destination safely in
violation of plaintiff's and defendant Baliwag Transit's contractual relation.

The defendant A & J and Julio Recontique for failure to provide its cargo truck with an early warning
device in violation of the Motor Vehicle Law."[8]

The trial court ordered Baliwag, A & J Trading and Recontique to pay jointly and severally the Garcia
spouses the following: (1) P25,000.00 hospitalization and medication fee, (2) P450,000.00 loss of
earnings in eight (8) years, (3) P2,000.00 for the hospitalization of their son Allan Garcia, (4) P50,000.00
moral damages, and (5) P30,000.00 attorney's fee.[9]
On appeal, the Court of Appeals modified the trial court's Decision by absolving A & J Trading from
liability and by reducing the award of attorney's fees to P10,000.00 and loss of earnings to P300,000.00,
respectively.[10]
Baliwag filed the present petition for review raising the following issues:

1. Did the Court of Appeals err in absolving A & J Trading from liability and holding Baliwag solely liable
for the injuries suffered by Leticia and Allan Garcia in the accident?

2. Is the amount of damages awarded by the Court of Appeals to the Garcia spouses correct?

We affirm the factual findings of the Court of Appeals.

I
As a common carrier, Baliwag breached its contract of carriage when it failed to deliver its
passengers, Leticia and Allan Garcia to their destination safe and sound. A common carrier is bound to
carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of
a very cautious person, with due regard for all the circumstances. [11] In a contract of carriage, it is
presumed that the common carrier was at fault or was negligent when a passenger dies or is
injured. Unless the presumption is rebutted, the court need not even 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 as prescribed in Articles 1733 and 1755 of the
Civil Code.[12]
The records are bereft of any proof to show that Baliwag exercised extraordinary diligence. On the
contrary, the evidence demonstrates its driver's recklessness. Leticia Garcia testified that the bus was
running at a very high speed despite the drizzle and the darkness of the highway. The passengers
pleaded for its driver to slow down, but their plea was ignored. [13] Leticia also revealed that the driver was
smelling of liquor.[14] She could smell him as she was seated right behind the driver. Another passenger,
Felix Cruz testified that immediately before the collision, the bus driver was conversing with a co-
employee.[15] All these prove the bus driver's wanton disregard for the physical safety of his passengers,
which makes Baliwag as a common carrier liable for damages under Article 1759 of the Civil Code:

Page 68 of 71
Art. 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or
willfull acts of the former's employees, although such employees may have acted beyond the scope of
their authority or in violation of the orders of the common carriers.

This liability of the common carriers do not cease upon proof that they exercised all the diligence of a
good father of a family in the selection or supervision of their employees.

Baliwag cannot evade its liability by insisting that the accident was caused solely by the negligence
of A & J Trading and Julio Recontique. It harps on their alleged non use of an early warning device as
testified to by Col. Demetrio dela Cruz, the station commander of Gapan, Nueva Ecija who investigated
the incident, and Francisco Romano, the bus conductor.
The records do not bear out Baliwag's contention. Col. dela Cruz and Romano testified that they did
not see any early warning device at the scene of the accident.[16] They were referring to the triangular
reflectorized plates in red and yellow issued by the Land Transportation Office. However, the evidence
shows that Recontique and Ecala placed a kerosene lamp or torch at the edge of the road, near the rear
portion of the truck to serve as an early warning device. [17] This substantially complies with Section 34 (g)
of the Land Transportation and Traffic Code, to wit:

(g) Lights and reflector when parked or disabled. Appropriate parking lights or flares visible one
hundred meters away shall be displayed at the corner of the vehicle whenever such vehicle is parked on
highways or in places that are not well-lighted or, is placed in such manner as to endanger passing
traffic. Furthermore, every motor vehicle shall be provided at all times with built-in reflectors or other
similar warning devices either pasted, painted or attached at its front and back which shall likewise be
visible at night at least one hundred meters away. No vehicle not provided with any of the requirements
mentioned in this subsection shall be registered. (Italics supplied)

Baliwag's argument that the kerosene lamp or torch does not substantially comply with the law is
untenable. The aforequoted law clearly allows the use not only of an early warning device of the triangular
reflectorized plates variety but also parking lights or flares visible one hundred meters away. Indeed, Col.
dela Cruz himself admitted that a kerosene lamp is an acceptable substitute for the reflectorized
plates.[18] No negligence, therefore, may be imputed to A & J Trading and its driver, Recontique.
Anent this factual issue, the analysis of evidence made by the Court of Appeals deserves our
concurrence, viz:
xxx xxx xxx

In the case at bar, both the injured passengers of the Baliwag involved in the accident testified that they
saw some sort of kerosene or a torch on the rear portion of the truck before the accident. Baliwag
Transit's conductor attempted to defeat such testimony by declaring that he noticed no early warning
device in front of the truck.

Among the testimonies offered by the witnesses who were present at the scene of the accident, we
rule to uphold the affirmative testimonies given by the two injured passengers and give less credence to
the testimony of the bus conductor who solely testified that no such early warning device exists.
The testimonies of injured passengers who may well be considered as disinterested witness appear
to be natural and more probable than the testimony given by Francisco Romano who is undoubtedly
interested in the outcome of the case, being the conductor of the defendant-appellant Baliwag Transit Inc.
It must be borne in mind that the situation then prevailing at the time of the accident was admittedly
drizzly and all dark. This being so, it would be improbable and perhaps impossible on the part of the truck
helper without the torch nor the kerosene to remove the flat tires of the truck. Moreover, witness including
the bits conductor himself admitted that the passengers shouted, that they are going to bump before the
collision which consequently caused the bus driver to apply the brake 3 to 4 meters away from the

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truck. Again, without the kerosene nor the torch in front of the truck, it would be improbable for the driver,
more so the passengers to notice the truck to be bumped by the bus considering the darkness of the
place at the time of the accident.
xxxxxxxxx
While it is true that the investigating officer testified that he found no early warning device at the time
of his investigation, We rule to give less credence to such testimony insofar as he himself admitted on
cross examination that he did not notice the presence of any kerosene lamp at the back of the truck
because when he arrived at the scene of the accident, there were already many people surrounding the
place (TSN, Aug, 22, 1989, p. 13). He further admitted that there exists a probability that the lights of the
truck may have been smashed by the bus at the time of the accident considering the location of the truck
where its rear portion was connected with the front portion of the bus (TSN, March 29, 1985, pp. 11-
13). Investigator's testimony therefore did not confirm nor deny the existence of such warning device,
making his testimony of little probative value.[19]
II
We now review the amount of damages awarded to the Garcia spouses.
First, the propriety of the amount awarded as hospitalization and medical fees. The award of
P25,000.00 is not supported by the evidence on record. The Garcias presented receipts marked as
Exhibits B-1 to B 42 but their total amounted only to P5,017.74. To be sure, Leticia testified as to the extra
amount spent for her medical needs but without more reliable evidence, her lone testimony cannot justify
the award of P25,000.00. To prove actual damages, the best evidence available to the injured party must
be presented. The court cannot rely on uncorroborated testimony whose truth is suspect, but must
depend upon competent proof that damages have been actually suffered [20]Thus, we reduce the actual
damages for medical and hospitalization expenses to P5,017.74.
Second, we find as reasonable the award of P300,000.00 representing Leticia's lost earnings. Before
the accident, Leticia was engaged in embroidery, earning P5,000.00 per month. [21] Her injuries forced her
to stop working. Considering the nature and extent of her injuries and the length of time it would take her
to recover,[22] we find it proper that Baliwag should compensate her lost income for five (5) years. [23]
Third, the award of moral damages is in accord with law. In a breach of contract of carriage, moral
damages are recoverable if the carrier, through its agent, acted fraudulently or in bad faith. [24] The
evidence shows the gross negligence of the driver of Baliwag bus which amounted to bad faith. Without
doubt, Leticia and Allan experienced physical suffering, mental anguish and serious anxiety by reason of
the accident. Leticia underwent an operation to replace her broken hip bone with a metal plate. She was
confined at the National Orthopedic Hospital for 45 days. The young Allan was also confined in the
hospital for his foot injury. Contrary to the contention of Baliwag, the decision of the trial court as affirmed
by the Court of Appeals awarded moral damages to Antonio and Leticia Garcia not in their capacity as
parents of Allan. Leticia was given moral damages as an injured party. Allan was also granted moral
damages as an injured party but because of his minority, the award in his favor has to be given to his
father who represented him in the suit.
Finally, we find the award of attorney's fees justified. The complaint for damages was instituted by
the Garcia spouses on December 15, 1982, following the unjustified refusal of Baliwag to settle their
claim. The Decision was promulgated by the trial court only on January 29, 1991 or about nine years
later. Numerous pleadings were filed before the trial court, the appellate court and to this Court. Given the
complexity of the case and the amount of damages involved, [25] the award of attorney's fee for
P10,000.00 is just and reasonable.
IN VIEW WHEREOF, the Decision of the respondent Court of Appeals in CA-G.R. CV-31246 is
AFFIRMED with the MODIFICATION reducing the actual damages for hospitalization and medical fees to
P5,017.74. No costs.
SO ORDERED.

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