[G.R. No. 138334.

August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC.,respondents. DECISION YNARES-SANTIAGO, J.: In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of Europe. The package tour included the countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the booking fee was also waived because petitioners niece, Meriam Menor, was respondent companys ticketing manager. Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British Airways. Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she discovered that the flight she was supposed to take had already departed the previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain. Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991. Upon petitioners return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the amount she owed respondent for the British Pageant tour. Despite several demands, respondent company refused to reimburse the amount, contending that the same was non-refundable.[1] Petitioner was thus constrained to file a complaint against respondent for breach of contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City. In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to respondents fault since it did not clearly indicate the departure date on the plane ticket. Respondent was also negligent in informing her of the wrong flight schedule through its employee Menor. She insisted that the British Pageant was merely a substitute for the Jewels of Europe tour, such that the cost of the former should be properly set-off against the sum paid for the latter. For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was informed of the correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed on the ticket. Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe, considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already billed the same even if petitioner did not join the tour. Lotus European tour organizer, Insight International Tours Ltd., determines the cost of a package tour based on a minimum number of projected participants. For this reason, it is accepted industry practice to disallow refund for individuals who failed to take a booked tour. [3] Lastly, respondent maintained that the British Pageant was not a substitute for the package tour that petitioner missed. This tour was independently procured by petitioner after realizing that she made a mistake in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial payment of only US$300.00 for the second tour because her niece was then an employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the British Pageant package tour. After due proceedings, the trial court rendered a decision, [4] the dispositive part of which reads: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per annum starting January 16, 1992, the date when the complaint was filed; Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for reasonable attorneys fees; Dismissing the defendants counterclaim, for lack of merit; and With costs against the defendant.

2. 3. 4. SO ORDERED.[5]

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

WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed from the time the counterclaim was filed until the finality of this decision. After this decision becomes final and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs against the plaintiff-appellee. SO ORDERED.[6] Upon denial of her motion for reconsideration,[7] petitioner filed the instant petition under Rule 45 on the following grounds: I It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of unavailed Jewels of Europe tour she being equally, if not more, negligent than the private respondent, for in the contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence which is higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner cannot be considered to be equally, or worse, more guilty than the private respondent. At best, petitioners negligence is only contributory while the private respondent [is guilty] of gross negligence making the principle of pari delicto inapplicable in the case; II The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not indivisible and the amount paid therefor refundable; III The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of breach of contract of carriage. [8] Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent than respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its employees gross negligence. Petitioners contention has no merit. By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. [9] Such person or association of persons are regarded as carriers and are classified as private or special carriers and common or public carriers. [10] A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public. It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondents services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours. While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondents obligation to petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline. The object of petitioners contractual relation with respondent is the latters service of arranging and facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. Petitioners submission is premised on a wrong assumption. The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required in the performance of the latters obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances.[11] As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner claims. Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code.[12] This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. The test to determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.[13] In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation. The lower court applied the presumption under Rule 131, Section 3 (e)[14] of the Rules of Court that evidence willfully suppressed would be adverse if produced and thus considered petitioners uncontradicted testimony to be sufficient proof of her claim. On the other hand, respondent has consistently denied that Menor was negligent and maintains that petitioners assertion is belied by the evidence on record. The date and time of departure was legibly written on the plane ticket and the travel papers were delivered two days in advance precisely so that petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join the tour and exercised due diligence in its dealings with the latter. We agree with respondent. Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to an inference unfavorable to the former. Menor was already working in France at the time of the filing of the complaint,[15] thereby making it physically impossible for respondent to present her as a witness. Then too, even if it were possible for respondent to secure Menors testimony, the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining Menors testimony belonged to both parties, considering that Menor was not just respondents employee, but also petitioners niece. It was thus error for the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could have been obtained by both parties.[16]

In sum, we do not agree with the finding of the lower court that Menors negligence concurred with the negligence of petitioner and resultantly caused damage to the latter. Menors negligence was not sufficiently proved, considering that the only evidence presented on this score was petitioners uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence.[17] If the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense. [18] Contrary to petitioners claim, the evidence on record shows that respondent exercised due diligence in performing its obligations under the contract and followed standard procedure in rendering its services to petitioner. As correctly observed by the lower court, the plane ticket [19] issued to petitioner clearly reflected the departure date and time, contrary to petitioners contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured the plane tickets. It arranged petitioners hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking. Therefore, it is clear that respondent performed its prestation under the contract as well as everything else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details regarding the trip. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands.[20] There is no fixed standard of diligence applicable to each and every contractual obligation and each case must be determined upon its particular facts. The degree of diligence required depends on the circumstances of the specific obligation and whether one has been negligent is a question of fact that is to be determined after taking into account the particulars of each case.[21] The lower court declared that respondents employee was negligent. This factual finding, however, is not supported by the evidence on record. While factual findings below are generally conclusive upon this court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance which will affect the result of the case.[22] In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage. WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a forbearance of credit.[23] SO ORDERED. G.R. No. L-47822 December 22, 1988 PEDRO vs. COURT OF APPEALS and ERNESTO CENDANA, respondents. Vicente D. Millora for petitioner. Jacinto Callanta for private respondent. DE GUZMAN, petitioner,

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

The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting return loads of freight "as a casual occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way of a Petition for Review assigning as errors the following conclusions of the Court of Appeals: 1. that private respondent was not a common carrier; 2. that the hijacking of respondent's truck was force majeure; and 3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111) We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth, be properly characterized as a common carrier. The Civil Code defines "common carriers" in the following terms: Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public. The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberaom making such distinctions. So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes: ... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. ... (Emphasis supplied) It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondent'sprincipal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here. The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. We turn then to the liability of private respondent as a common carrier. Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code. Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of the goods which they carry, "unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character-of the goods or defects in the packing or-in the containers; and (5) Order or act of competent public authority. It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows: In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)

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

[G.R. No. 148496. March 19, 2002]

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

board from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc. On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft liner board were likewise torn. The damage was placed at P93,112.00. SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the shipment. The trial court held: It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report (Exh. F) with entries appearing therein, classified as TED and TSN, which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the damaged condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which provides among others that: . . . we opine that damages sustained by shipment is attributable to improper handling in transit presumably whilst in the custody of the broker . . . . is a finding which cannot be traversed and overturned. The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not liable. Defendant by reason of the nature of [her] business should have devised ways and means in order to prevent the damage to the cargoes which it is under obligation to take custody of and to forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she] performed to prevent [the] said incident, hence the presumption is that the moment the defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the cargo. . . . . Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they have observed the extraordinary diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent with its liability. (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.) Defendant, being a customs brother, warehouseman and at the same time a common carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of and received by the carrier for transportation until the same are delivered actually or constructively by the carrier to the consignee or to the person who has the right to receive the same. [3] Accordingly, the trial court ordered petitioner to pay the following amounts 1. The sum of P93,112.00 plus interest; 2. 25% thereof as lawyers fee; 3. Costs of suit.[4] The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari. Petitioner contends that: I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE. II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC. [5] It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common carrier, although both the trial court and the Court of Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her, would require. [6] Consequently, any damage to the cargo she agrees to transport cannot be presumed to have been due to her fault or negligence. Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common carrier but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her services out to the public but only offers the same to select parties with whom she may contract in the conduct of her business. The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a similar contention and held the party to be a common carrier, thus The Civil Code defines common carriers in the following terms: Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public. The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on 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.

So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly with the notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, public service includes: x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. x x x [8] There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an integral part of her business. To uphold petitioners contention would be to deprive those with whom she contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for her customers, as already noted, is part and parcel of petitioners business. Now, as to petitioners liability, Art. 1733 of the Civil Code provides: Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. . . . In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in the vigilance over goods was explained thus: The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires. In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the spoilage or wettage took place while the goods were in the custody of either the carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit: MAXU-2062880 ICSU-363461-3 PERU-204209-4 rain gutter deformed/cracked left side rubber gasket on door distorted/partly loose with pinholes on roof panel right portion wood flooring we[t] and/or with signs of water soaked with dent/crack on roof panel rubber gasket on left side/door panel partly detached loosened. [10]

TOLU-213674-3 MAXU-201406-0 ICSU-412105-0 -

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no personal knowledge on whether the container vans were first stored in petitioners warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo came from. Thus, the damage to the cargo could not have taken place while these were in her custody. [11] Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors indicates that when the shipper transferred the cargo in question to the arrastre operator, these were covered by clean Equipment Interchange Report (EIR) and, when petitioners employees withdrew the cargo from the arrastre operator, they did so without exception or protest either with regard to the condition of container vans or their contents. The Survey Report pertinently reads Details of Discharge: Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were deemed to have [been] received in good condition. . . . . Transfer/Delivery: On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by Transorient Container Services, Inc. . . . without exception. [The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12] As found by the Court of Appeals: From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-appellant from the arrastre still in good order and condition as the same were received by the former without exception, that is, without any report of damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendantappellant would report it immediately to the consignee or make an exception on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the shipment in good order and condition and delivered the same to the consignee damaged. We can only conclude that the damages to the cargo occurred while it was in the possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the

possession of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No proof was proffered to rebut this legal presumption and the presumption of negligence attached to a common carrier in case of loss or damage to the goods.[13] Anent petitioners insistence that the cargo could not have been damaged while in her custody as she immediately delivered the containers to SMCs compound, suffice it to say that to prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used all reasonable means to ascertain the nature and characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to do this. Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: . . . . (4) The character of the goods or defects in the packing or in the containers. . . . . For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting therefrom.[14] In this case, petitioner accepted the cargo without exception despite the apparent defects in some of the container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art. 1735[15] holds. WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED. SO ORDERED.

[G.R. No. 131621. September 28, 1999]

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents. DECISION DAVIDE, JR., C.J.: Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997 decision [1] of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991[2] of the Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its resolution of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said decision. The facts are undisputed. On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the vessel) the following goods for shipment: a) 705 bales of lawanit hardwood; b) 27 boxes and crates of tilewood assemblies and others; and c) 49 bundles of mouldings R & W (3) Apitong Bolidenized. The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor. On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MICs claim from LOADSTAR. In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR. As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto. In dismissing LOADSTARs appeal, the appellate court made the following observations: 1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained control over its crew. [4] 2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the rights and liabilities of the parties. 3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been seaworthy, it could have withstood the natural and inevitable action of the sea on 20 November 1984, when the condition of the sea was moderate. The vessel sank, not because of force majeure, but because it was not seaworthy. LOADSTARS allegation that the sinking was probably due to the convergence of the winds, as stated by a PAGASA expert, was not duly proven at the trial. The limited liability rule, therefore, is not applicable considering that, in this case, there was an actual finding of negligence on the part of the carrier.[5]

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated to the latters rights as against the carrier, LOADSTAR. [6] 5) There was a clear breach of the contract of carriage when the shippers goods never reached their destination. LOADSTARs defense of diligence of a good father of a family in the training and selection of its crew is unavailing because this is not a proper or complete defense in culpa contractual. 6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by reason of some fact which legally exempts him from liability. Transportation of the merchandise at the risk and venture of the shipper means that the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless otherwise proved. [7] The errors assigned by LOADSTAR boil down to a determination of the following issues: (1) Is the M/V Cherokee a private or a common carrier? (2) Did LOADSTAR observe due and/or ordinary diligence in these premises? Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued a certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only one shipper, one consignee for a special cargo. In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading in this case made no mention of any charter party but only a statement that the vessel was a general cargo carrier. Neither was there any special arrangement between LOADSTAR and the shipper regarding the shipment of the cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert the vessel into a private carrier. As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been negligent, and the burden of proving otherwise devolved upon MIC.[8] LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessels seaworthiness. LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the next day when the vessel sank due to strong waves. MICs witness, Gracelia Tapel, fully established the existence of two typhoons, WELFRING and YOLING, inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of winds brought about by these two typhoons strengthened wind velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink. LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in this case, is valid. Since the cargo was being shipped at owners risk, LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Courts ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc., [9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10] Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been instituted beyond the period stated in the bills of lading for instituting the same suits based upon claims arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985. MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due to force majeure, because the same concurred with LOADSTARs fault or negligence. Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed waived. Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is tantamount to negligence. We find no merit in this petition. Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled. In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc.,[11] where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals[12] and National Steel Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine. These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the factual settings are different. The records do not disclose that the M/V Cherokee, on the date in question, undertook to carry a special cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any special arrangement, but only a general provision to the effect that the M/V Cherokee was a general cargo carrier.[14] Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also carrying passengers. Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,[15]the Court juxtaposed the statutory definition of common carriers with the peculiar circumstances of that case, viz.: The Civil Code defines common carriers in the following terms: Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public. The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on anoccasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the general public, i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.

xxx It appears to the Court that private respondent is properly characterized as a common carrier even though he merely back-hauled goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondents principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that that fee frequently fell below commercial freight rates is not relevant here. The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.[16] Neither do we agree with LOADSTARs argument that the limited liability theory should be applied in this case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. [17] LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the area where it sank was determined to be moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind the limited liability doctrine to escape responsibility for the loss of the vessel and its cargo. LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc.[19] It was ruled in these two cases that after paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carriers liability to an amount fixed in the bill of lading which the parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces the common carriers liability for the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at owners risk. Such stipulation is obviously null and void for being contrary to public policy. [20] It has been said: Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. [21] Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights which the latter has against the common carrier, LOADSTAR. Neither is there merit to the contention that the claim in this case was barred by prescription. MICs cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit may be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the good.[22] In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void;[23] it must, accordingly, be struck down. WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner. SO ORDERED.

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

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

10

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

2.

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication.[10] On November 29, 1995, the respondent court rendered a decision [11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996.[12] Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a Resolution[14]of January 20, 1997. Thus, the petition was reinstated. Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law. There is merit in the petition. A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The test for determining whether a party is a common carrier of goods is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation; He must undertake to carry goods of the kind to which his business is confined; He must undertake to carry by the method by which his business is conducted and over his established roads; and The transportation must be for hire.[15]

2. 3. 4.

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its

11

services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that: "The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the 'general public,' i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1877 deliberately refrained from making such distinctions. So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of 'public service,' under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes: 'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services.' "(Underscoring Supplied) Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous. As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers.[17] Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus, Article 86 thereof provides that: "Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources." Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides: "that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility." (Underscoring Supplied) The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it declared: "x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended." From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit: "Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following : xxx (j) xxx xxx

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

The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating: "MR. AQUINO (A). Thank you, Mr. Speaker. Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." xxx MR. AQUINO (A.). Thank you Mr. Speaker. Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed to be exempted from the taxing powers of the local government units. May we know the reason why the transportation business is being excluded from the taxing powers of the local government units? MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states that local government units may not impose taxes on the business of transportation, except as otherwise provided in this code. Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker. What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier business. Local government units may impose taxes on top of what is already being imposed by the National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.

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MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18] It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code. WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE. SO ORDERED.

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC.,respondents. DECISION PUNO, J.: On appeal is the Court of Appeals May 11, 2000 Decision[1] in CA-G.R. CV No. 49195 and February 21, 2001 Resolution[2] affirming with modification the April 6, 1994 Decision[3] of the Regional Trial Court of Manila which found petitioner liable to pay private respondent the amount of indemnity and attorney's fees. First, the facts. On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at US$423,192.35 [4] was shipped by Marubeni American Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4.[5] The shipment was insured by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.[6] On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City. On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by Lighterage Receipt No. 0364[7] for delivery to consignee. The cargo did not reach its destination. It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges which arrived ahead of it while weathering out the storm that night. A few days after, the barge developed a list because of a hole it sustained after hitting an unseen protuberance underneath the water. The petitioner filed a Marine Protest on August 28, 1990.[8] It likewise secured the services of Gaspar Salvaging Corporation which refloated the barge. [9] The hole was then patched with clay and cement. The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three other barges.[10] The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the total loss of the remaining cargo. [11] A second Marine Protest was filed on September 7, 1990.[12] On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded on the three other barges.[13] The total proceeds from the sale of the salvaged cargo was P201,379.75.[14] On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter dated September 18, 1990 to the private respondent for the value of the lost cargo. On January 30, 1991, the private respondent indemnified the consignee in the amount of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no avail. On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount of indemnity, attorney's fees and cost of suit.[16] Petitioner filed its answer with counterclaim.[17] The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision states: WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum ofP4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED. With costs against defendant.[18] Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court affirmed the decision of the trial court with modification. The dispositive portion of its decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against appellant. SO ORDERED. Petitioners Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a Resolution promulgated on February 21, 2001.

13

Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate court, viz:[19] (1) (2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER. THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED. THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE CONSIGNEES CARGO.

(3)

The issues to be resolved are: (1) (2) cargo. Whether the petitioner is a common carrier; and, Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care and custody of the consignees

On the first issue, we rule that petitioner is a common carrier. Article 1732 of the Civil Code defines common carriers 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. Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does not hold out its services to the general public.[20] We disagree. In De Guzman vs. Court of Appeals,[21] we held that the definition of common carriers in Article 1732 of the Civil Code makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity. We also did not distinguish 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. Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to the general public, and one who offers services or solicits business only from a narrow segment of the general population. In the case at bar, the principal business of the petitioner is that of lighterage and drayage [22] and it offers its barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly a common carrier. In De Guzman, supra,[23] we considered private respondent Ernesto Cendaa to be a common carrier even if his principal occupation was not the carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these items in Manila. We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets. To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of Appeals.[24] 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.[25] In the case at bar, the petitioner admitted that it is engaged in the business of shipping and lighterage,[26] offering its barges to the public, despite its limited clientele for carrying or transporting goods by water for compensation. [27] On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise extraordinary diligence in its care and custody of the consignees goods. Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them. [28] They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. [29] To overcome the presumption of negligence in the case of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the presumption of negligence does not attach: Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) (2) (3) (4) (5) Flood, storm, earthquake, lightning, or other natural disaster or calamity; Act of the public enemy in war, whether international or civil; Act or omission of the shipper or owner of the goods; The character of the goods or defects in the packing or in the containers; Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the goods, and that it has exercised due diligence before, during and after the occurrence of the typhoon to prevent or minimize the loss.[30] The evidence show that, even before the towing bits of the barge broke, it had already previously sustained damage when it hit a sunken object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partlysubmerged vessel was refloated but its hole was patched with only clay and cement. The patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states: CROSS-EXAMINATION BY ATTY. DONN LEE:[31] xxx xxx xxx

q - Can you tell us what else transpired after that incident?

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a - After the first accident, through the initiative of the barge owners, they tried to pull out the barge from the place of the accident, and bring it to the anchor terminal for safety, then after deciding if the vessel is stabilized, they tried to pull it to the consignees warehouse, now while on route another accident occurred, now this time the barge totally hitting something in the course. q - You said there was another accident, can you tell the court the nature of the second accident? a - The sinking, sir. q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking? a - Mostly it was related to the first accident because there was already a whole (sic) on the bottom part of the barge. xxx xxx xxx

This is not all. Petitioner still headed to the consignees wharf despite knowledge of an incoming typhoon. During the time that the barge was heading towards the consignee's wharf on September 5, 1990, typhoon Loleng has already entered the Philippine area of responsibility. [32] A part of the testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals: DIRECT-EXAMINATION BY ATTY. LEE:[33] xxx xxx xxx

q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie where she was instead of towing it? a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since they needed badly the wheat that was loaded in PSTSI-3. It was needed badly by the consignee. q - And this is the reason why you towed the Barge as you did? a - Yes, sir. xxx CROSS-EXAMINATION BY ATTY. IGNACIO:[34] xxx qaqaqaqxxx xxx xxx xxx

And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I correct? The next day, in the morning, we hired for additional two (2) tugboats as I have stated. Despite of the threats of an incoming typhoon as you testified a while ago? It is already in an inner portion of Pasig River. The typhoon would be coming and it would be dangerous if we are in the vicinity of Manila Bay. But the fact is, the typhoon was incoming? Yes or no? Yes. And yet as a standard operating procedure of your Company, you have to secure a sort of Certification to determine the weather condition, am I correct? Yes, sir. So, more or less, you had the knowledge of the incoming typhoon, right? Yes, sir. And yet you proceeded to the premises of the GMC? ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.

aqaqa-

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due diligence required from a common carrier. More importantly, the officers/employees themselves of petitioner admitted that when the towing bits of the vessel broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened. IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

[G.R. No. 141910. August 6, 2002]

15

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, respondents. DECISION VITUG, J.: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental. The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining thusly: Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his own affirmative allegation, xxx. In the instant case, plaintiff did not present any single evidence that would prove that defendant is a common carrier. x x x x x x xxx

Accordingly, the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods during transport under 1735 of the Civil Code is not availing. Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and contract of the Civil Code as well as the law on quasi delicts. Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi delict provides for some presumption of negligence but only upon the attendance of some circumstances. Thus, Article 2185 provides: Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation. Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence, the presumption of negligence is not obtaining. Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendants driver was the one negligent, defendant cannot be made liable for the damages of the subject cargoes.[2] The subsequent motion for reconsideration having been denied, [3] plaintiff interposed an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee corporation was not a common carrier defined under the law and existing jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence. The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its decision of 10 June 1999, [4] discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a common carrier. Should the appellant fail to prove that the appellee is a common carrier, the presumption would not arise; consequently, the appellant would have to prove that the carrier was negligent. "x x x x x x xxx

"Because it is the appellant who insists that the appellees can still be considered as a common carrier, despite its `limited clientele, (assuming it was really a common carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side is superior to that of the other. (Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs complaint by the trial court is justified. "x x x x x x xxx

"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no choice but to comply with the directive of its principal, the inevitable conclusion is that the appellee is a private carrier. "x x x x x x xxx

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x. "Finally, We advert to the long established rule that conclusions and findings of fact of a trial court are entitled to great weight on appeal and should not be disturbed unless for strong and valid reasons."[5]

16

Petitioner's motion for reconsideration was likewise denied;[6] hence, the instant petition,[7] raising the following issues: I WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE. II WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION. III WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE. On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or entity, cannot be considered a common carrier. 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 hire or compensation, offering their services to the public,[8]whether to the public in general or to a limited clientele in particular, but never on an exclusive basis.[9] The true test of a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its transportation service for a fee.[10] Given accepted standards, GPS scarcely falls within the term common carrier. The above conclusion nothwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.[11] The law, recognizing the obligatory force of contracts,[12] will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.[13] A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promisee that may include his expectation interest, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party.[14] Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. [15] The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation[16] unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing liability. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioners principal and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position.[17] Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioners civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant.[18] A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing which caused the injury complained of is shown to be under the latters management and the accident is such that, in the ordinary course of things, cannot be expected to happen if those who have its management or control use proper care. It affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care.[19] It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of going forward with the proof.[20] Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the plaintiff.[21] Thus, it is not applicable when an unexplained accident may be attributable to one of several causes, for some of which the defendant could not be responsible.[22] Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from the nature of the relation of the parties.[23] Nevertheless, the requirement that responsible causes other than those due to defendants conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him. If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to have waived the right to present evidence.[24] Thus, respondent corporation may no longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the trial court. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. No costs. SO ORDERED. G.R. No. 101089. April 7, 1993.

17

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

BASCOS,

petitioners,

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

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Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of a contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5 which contained the following allegations: "4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court, whereby a writ of preliminary attachment may lawfully issue, namely: "(e) in an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors;" 5. That there is no sufficient security for the claim sought to be enforced by the present action; 6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;" The trial court granted the writ of preliminary attachment on February 17, 1987. In her answer, petitioner interposed the following defenses: that there was no contract of carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the hijacked properties; that after preliminary investigation, an information for robbery and carnapping were filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any liability to CIPTRADE. After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows: "WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter to pay the former: 1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS (P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be counted from December 4, 1986 until fully paid; 2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and 3. The costs of the suit. The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is DENIED for being moot and academic. SO ORDERED." 6 Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment. Consequently, petitioner filed this petition where she makes the following assignment of errors; to wit: "I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE OF CARGO TRUCK. II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING. III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7 The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and (2) was the hijacking referred to a force majeure? The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her answer that she did business under the name A.M. Bascos Trucking and that said admission dispensed with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner was a common carrier. The respondent Court also adopted in toto the trial court's decision that petitioner was a common carrier, Moreover, both courts appreciated the following pieces of evidence as indicators that petitioner was a common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting of 400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo was placed in petitioner's care. In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which referred to the contract as "lease". These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus Bascos confirmed in his testimony his statement that the contract was a lease contract. 10 She also stated that: she was not catering to the general public. Thus, in her answer to the amended complaint, she said that she does business under the same style of A.M. Bascos Trucking, offering her trucks for lease to those who have cargo to move, not to the general public but to a few customers only in view of the fact that it is only a small business. 11 We agree with the respondent Court in its finding that petitioner is a common carrier. Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public." The test to determine a common carrier is "whether the given undertaking is a part of the business engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business transacted." 12 In this case, petitioner herself has made the admission that she was in the trucking business, offering her trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same. 13

19

But petitioner argues that there was only a contract of lease because they offer their services only to a select group of people and because the private respondents, plaintiffs in the lower court, did not object to the presentation of affidavits by petitioner where the transaction was referred to as a lease contract. Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is instructive. In referring to Article 1732 of the Civil Code, it held thus: "The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1732 deliberately refrained from making such distinctions." Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have dismissed them as self-serving and petitioner contests the conclusion. We are bound by the appellate court's factual conclusions. Yet, granting that the said evidence were not 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 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. PHILIPPINE NATIONAL RAILWAYS and VIRGILIO J. BORJA, Petitioners, - versus YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and G.R. No. 157658 Present:

COURT OF APPEALS (Second Division), CORAZON C. AMORES, MA. EMILIE A. MOJICA, CECILE C. SISON, DINO C. AMORES, LARISA C. AMORES, ARMAND JINO C. AMORES and JOHN C. AMORES,

20

Respondents.

REYES, JJ. Promulgated: October 15, 2007

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

DECISION NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeking to annul and set aside the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 54906 which reversed the Decision[2] of the Regional Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 92-61987. The factual antecedents are as follows: In the early afternoon of April 27, 1992, Jose Amores (Amores) was traversing the railroad tracks in Kahilum II Street, Pandacan, Manila. Before crossing the railroad track, he stopped for a while then proceeded accordingly. [3] Unfortunately, just as Amores was at the intersection, a Philippine National Railways (PNR) train with locomotive number T-517 turned up and collided with the car.[4] At the time of the mishap, there was neither a signal nor a crossing bar at the intersection to warn motorists of an approaching train. Aside from the railroad track, the only visible warning sign at that time was the defective standard signboard STOP, LOOK and LISTEN wherein the sign Listen was lacking while that of Look was bent.[5] No whistle blow from the train was likewise heard before it finally bumped the car of Amores. [6] After impact, the car was dragged about ten (10) meters beyond the center of the crossing.[7] Amores died as a consequence thereof. On July 22, 1992, the heirs of Amores, consisting of his surviving wife and six children, herein respondents, filed a Complaint for Damages [8] against petitioners PNR and Virgilio J. Borja (Borja), PNRs locomotive driver at the time of the incident, before the RTC of Manila. The case was raffled to Branch 28 and was docketed as Civil Case No. 92-61987. In their complaint, respondents averred that the trains speedometer was defective, and that the petitioners negligence was the proximate cause of the mishap for their failure to take precautions to prevent injury to persons and property despite the dense population in the vicinity. They then prayed for actual and moral damages, as well as attorneys fees.[9] In their Answer,[10] the petitioners denied the allegations, stating that the train was railroad-worthy and without any defect. According to them, the proximate cause of the death of Amores was his own carelessness and negligence, and Amores wantonly disregarded traffic rules and regulations in crossing the railroad tracks and trying to beat the approaching train. They admitted that there was no crossing bar at the site of the accident because it was merely a barangay road.[11] PNR stressed that it exercised the diligence of a good father of a family in the selection and supervision of the locomotive driver and train engineer, Borja, and that the latter likewise used extraordinary diligence and caution to avoid the accident. Petitioners further asserted that respondents had the last clear chance to avoid the accident but recklessly failed to do so. After trial on the merits, on August 22, 1996, the RTC rendered judgment in favor of the petitioners, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered dismissing the complaint of the plaintiffs and the defendants counterclaim. The costs shall be halved and paid equally by the parties. The counsel for the defendants is hereby ordered to inform this court who is the legal representative of the deceased defendant, Virgilio Borja, within ten (10) days from receipt of a copy of this decision. SO ORDERED.[12]

The RTC rationalized that the proximate cause of the collision was Amores fatal misjudgment and the reckless course of action he took in crossing the railroad track even after seeing or hearing the oncoming train. On appeal, the CA reversed the RTC decision, as follows: WHEREFORE, the assailed Decision of the Regional Trial Court of Manila, Branch 28 is hereby REVERSED. The defendants PNR and the estate of Virgilio J. Borja are jointly and severally liable to pay plaintiffs the following: 1) 2) The amount of P122,300.00 for the cost of damage to the car; and, The amount of P50,000 as moral damages.

For lack of official receipts for funeral expenses and specimen of the last pay slip of the deceased, the claim for reimbursement of funeral expenses and claim for payment of support is hereby DENIED for lack of basis. Costs against Defendants. SO ORDERED.[13]

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In reversing the trial courts decision, the appellate court found the petitioners negligent. The court based the petitioners negligence on the failure of PNR to install a semaphore or at the very least, to post a flagman, considering that the crossing is located in a thickly populated area. Moreover, the signboard Stop, Look and Listen was found insufficient because of its defective condition as described above. Lastly, no negligence could be attributed to Amores as he exercised reasonable diligence in crossing the railroad track. Aggrieved by this reversal, the petitioners filed the present petition for review on certiorari, raising the following grounds: I THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN RENDERING ITS DECISION REVERSING THE DECISION OF THE REGIONAL TRIAL COURT OF MANILA BRANCH 28, IN NOT TAKING INTO CONSIDERATION THE PROVISION OF SECTION 42, R.A. 4136 OF THE LAND TRANSPORTATION AND TRAFFIC CODE. II THE DECISION OF THE COURT OF APPEALS IS CONTRARY TO THE EVIDENCE ON RECORD ADDUCED IN THE TRIAL ON THE MERIT IN CIVIL CASE NO. 92-61987.[14]

The petitioners insist that Amores must have heard the trains whistle and heeded the warning but, noting that the train was still a distance away and moving slowly, he must have calculated that he could beat it to the other side of the track before the train would arrive at the intersection. The petitioners likewise add that the train was railroad-worthy and that its defective speedometer did not affect the trains operation. Lastly, they insist that evidence showed sufficient warning signs strategically installed at the crossing to alert both motorists and pedestrians. Respondents, on the other hand, argue that the cause of the accident was petitioners carelessness, imprudence and laxity in failing to provide a crossing bar and keeper at the Kahilum II railway intersection. Considering that Kahilum II Street is in the middle of a thickly populated squatters area, and many pedestrians cross the railroad track, notwithstanding the fact that it is a public street and a main thoroughfare utilized in going to Herran Street, the presence of adequate warning signals would have prevented the untimely death of Amores. Another crucial point raised by the respondents is the manner in which Borja applied the brakes of the train only when the locomotive was already very near Amores car, as admitted by witness Querimit. Finally, respondents claim that Borjas failure to blow the locomotives horn, pursuant to the usual practice of doing the same 100 meters before reaching the Kahilum II crossing point is an earmark of recklessness on the part of the petitioners. The petition must fail. The only issue to be resolved in the present case is whether the appellate court was correct in ascribing negligence on the part of the petitioners. It was ascertained beyond quandary that the proximate cause of the collision is the negligence and imprudence of the petitioner PNR and its locomotive driver, Borja, in operating the passenger train. As the action is predicated on negligence, the relevant provision is Article 2176 of the New Civil Code, which states that: Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there was no pre-existing contractual relation between the parties, is called quasi-delict and is governed by the provisions of this chapter.

We have thoroughly reviewed the records of the case and we find no cogent reason to reverse the appellate courts decision. Negligence has been defined as the failure to observe for the protection of the interests of another person that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury.[15] Using the aforementioned philosophy, it may be reliably concluded that there is no hard and fast rule whereby such degree of care and vigilance is calibrated; it is dependent upon the circumstances in which a person finds himself. All that the law requires is that it is perpetually compelling upon a person to use that care and diligence expected of sensible men under comparable circumstances. [16] We hold that the petitioners were negligent when the collision took place. The transcript of stenographic notes reveals that the train was running at a fast speed because notwithstanding the application of the ordinary and emergency brakes, the train still dragged the car some distance away from the point of impact. Evidence likewise unveils the inadequate precautions taken by petitioner PNR to forewarn the public of the impending danger. Aside from not having any crossing bar, no flagman or guard to man the intersection at all times was posted on the day of the incident. A reliable signaling device in good condition, not just a dilapidated Stop, Look and Listen signage because of many years of neglect, is needed to give notice to the public. It is the responsibility of the railroad company to use reasonable care to keep the signal devices in working order. Failure to do so would be an indication of negligence. As held in the case of Philippine National Railway v. Brunty,[17] it may broadly be stated that railroad companies owe to the public a duty of exercising a reasonable degree of care to avoid injury to persons and property at railroad crossings, which duties pertain both to the operation of trains and to the maintenance of the crossings. Moreover, every corporation constructing or operating a railway shall make and construct at all points where such railway crosses any public road, good, sufficient, and safe crossings, and erect at such points, at sufficient elevation from such road as to admit a free passage of vehicles of every kind, a sign with large and distinct letters placed thereon, to give notice of the proximity of the railway, and warn persons of the necessity of looking out for trains.[18] The failure of the PNR to put a cross bar, or signal light, flagman or switchman, or semaphore is evidence of negligence and disregard of the safety of the public, even if there is no law or ordinance requiring it, because public safety demands that said device or equipment be installed.

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The petitioners insist that a train has a right-of-way in a railroad crossing under the existing laws. They derive their theory from Section 42 (d), Article III of R.A. 4136, otherwise known as the Land Transportation and Traffic Code, which states that: The driver of a vehicle upon a highway shall bring to a full stop such vehicle before traversing any through highway or railroad crossing: Provided, That when it is apparent that no hazard exists, the vehicle may be slowed down to five miles per hour instead of bringing it to a full stop.

They claim that motorists are enjoined by law to stop, look and listen before crossing railroad tracks and that a heavier responsibility rests upon the motorists in avoiding accidents at level crossings. It is true that one driving an automobile must use his faculties of seeing and hearing when nearing a railroad crossing. However, the obligation to bring to a full stop vehicles moving in public highways before traversing any through street only accrues from the time the said through street or crossing is so designated and sign-posted. From the records of the case, it can be inferred that Amores exercised all the necessary precautions required of him as to avoid injury to himself and to others. The witnesses testimonies showed that Amores slackened his speed, made a full stop, and then proceeded to cross the tracks when he saw that there was no impending danger to his life. Under these circumstances, we are convinced that Amores did everything, with absolute care and caution, to avoid the collision. It is settled that every person or motorist crossing a railroad track should use ordinary prudence and alertness to determine the proximity of a train before attempting to cross. We are persuaded that the circumstances were beyond the control of Amores for no person would sacrifice his precious life if he had the slightest opportunity to evade the catastrophe. Besides, the authority in this jurisdiction is that the failure of a railroad company to install a semaphore or at the very least, to post a flagman or watchman to warn the public of the passing train amounts to negligence. [19] In view of the foregoing, We will now discuss the liability of petitioner PNR. Article 2180 [20] of the New Civil Code discusses the liability of the employer once negligence or fault on the part of the employee has been established. The employer is actually liable on the assumption of juris tantum that the employer failed to exercise diligentissimi patris families in the selection and supervision of its employees. The liability is primary and can only be negated by showing due diligence in the selection and supervision of the employee, a factual matter that has not been demonstrated. [21] Even the existence of hiring procedures and supervisory employees cannot be incidentally invoked to overturn the presumption of negligence on the part of the employer. [22] WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated March 31, 2003 in CA-G.R. CV No. 54906 is hereby AFFIRMED. SO ORDERED. G.R. No. L-25599 April 4, 1968 COMPANY, plaintiff-appellee, LUZON STEVEDORING CORPORATION, defendants,

HOME INSURANCE vs. AMERICAN STEAMSHIP AGENCIES, INC. and AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant. William H. Quasha Ross, Selph, Salcedo and Associates for defendant-appellant. BENGZON, J.P., J.: and

Associates

for

plaintiff-appellee.

"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies, owner and operator of SS Crowborough. Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of First Instance of Manila a com plaint for recovery of P14,870.71 with legal interest, plus attorney's fees. In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity and quality that it had received the same from the carrier. It also claimed that plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim must be made within 24 hours from receipt of the cargo. American Steamship Agencies denied liability by alleging that under the provisions of the Charter party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the goods and that as a mere forwarding agent, it was not responsible for losses or damages to the cargo. On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation, having found the latter to have merely delivered what it received from the carrier in the same condition and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:

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(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor of third persons due to the conduct of the captain of the carrier; (b) The stipulation in the charter party contract exempting the owner from liability is against public policy under Article 1744 of the Civil Code; (c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot by contract exempt themselves from liability resulting from their negligence or that of their servants; and (d) When goods are delivered to the carrier in good order and the same are in bad order at the place of destination, the carrier is prima facie liable. Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's non-liability valid so as to absolve the American Steamship Agencies from liability for loss? The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading shall be governed by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are stamped "Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party dated London, Dec. 13, 1962." A perusal of the charter party3 referred to shows that while the possession and control of the ship were not entirely transferred to the charterer, 4 the vessel was chartered to its full and complete capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-versa,5 loading, stowing and discharging at its risk and expense.6 Accordingly, the charter party contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation. Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused by personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph.. Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the Civil Code under which a stipulation between the common carrier and the shipper or owner limiting the liability of the former for loss or destruction of the goods to a degree less than extraordinary diligence is valid provided it be reasonable, just and not contrary to public policy. The release from liability in this case was held unreasonable and contrary to the public policy on common carriers. The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. 8 As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, 9 and is deemed valid. Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a contract, for the contract is the charter party. 10 The consignee may not claim ignorance of said charter party because the bills of lading expressly referred to the same. Accordingly, the consignees under the bills of lading must likewise abide by the terms of the charter party. And as stated, recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless the same is due to personal acts or negligence of said owner or its manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence has been proved. WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff. No costs. So ordered. G.R. No. 101503 September 15, 1993 PLANTERS PRODUCTS, 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. INC., petitioner,

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.

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On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively. Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party which reads: 16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau inspector or substitute appointed by charterers for his account certifying the vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at the vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of the inspector before daytime commences. (emphasis supplied) After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5 Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the 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. 11The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and dirt. 12 Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods shipped and the diminution in value of that portion said to have been contaminated with dirt. 13 Respondent SSA explained that they were not able to respond to the consignee's claim for payment because, according to them, what they received was just a request for shortlanded certificate and not a formal claim, and that this "request" was denied by them because they "had nothing to do with the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The defendant carrier argued that the strict public policy governing common carriers does not apply to them because they have become private carriers by reason of the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15 . . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss or damage of the goods it contracts to transport, all that a shipper has to do in a suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery by it of less than what it received. After that, the burden of proving that the loss or damage was due to any of the causes which exempt him from liability is shipted to the carrier, common or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid, and the defendants considered private carriers, it was still incumbent upon them to prove that the shortage or contamination sustained by the cargo is attributable to the fault or negligence on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the cargo. This they failed to do. By this omission, coupled with their failure to destroy the presumption of negligence against them, the defendants are liable (emphasis supplied). On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do not find application in the case at bar. Thus . . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202). But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was under the impression that it did not have to establish defendant's negligence. Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not negligent in performing its obligation . . . 18 (emphasis supplied). Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the issue raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the presumption of negligence provided under the Civil Code applies only to common carriers and not to private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain with the shipowner, absent any stipulation to the contrary, such shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired during the entire voyage.

25

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had exercised that degree of diligence required of him under the law. It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it fitting to first define important terms which are relevant to our discussion. A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and possession and consequent control over its navigation, including the master and the crew, who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the ship. Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or transporting passengers or both for compensation as a public employment and not as a casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the business, such that if the undertaking is a single transaction, not a part of the general business or occupation, although involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier. 24 Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier. It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner and therefore continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is evident in the present case considering that the steering of the ship, the manning of the decks, the determination of the course of the voyage and other technical incidents of maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27 It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a 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 charterparty is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. 28 Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the rule in the United States that a ship chartered by a single shipper to carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more particularly, the rules governing common carriers. We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to convey the goods of one and of several persons. Where the ship herself is let to a charterer, so that he takes over the charge and control of her, the case is different; the shipowner is not then a carrier. But where her services only are let, the same grounds for imposing a strict responsibility exist, whether he is employed by one or many. The master and the crew are in each case his servants, the freighter in each case is usually without any representative on board the ship; the same opportunities for fraud or collusion occur; and the same difficulty in discovering the truth as to what has taken place arises . . . In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee should first prove the fact of shipment and its consequent loss or damage while the same was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due to fortuitous event, or some other circumstances inconsistent with its liability. 31 To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima faciepresumption of negligence. The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the ship was in transit as the weight of the steel covers made it impossible for a person to open without the use of the ship's boom. 32 It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole operation on rotation basis. 34 Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was confirmed by respondent appellate court thus

26

. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not negligent in performing its obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses clearly show absence of negligence by the defendant carrier; that the hull of the vessel at the time of the discharge of the cargo was sealed and nobody could open the same except in the presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and it was overlaid with tarpaulins, three layers of tarpaulins and therefore their contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied). The period during which private respondent was to observe the degree of diligence required of it as a public carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the parties in the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage only when the stowing is done by stevedores employed by him, and therefore under his control and supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36 Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the containers. The Code of Commerce also provides that all losses and deterioration which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against him, that they arose through his negligence or by reason of his having failed to take the precautions which usage has established among careful persons. 38 Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the materials during the unloading process. The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still remains potent and usable although no longer saleable in its original market value. The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the elements and the grimy condition of the various pieces of equipment used in transporting and hauling it. The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the same was being transported from the ship to the dump trucks and finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo. The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained from time to time at the harbor area while the cargo was being discharged according to the supply officer of PPI, who also testified that it was windy at the waterfront and along the shoreline where the dump trucks passed enroute to the consignee's warehouse. Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the goods it carried. WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED. Costs against petitioner. SO ORDERED.

[G.R. No. 112287. December 12, 1997]

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.

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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: 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 xx 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 xx xx

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 xx xx

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. xxx xxx x x x

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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 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 ofP941,145.18. 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. (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 KAIJ I 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 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.

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(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 same Voyage Charter Hire contract to pay demurrage of P8,000.00 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 to P44,000.00 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;

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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; 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: 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

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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. 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 vessels first 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.

32

Who Were Negligent: Seamen or Stevedores?

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: A: So that the cargo would not be soaked with water. 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: xxx Forty-five feet by thirty-five feet, sir. xxx xxx

Q: How was the canvas supported in the middle of the hatch opening? A: There is a hatch board.

ATTY DEL ROSARIO 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?

33

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: 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]

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

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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 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 6. Loading/Discharging Rate : 750 tons per WWDSHINC. xxx xxx

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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: 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.

[G.R. No. 102316. June 30, 1997]

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents. DECISION PANGANIBAN, J.: Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the cargo[1] valid? This is the main question raised in this petition for review assailing the Decision of Respondent Court of Appeals [2] in CA-G.R. No. CV20156 promulgated on October 15, 1991. The Court of Appeals modified the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads: WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest thereon from the date of demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS (P2,000,000.00) representing the value of lost logs plus legal interest from the date of demand on April 24, 1984 until full payment thereof; the reasonable attorneys fees in the amount equivalent to five (5) percent of the amount of the claim and the costs of the suit. Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges. Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.

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In its assailed Decision, Respondent Court of Appeals held: WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. [3]

The Facts

The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows: It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V Seven Ambassador the formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila. On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date. On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua. In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs insured logs. On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary stamps due on the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code. On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim. After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both defendants shipping corporation and the surety company appealed. Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment of errors, to wit: A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was not due to fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing the iron chains to snap and the logs to roll to the portside. B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from logs (sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745 of the New Civil Code. C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the alternative and ordering/directing it to pay plaintiffappellee the amount of two million (P2,000,000.00) pesos representing the value of the logs plus legal interest from date of demand until fully paid. D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee reasonable attorneys fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit. E. F. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for attorneys fees. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors: A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and Insurance Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker Columbia Insurance Brokers, Ltd. B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on the policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc. C. D. The trial court erred in not applying Section 77 of the Insurance Code. The trial court erred in disregarding the receipt of payment clause attached to and forming part of the Marine Cargo Insurance Policy No. 84/24229.

E. The trial court in disregarding the statement of account or bill stating the amount of premium and documentary stamps to be paid on the policy by the plaintiffappellee. F. The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of premium and documentary stamps.

G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the amount is fully paid, H. The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in its counterclaim.

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The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable to the plaintiff for the latters lost logs.[4] The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance Company (South Sea), but modified it by holding that Seven Brothers Shipping Corporation (Seven Brothers) was not liable for the lost cargo. [5] In modifying the RTC judgment, the respondent appellate court ratiocinated thus: It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of loss. The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the shipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24). The shipping corporation should not therefore be held liable for the loss of the logs. [6] South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of South Sea.[7] There the Court found no reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed an authorized agent of South Sea when he received Valenzuelas premium payment for the marine cargo insurance policy which was thus binding on the insurer.[8] The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which exempted Seven Brothers from any liability for the lost cargo.

The Issue

Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner and the private respondent exempting the latter from liability for the loss of petitioners logs arising from the negligence of its (Seven Brothers) captain.[9]

The Courts Ruling

The petition is not meritorious.

Validity of Stipulation is Lis Mota

The charter party between the petitioner and private respondent stipulated that the (o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the cargo.[10] The validity of this stipulation is the lis mota of this case. It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous event. [11] Likewise undisputed is the status of Private Respondent Seven Brothers as a private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter admits this in its petition.[12] The trial court deemed the charter party stipulation void for being contrary to public policy,[13] citing Article 1745 of the Civil Code which provides: Art. 1745. (1) (2) (3) Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

That the goods are transported at the risk of the owner or shipper; That the common carrier will not be liable for any loss, destruction, or deterioration of the goods; That the common carrier need not observe any diligence in the custody of the goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movables transported; (5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;

(6) That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished; (7) That the common carrier is 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.

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Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of Commerce [14] and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code, [15] petitioner further contends that said stipulation gives no duty or obligation to the private respondent to observe the diligence of a good father of a family in the custody and transportation of the cargo." The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by petitioner may not be applied unless expressly stipulated by the parties in their charter party. [16] In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article 1306[17] of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a contract of adhesion. We stress that 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. The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc.[18] In that case, the trial court similarly nullified a stipulation identical to that involved in the present case for being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for damages resulting from the partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine: The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid. Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in this case of a ship totally chartered for the use of a single party.[19] (Underscoring supplied.) Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of transportation with common carriers without a hand or a voice in the preparation thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on common carriers extends its protective mantle against onesided stipulations inserted in tickets, invoices or other documents over which the riding public has no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage is not similarly situated. It can -- and in fact it usually does -- enter into a free and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate the carriers obligations and liabilities over the shipment which, in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the protection of the law on common carriers. When the charterer decides to exercise this option, he takes a normal business risk. Petitioner contends that the rule in Home Insurance is not applicable to the present case because it covers only a stipulation exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation exempting a private carrier like private respondent from the negligence of his employee or servant which is the situation in this case. [20] This contention of petitioner is bereft of merit, for it raises a distinction without any substantive difference. The case of Home Insurance specifically dealt with the liability of the shipowner for acts or negligence of its captain and crew[21] and a charter party stipulation which exempts the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph.[22] Undoubtedly, Home Insurance is applicable to the case at bar. The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the Philippines[23] deserves scant consideration. The Court there categorically held that said rule was reasonable and proceeded to apply it in the resolution of that case. Petitioner miserably failed to show such circumstances or arguments which would necessitate a departure from a well-settled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which provides that (j)udicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines. In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid.[24]

Other Arguments

On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.

Articles 586 and 587, Code of Commerce

Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce which confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or conduct of the captain. [25] We are not persuaded. Whatever rights petitioner may have under the aforementioned statutory provisions were waived when it entered into the charter party. Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by law. As a general rule patrimonial rights may be waived as opposed to rights to personality and family rights which may not be made the subject of waiver. [26] Being patently and undoubtedly patrimonial, petitioners right conferred under said articles may be waived. This, the petitioner did by acceding to the contractual stipulation that it is solely responsible for any damage to the cargo, thereby exempting the private carrier from any responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy considerations for the general public or third persons are not affected thereby.

Articles 1170 and 1173, Civil Code

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Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and 1173 of the Civil Code[27] which read: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, shall apply. If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited by petitioner are, therefore, inapplicable to the present case. Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the instant case, Article 362 of the Code of Commerce[28] provides the standard of ordinary diligence for the carriage of goods by a carrier. The standard of diligence under this statutory provision may, however, be modified in a contract of private carriage as the petitioner and private respondent had done in their charter party.

Cases Cited by Petitioner Inapplicable

Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto & Co.[30] and argues that the public policy considerations stated there vis--vis contractual stipulations limiting the carriers liability be applied with equal force to this case.[31] It also cites Manila Railroad Co. vs. Compaia Transatlantica[32] and contends that stipulations exempting a party from liability for damages due to negligence should not be countenanced and should be strictly construed against the party claiming its benefit. [33] We disagree. The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of such policy considerations and concomitantly stricter rules. As already discussed above, the public policy considerations behind the rigorous treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws applicable to common carriers are not applied to private carriers. The case of Manila Railroad is also inapplicable because the action for damages there does not involve a contract for transportation. Furthermore, the defendant therein made a promise to use due care in the lifting operations and, consequently, it was bound by its undertaking; besides, the exemption was intended to cover accidents due to hidden defects in the apparatus or other unforseeable occurrences not caused by its personal negligence. This promise was thus construed to make sense together with the stipulation against liability for damages.[34] In the present case, we stress that the private respondent made no such promise. The agreement of the parties to exempt the shipowner from responsibility for any damage to the cargo and place responsibility over the same to petitioner is the lone stipulation considered now by this Court. Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., [36] N. T. Hashim and Co. vs. Rocha and Co.,[37] Ohta Development Co. vs. SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co. [39] in support of its contention that the shipowner be held liable for damages.[40] These however are not on all fours with the present case because they do not involve a similar factual milieu or an identical stipulation in the charter party expressly exempting the shipowner from responsibility for any damage to the cargo.

Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is not legally entitled to collect twice for a single loss. [41] In view of the above disquisition upholding the validity of the questioned charter party stipulation and holding that petitioner may not recover from private respondent, the present issue is moot and academic. It suffices to state that the Resolution of this Court dated June 2, 1995[42] affirming the liability of South Sea does not, by itself, necessarily preclude the petitioner from proceeding against private respondent. An aggrieved party may still recover the deficiency from the person causing the loss in the event the amount paid by the insurance company does not fully cover the loss. Article 2207 of the Civil Code provides: ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED. SO ORDERED. G.R. No. L-28673 October 23, 1984 SAMAR MINING COMPANY, vs. NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants. INC., plaintiff-appellee,

CUEVAS, J.:+.wph!1 This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering the subject shipment.

40

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

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means: t.hqw to transfer for further transportation from one ship or conveyance to another
9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: t.hqw The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis supplied) and in Section 11 of the same Bill, which provides: t.hqw Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part of the goods before or after loading at the original port of shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and without any other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10 Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11 We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading. The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us, provides: t.hqw The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody. (Par. 2, last subpar.) xxx xxx xxx

41

The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12 Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that: t.hqw ... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14 Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while the same are not in the latter's actual custody. The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: t.hqw Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738. Article 1738 referred to in the foregoing provision runs thus: t.hqw Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier. It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us. But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency, 21 This can be gleaned from the following provisions of the New Civil Code on the obligations of the agent: t.hqw Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his nonperformance, the principal may suffer. xxx xxx xxx Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own. Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power but without designating the person and the person appointed was notoriously incompetent or insolvent. xxx xxx xxx Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

42

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting transshipment. The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question. WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED. No costs. SO ORDERED.1wph1 G.R. No. L-69044 May 29, 1987 EASTERN SHIPPING LINES, vs. INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION,respondents. No. 71478 May 29, 1987 EASTERN SHIPPING LINES, vs. THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO., LTD.,respondents. INC., petitioner, INC., petitioner,

MELENCIO-HERRERA, J.: These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. The basic facts are not in controversy: In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation. In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00. Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto the rights of the latter as the insured. G.R. NO. 69044 On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087). Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it is not liable under the law. On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed. Petitioner Carrier is now before us on a Petition for Review on Certiorari. G.R. NO. 71478 On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier. Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper. On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,

43

affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA. Hence, this Petition for Review on certiorari by Petitioner Carrier. Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their respective Memoranda, which they have done. On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then pending resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was given due course. At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition: There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented by various counsel representing various consignees or insurance companies. The common defendant in these cases is petitioner herein, being the operator of said vessel. ... 1 Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter action. 3 The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier? On the Law Applicable The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7 On the Burden of Proof Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8 Common carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity; xxx xxx xxx 9 Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13 Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy towards agriculture. 14 As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law. In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact: The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort were not enough to control the fire. Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code. 15

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Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo. And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily. Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that: Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from (b) Fire, unless caused by the actual fault or privity of the carrier. xxx xxx xxx In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier. On the US $500 Per Package Limitation: Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the COGSA, which reads: (5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence, but all be conclusive on the carrier. By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be Liable for more than the amount of damage actually sustained. xxx xxx xxx Article 1749 of the New Civil Code also allows the limitations of liability in this wise: Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties. 16 In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of damage actually sustained." The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld. With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75. In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order. In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's liability." We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit. In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which had been shipped in vessel supplied containers. The

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U.S. District Court for the Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified and affirmed holding that: When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5). Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished containers whose contents are disclosed should be treated as packages, the interest in securing international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5). ... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted): Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted, however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements, whether or not forseeable by the COGSA promulgators, do not warrant a distortion or artificial construction of the statutory term "package." A ruling that these large reusable metal pieces of transport equipment qualify as COGSA packages at least where, as here, they were carrier owned and supplied would amount to just such a distortion. Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the ship. They simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous to those employed in traditional on board stowage. In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are packed into cardboard cartons which are then placed in containers, the cartons and not the containers are the packages. xxx xxx xxx The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test: Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear and unambiguous language, an agreement to treat the container as the package. (Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied) In this case, the Bill of Lading (Exhibit "A") disclosed the following data: 2 Containers (128) Cartons) Men's Garments Fabrics and Accessories Freight Prepaid Say: Two (2) Containers Only. Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability. True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print: 11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any type of container(s). The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

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On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only) Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan by written interrogatories. We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point, the Trial Court found: xxx xxx xxx Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was its undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time it had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant itself is to blame for its failure to adduce evidence in support of its defenses. xxx xxx xxx 22 Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24 On the Award of Attorney's Fees: Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478. Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed. WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs. 2) In G.R.No.71478,the judgment is hereby affirmed. SO ORDERED. G.R. No. L-49407 August 19, 1988 NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees. No. L-49469 August 19, 1988 MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees. Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.: These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee. On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case. With costs against the defendant Maritime Company of the Philippines. (pp. 34-35, Rollo, GR No. L-49469)

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The facts of these cases as found by the Court of Appeals, are as follows: The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38) On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6). Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC. NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966. On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC. MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the decision was denied by the trial court in its order dated February 13,1970. On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court. Hence these appeals by certiorari. NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136). In its brief, NDC cited the following assignments of error: I THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES. II THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo). On its part, MCP assigned the following alleged errors: I THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT. II

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THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED. III THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI IV THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU. V THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF. VI THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo) The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder. The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as earlier stated. This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code. In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan. Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law. It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels. More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes. Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]). There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as

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limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application. On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16). The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43). MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority. As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability. It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]). As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their liability. MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce). MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility. Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act. PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate Court is AFFIRMED. SO ORDERED. G.R. No. L-8095 March 31, 1915

F.C. FISHER, plaintiff, vs. YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the Philippine Islands, IGNACIO VILLAMOR, as AttorneyGeneral of the Philippine Islands, and W.H. BISHOP, as prosecuting attorney of the city of Manila, respondents. Haussermann, Cohn and Fisher for plaintiff. Office of the Solicitor-General Harvey for respondents. CARSON, J.: The real question involved in these proceedings is whether the refusal of the owners and officers of a steam vessel, duly licensed to engage in the coastwise trade of the Philippine Islands and engaged in that trade as a common carrier, to accept for carriage "dynamite, powder or other explosives" from any and all shippers who may offer such explosives for carriage can be held to be a lawful act without regard to any question as to the conditions under which such explosives are offered to carriage, or as to the suitableness of the vessel for the transportation of such explosives, or as to the possibility that the refusal to accept such articles of commerce in a particular case may have the effect of subjecting any person or locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or discrimination.

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Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship Company, the owner of a large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine Islands; that on or about June 10, 1912, the directors of the company adopted a resolution which was thereafter ratified and affirmed by the shareholders of the company, "expressly declaring and providing that the classes of merchandise to be carried by the company in its business as a common carrier do not include dynamite, powder or other explosives, and expressly prohibiting the officers, agents and servants of the company from offering to carry, accepting for carriage said dynamite, powder or other explosives;" that thereafter the respondent Acting Collector of Customs demanded and required of the company the acceptance and carriage of such explosives; that he has refused and suspended the issuance of the necessary clearance documents of the vessels of the company unless and until the company consents to accept such explosives for carriage; that plaintiff is advised and believes that should the company decline to accept such explosives for carriage, the respondent Attorney-General of the Philippine Islands and the respondent prosecuting attorney of the city of Manila intend to institute proceedings under the penal provisions of sections 4, 5, and 6 of Act No. 98 of the Philippine Commission against the company, its managers, agents and servants, to enforce the requirements of the Acting Collector of Customs as to the acceptance of such explosives for carriage; that notwithstanding the demands of the plaintiff stockholder, the manager, agents and servants of the company decline and refuse to cease the carriage of such explosives, on the ground that by reason of the severity of the penalties with which they are threatened upon failure to carry such explosives, they cannot subject themselves to "the ruinous consequences which would inevitably result" from failure on their part to obey the demands and requirements of the Acting Collector of Customs as to the acceptance for carriage of explosives; that plaintiff believes that the Acting Collector of Customs erroneously construes the provisions of Act No. 98 in holding that they require the company to accept such explosives for carriage notwithstanding the above mentioned resolution of the directors and stockholders of the company, and that if the Act does in fact require the company to carry such explosives it is to that extent unconstitutional and void; that notwithstanding this belief of complainant as to the true meaning of the Act, the questions involved cannot be raised by the refusal of the company or its agents to comply with the demands of the Acting Collector of Customs, without the risk of irreparable loss and damage resulting from his refusal to facilitate the documentation of the company's vessels, and without assuming the company to test the questions involved by refusing to accept such explosives for carriage. The prayer of the complaint is as follows: Wherefore your petitioner prays to this honorable court as follows: First. That to the due hearing of the above entitled action be issued a writ of prohibition perpetually restraining the respondent Yangco Steamship Company, its appraisers, agents, servants or other representatives from accepting to carry and from carrying, in steamers of said company dynamite, powder or other explosive substance, in accordance with the resolution of the board of directors and of the shareholders of said company. Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S. Stanley as Acting Collector of Customs of the Philippine Islands, his successors, deputies, servants or other representatives, from obligating the said Yangco Steamship Company, by any means whatever, to carry dynamite, powder or other explosive substance. Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio Villamor as Attorney-General of the Philippine Islands, and W.H. Bishop as prosecuting attorney of the city of Manila, their deputies representatives or employees, from accusing the said Yangco Steamship Company, its officers, agents or servants, of the violation of Act No. 98 by reason of the failure or omission of the said company to accept for carriage out to carry dynamite powder or other explosive. Fourth. That the petitioner be granted such other remedy as may be meet and proper. To this complaint the respondents demurred, and we are of opinion that the demurrer must be sustained, on the ground that the complaint does not set forth facts sufficient to constitute a cause of action. It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company from accepting for carriage on any of its vessels, dynamite, powder or other explosives, under any conditions whatsoever; to prohibit the Collector of Customs and the prosecuting officers of the government from all attempts to compel the company to accept such explosives for carriage on any of its vessels under any conditions whatsoever; and to prohibit these officials from any attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the company or its officers so to do; and this without regard to the conditions as to safety and so forth under which such explosives are offered for carriage, and without regard also to any question as to the suitableness for the transportation of such explosives of the particular vessel upon which the shipper offers them for carriage; and further without regard to any question as to whether such conduct on the part of the steamship company and its officers involves in any instance an undue, unnecessary or unreasonable discrimination to the prejudice of any person, locality or particular kind of traffic. There are no allegations in the complaint that for some special and sufficient reasons all or indeed any of the company's vessels are unsuitable for the business of transporting explosives; or that shippers have declined or will in future decline to comply with such reasonable regulations and to take such reasonable precautions as may be necessary and proper to secure the safety of the vessels of the company in transporting such explosives. Indeed the contention of petitioner is that a common carrier in the Philippine Islands may decline to accept for carriage any shipment of merchandise of a class which it expressly or impliedly declines to accept from all shippers alike, because as he contends "the duty of a common carrier to carry for all who offer arises from the public profession he has made, and limited by it." In support of this contention counsel cites for a number of English and American authorities, discussing and applying the doctrine of the common law with reference to common carriers. But it is unnecessary now to decide whether, in the absence of statute, the principles on which the American and English cases were decided would be applicable in this jurisdiction. The duties and liabilities of common carriers in this jurisdiction are defined and fully set forth in Act No. 98 of the Philippine Commission, and until and unless that statute be declared invalid or unconstitutional, we are bound by its provisions. Sections 2, 3 and 4 of the Act are as follows: SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of passengers or property as above set forth to make or give any unnecessary or unreasonable preference or advantage to any particular person, company, firm, corporation or locality, or any particular kind of traffic in any respect whatsoever, or to subject any particular person, company, firm, corporation or locality, or any particular kind of traffic, to undue or unreasonable prejudice or discrimination whatsoever, and such unjust preference or discrimination is also hereby prohibited and declared to be unlawful. SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid shall, under any pretense whatsoever, fail or refuse to receive for carriage, and as promptly as it is able to do so without discrimination, to carry any person or property offering for carriage, and in the order in which such persons or property are offered for carriage, nor shall any such common carrier enter into any arrangement, contract or agreement with any other person or corporation whereby the latter is given an exclusive or preferential or monopolize the carriage any class or kind of property to the exclusion or partial exclusion of any other person or persons, and the entering into any such arrangement, contract or agreement, under any form or pretense whatsoever, is hereby prohibited and declared to be unlawful.

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SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in the transportation of passengers or property as hereinbefore set forth is hereby declared to be punishable by a fine not exceeding five thousand dollars money of the United States, or by imprisonment not exceeding two years, or both, within the discretion of the court. The validity of this Act has been questioned on various grounds, and it is vigorously contended that in so far as it imposes any obligation on a common carrier to accept for carriage merchandise of a class which he makes no public profession to carry, or which he has expressly or impliedly announced his intention to decline to accept for carriage from all shippers alike, it is ultra vires, unconstitutional and void. We may dismiss without extended discussion any argument or contention as to the invalidity of the statute based on alleged absurdities inherent in its provisions or on alleged unreasonable or impossible requirements which may be read into it by a strained construction of its terms. We agree with counsel for petitioner that the provision of the Act which prescribes that, "No common carrier ... shall, under any pretense whatsoever, fail or refuse to receive for carriage ... to carry any person or property offering for carriage," is not to be construed in its literal sense and without regard to the context, so as to impose an imperative duty on all common carriers to accept for carriage, and to carry all and any kind of freight which may be offered for carriage without regard to the facilities which they may have at their disposal. The legislator could not have intended and did not intend to prescribe that a common carrier running passenger automobiles for hire must transport coal in his machines; nor that the owner of a tank steamer, expressly constructed in small watertight compartments for the carriage of crude oil must accept common carrier must accept and carry contraband articles, such as opium, morphine, cocaine, or the like, the mere possession of which is declared to be a criminal offense; nor that common carriers must accept eggs offered for transportation in paper parcels or any merchandise whatever do defectively packed as to entail upon the company unreasonable and unnecessary care or risks. Read in connection with its context this, as well as all the other mandatory and prohibitory provisions of the statute, was clearly intended merely to forbid failures or refusals to receive persons or property for carriage involving any "unnecessary or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular kind of traffic in any respect whatsoever," or which would "subject any particular person, company, firm, corporation or locality, or any particular kind of traffic to any undue or unreasonable prejudice or discrimination whatsoever." The question, then, of construing and applying the statute, in cases of alleged violations of its provisions, always involves a consideration as to whether the acts complained of had the effect of making or giving an "unreasonable or unnecessary preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality, or particular kind of traffic to any undue or unreasonable prejudice or discrimination. It is very clear therefore that the language of the statute itself refutes any contention as to its invalidity based on the alleged unreasonableness of its mandatory or prohibitory provisions. So also we may dismiss without much discussion the contentions as to the invalidity of the statute, which are based on the alleged excessive severity of the penalties prescribed for violation of its provisions. Upon general principles it is peculiarly and exclusively within the province of the legislator to prescribe the pains and penalties which may be imposed upon persons convicted of violations of the laws in force within his territorial jurisdiction. With the exercise of his discretion in this regard where it is alleged that excessive fines or cruel and unusual punishments have been prescribed, and even in such cases the courts will not presume to interfere in the absence of the clearest and most convincing argument and proof in support of such contentions. (Weems vs. United States, 217 U.S., 349; U.S. vs. Pico, 18 Phil. Rep., 386.) We need hardly add that there is no ground upon which to rest a contention that the penalties prescribed in the statute under consideration are either excessive or cruel and unusual, in the sense in which these terms are used in the organic legislation in force in the Philippine Islands. But it is contended that on account of the penalties prescribed the statute should be held invalid upon the principles announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard (183 U.S., 79, 102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs.Mayer (416 Fed., 150). We are satisfied however that the reasoning of those cases is not applicable to the statute under consideration. The principles announced in those decisions are fairly indicated in the following citations found in petitioner's brief: But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute, so burdens any challenge thereof in the courts that the party affected is necessarily constrained to submit rather than take the chances of the penalties imposed, then it becomes a serious question whether the party is not deprived of the equal protection of the laws. (Cotting vs. Goddard, 183 U. S., 79, 102.) It may therefore be said that when the penalties for disobedience are by fines so enormous and imprisonment so severe as to intimidate the company and its officers from resorting to the courts to test the validity of the legislation, the result is the same as if the law in terms prohibited the company from seeking judicial construction of laws which deeply affect its rights. It is urged that there is no principle upon which to base the claim that a person is entitled to disobey a statute at least once, for the purpose of testing its validity, without subjecting himself to the penalties for disobedience provided by the statute in case it is valid. This is not an accurate statement of the case. Ordinarily a law creating offenses in the nature of misdemeanors or felonies relates to a subject over which the jurisdiction of the legislature is complete in any event. In the case, however, of the establishment of certain rates without any hearing, the validity of such rates necessarily depends upon whether they are high enough to permit at least some return upon the investment (how much it is not now necessary to state), and an inquiry as to that fact is a proper subject of judicial investigation. If it turns out that the rates are too low for that purpose, then they are illegal. Now, to impose upon a party interested the burden of obtaining a judicial decision of such a question (no prior hearing having been given) only upon the condition that, if unsuccessful, he must suffer imprisonment and pay fines, as provided in these acts, is, in effect, to close up all approaches to the courts, and thus prevent any hearing upon the question whether the rates as provided by the acts are not too low, and therefore invalid. The distinction is obvious between a case where the validity of the act depends upon the existence of a fact which can be determined only after investigation of a very complicated and technical character, and the ordinary case of a statute upon a subject requiring no such investigation, and over which the jurisdiction of the legislature is complete in any event. We hold, therefore, that the provisions of the acts relating to the enforcement of the rates, either for freight or passengers, by imposing such enormous fines and possible imprisonment as a result of an unsuccessful effort to test the validity of the laws themselves, are unconstitutional on their face, without regard to the question of the insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147, 148.) An examination of the general provisions of our statute, of the circumstances under which it was enacted, the mischief which it sought to remedy and of the nature of the penalties prescribed for violations of its terms convinces us that, unlike the statutes under consideration in the above cited cases, its enactment involved no attempt to prevent common carriers "from resorting to the courts to test the validity of the legislation;" no "effort to prevent any inquiry" as to its validity. It imposes no arbitrary obligation upon the company to do or to refrain from doing anything. It makes no attempt to compel such carriers to do business at a fixed or arbitrarily designated rate, at the risk of separate criminal prosecutions for every demand of a higher or a different rate. Its penalties can be imposed only upon proof of "unreasonable," "unnecessary" and "unjust" discriminations, and range from a maximum which is certainly not excessive for willful, deliberate and contumacious violations of its provisions by a great and powerful corporation, to a minimum which may be a merely nominal fine. With so wide a range of discretion for a contention on the part of any common carrier that it or its officers are "intimidated from resorting to the courts to test the validity" of the provisions of the statute prohibiting such "unreasonable," "unnecessary" and "unjust" discriminations, or to test in any particular case whether a given course of conduct does in fact involve such discrimination. We will presume, for the purpose of declaring

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the statute invalid, that there is so real a danger that the Courts of First Instance and this court on appeal will abuse the discretion thus conferred upon us, as to intimidate any common carrier, acting in good faith, from resorting to the courts to test the validity of the statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable restraints of trade, and unreasonable conduct in various forms of human activity are so familiar and have been so frequently sustained in the courts, as to render extended discussion unnecessary to refute any contention as to the invalidity of the statute under consideration, merely it imposes upon the carrier the obligation of adopting one of various courses of conduct open to it, at the risk of incurring a prescribed penalty in the event that the course of conduct actually adopted by it should be held to have involved an unreasonable, unnecessary or unjust discrimination. Applying the test announced in Ex parte Young, supra, it will be seen that the validity of the Act does not depend upon "the existence of a fact which can be determined only after investigation of a very complicated and technical character," and that "the jurisdiction of the legislature" over the subject with which the statute deals "is complete in any event." There can be no real question as to the plenary power of the legislature to prohibit and to penalize the making of undue, unreasonable and unjust discriminations by common carriers to the prejudice of any person, locality or particular kind of traffic. (See Munn vs. Illinois, 94 U.S., 113, and other cases hereinafter cited in support of this proposition.) Counsel for petitioner contends also that the statute, if construed so as to deny the right of the steamship company to elect at will whether or not it will engage in a particular business, such as that of carrying explosives, is unconstitutional "because it is a confiscation of property, a taking of the carrier's property without due process of law," and because it deprives him of his liberty by compelling him to engage in business against his will. The argument continues as follows: To require of a carrier, as a condition to his continuing in said business, that he must carry anything and every thing is to render useless the facilities he may have for the carriage of certain lines of freight. It would be almost as complete a confiscation of such facilities as if the same were destroyed. Their value as a means of livelihood would be utterly taken away. The law is a prohibition to him to continue in business; the alternative is to get out or to go into some other business the same alternative as was offered in the case of the Chicago & N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on as follows: "Whatever of force there may be in such arguments, as applied to mere personal property capable of removal and use elsewhere, or in other business, it is wholly without force as against railroad corporations, so large a proportion of whose investment is in the soil and fixtures appertaining thereto, which cannot be removed. For a government, whether that government be a single sovereign or one of the majority, to say to an individual who has invested his means in so laudable an enterprise as the construction of a railroad, one which tends so much to the wealth and prosperity of the community, that, if he finds that the rates imposed will cause him to do business at a loss, he may quit business, and abandon that road, is the very irony of despotism. Apples of Sodom were fruit of joy in comparison. Reading, as I do, in the preamble of the Federal Constitution, that it was ordained to "establish justice," I can never believe that it is within the property of an individual invested in and used for a purpose in which even the Argus eyes of the police power can see nothing injurious to public morals, public health, or the general welfare. I read also in the first section of the bill of rights of this state that "all men are by nature free and equal, and have certain inalienable rights, among which are those of enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety and happiness;" and I know that, while that remains as the supreme law of the state, no legislature can directly or indirectly lay its withering or destroying hand on a single dollar invested in the legitimate business of transportation." (Chicago & N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.) It is manifest, however, that this contention is directed against a construction of the statute, which, as we have said, is not warranted by its terms. As we have already indicated, the statute does not "require of a carrier, as a condition to his continuing in said business, that he must carry anything and everything," and thereby "render useless the facilities he may have for the carriage of certain lines of freight." It merely forbids failures or refusals to receive persons or property for carriage which have the effect of giving an "unreasonable or unnecessary preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality or particular kind of traffic to any undue or unreasonable prejudice or discrimination. Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair, reasonable and valid exercise of government," and that "it is necessary and proper that such discrimination be prohibited and prevented," but he contends that "on the other hand there is no reasonable warrant nor valid excuse for depriving a person of his liberty by requiring him to engage in business against his will. If he has a rolling boat, unsuitable and unprofitable for passenger trade, he may devote it to lumber carrying. To prohibit him from using it unless it is fitted out with doctors and stewards and staterooms to carry passengers would be an invalid confiscation of this property. A carrier may limit his business to the branches thereof that suit his convenience. If his wagon be old, or the route dangerous, he may avoid liability for loss of passengers' lives and limbs by carrying freight only. If his vehicles require expensive pneumatic tires, unsuitable for freight transportation, ha may nevertheless carry passengers. The only limitation upon his action that it is competent for the governing authority to impose is to require him to treat all alike. His limitations must apply to all, and they must be established limitations. He cannot refuse to carry a case of red jusi on the ground that he has carried for others only jusi that he was green, or blue, or black. But he can refuse to carry red jusi, if he has publicly professed such a limitation upon his business and held himself out as unwilling to carry the same for anyone." To this it is sufficient answer to say that there is nothing in the statute which would deprive any person of his liberty "by requiring him to engage in business against his will." The prohibitions of the statute against undue, unnecessary or unreasonable regulations which the legislator has seen fit to prescribe for the conduct of the business in which the carrier is engaged of his own free will and accord. In so far as the self-imposed limitations by the carrier upon the business conducted by him, in the various examples given by counsel, do not involve an unreasonable or unnecessary discrimination the statute would not control his action in any wise whatever. It operates only in cases involving such unreasonable or unnecessary preferences or discriminations. Thus in the hypothetical case suggested by the petitioner, a carrier engaged in the carriage of green, blue or black jusi, and duly equipped therefor would manifestly be guilty of "giving an unnecessary and unreasonable preference to a particular kind of traffic" and of subjecting to "an undue and reasonable prejudice a particular kind of traffic," should he decline to carry red jusi, to the prejudice of a particular shipper or of those engaged in the manufacture of that kind of jusi, basing his refusal on the ground of "mere whim or caprice" or of mere personal convenience. So a public carrier of passengers would not be permitted under this statute to absolve himself from liability for a refusal to carry a Chinaman, a Spaniard, an American, a Filipino, or a mestizo by proof that from "mere whim or caprice or personal scruple," or to suit his own convenience, or in the hope of increasing his business and thus making larger profits, he had publicly announced his intention not to carry one or other of these classes of passengers. The nature of the business of a common carrier as a public employment is such that it is clearly within the power of the state to impose such just and reasonable regulations thereon in the interest of the public as the legislator may deem proper. Of course such regulations must not have the effect of depriving an owner of his property without due process of law, nor of confiscating or appropriating private property without just compensation, nor of limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise. But aside from such constitutional limitations, the determination of the nature and extent of the regulations which should be prescribed rests in the hands of the legislator. Common carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond question that it is well settled that the power of the state to exercise legislative control over railroad companies and other carriers "in all respects necessary to protect the public against danger, injustice and oppression" may be exercised through boards of commissioners. (New York etc. R. Co. vs. Bristol, 151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)

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Regulations limiting of passengers the number of passengers that may be carried in a particular vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain point, or prescribing the number and qualifications of the personnel in the employ of a common carrier, or forbidding unjust discrimination as to rates, all tend to limit and restrict his liberty and to control to some degree the free exercise of his discretion in the conduct of his business. But since the Granger cases were decided by the Supreme Court of the United States no one questions the power of the legislator to prescribe such reasonable regulations upon property clothed with a public interest as he may deem expedient or necessary to protect the public against danger, injustice or oppression. (Munn vs.Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94 U.S., 155; Budd vs. New York, 143 U.S., 517; Cottingvs. Goddard, 183 U.S., 79.) The right to enter the public employment as a common carrier and to offer one's services to the public for hire does not carry with it the right to conduct that business as one pleases, without regard to the interest of the public and free from such reasonable and just regulations as may be prescribed for the protection of the public from the reckless or careless indifference of the carrier as to the public welfare and for the prevention of unjust and unreasonable discrimination of any kind whatsoever in the performance of the carrier's duties as a servant of the public. Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S., 517, 533.) When private property is "affected with a public interest it ceases to be juris privati only." Property becomes clothed with a public interest when used in a manner to make it of public consequence and affect the community at large. "When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as he maintains the use he must submit to control." (Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S., 174; Budd vs. New York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.) Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under pretense of regulating fares and freight the state can not require a railroad corporation to carry persons or property without reward. Nor can it do that which in law amounts to a taking of private property for public use without just compensation, or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern R. Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations established and palpably unreasonable as to make their enforcement equivalent to the taking of property for public use without such compensation as under all the circumstances is just both to the owner and to the public, that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under the guise of regulations as to compel the court to say that the regulation in question will have the effect to deny just compensation for private property taken for the public use. (Chicago etc. R. Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge Co. vs.Henderson City, 173 U.S., 592, 614.) Under the common law of England it was early recognized that common carriers owe to the public the duty of carrying indifferently for all who may employ them, and in the order in which application is made, and without discrimination as to terms. True, they were allowed to restrict their business so as to exclude particular classes of goods, but as to the kinds of property which the carrier was in the habit of carrying in the prosecution of his business he was bound to serve all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc. Ry. Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that these common law rules are themselves regulations controlling, limiting and prescribing the conditions under which common carriers were permitted to conduct their business. (Munn vs. Illinois, 94 U. S., 113, 133.) It was found, in the course of time, that the correction of abuses which had grown up with the enormously increasing business of common carriers necessitated the adoption of statutory regulations controlling the business of common carriers, and imposing severe and drastic penalties for violations of their terms. In England, the Railway Clauses Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of those Acts much additional legislation has been adopted tending to limit and control the conduct of their business by common carriers. In the United States, the business of common carriers has been subjected to a great variety of statutory regulations. Among others Congress enacted "The Interstate Commerce Act" (1887) and its amendments, and the Elkins Act as amended (1906); and most if not all of the States of the Union have adopted similar legislation regulating the business of common carriers within their respective jurisdictions. Unending litigation has arisen under these statutes and their amendments, but nowhere has the right of the state to prescribe just and reasonable regulations controlling and limiting the conduct of the business of common carriers in the public interest and for the general welfare been successfully challenged, though of course there has been wide divergence of opinion as to the reasonableness, the validity and legality of many of the regulations actually adopted. The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or unreasonable discriminations by common carriers may be maintained upon the same reasoning which justified the enactment by the Parliament of England and the Congress of the United States of the above mentioned statutes prohibiting and penalizing the granting of certain preferences and discriminations in those countries. As we have said before, we find nothing confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the business of common carriers. Correctly construed they do not force him to engage in any business his will or to make use of his facilities in a manner or for a purpose for which they are not reasonably adapted. It is only when he offers his facilities as a common carrier to the public for hire, that the statute steps in and prescribes that he must treat all alike, that he may not pick and choose which customer he will serve, and, specifically, that he shall not make any undue or unreasonable preferences or discriminations whatsoever to the prejudice not only of any person or locality but also of any particular kind of traffic. The legislator having enacted a regulation prohibiting common carriers from giving unnecessary or unreasonable preferences or advantages to any particular kind of traffic or subjecting any particular kind of traffic to any undue or unreasonable prejudice or discrimination whatsoever, it is clear that whatever may have been the rule at the common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. Mere whim or prejudice will not suffice. The grounds for the discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been reasonable and necessary under all circumstances of the case. The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of the defendant steamship company to accept for carriage on any of its vessels "dynamite, gunpowder or other explosives" would in no instance involve a violation of the provisions of this statute. There can be little doubt, however, that cases may and will arise wherein the refusal of a vessel "engaged in the coastwise trade of the Philippine Islands as a common carrier" to accept such explosives for carriage would subject some person, company, firm or corporation, or locality, or particular kind of traffic to a certain prejudice or discrimination. Indeed it cannot be doubted that the refusal of a "steamship company, the owner of a large number of vessels" engaged in that trade to receive for carriage any such explosives on any of its vessels would subject the traffic in such explosives to a manifest prejudice and discrimination. The only question to be determined therefore is whether such prejudice or discrimination might in any case prove to be undue, unnecessary or unreasonable. This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged in the complaint are not sufficient to sustain a finding in favor of the contentions of the petitioner. It is not alleged in the complaint that "dynamite, gunpowder and other explosives" can in no event be transported with reasonable safety on board steam vessels engaged in the business of common carriers. It is not alleged that all, or indeed any of the defendant steamship company's vessels are unsuited for the carriage of such explosives. It is not alleged that the nature of the business in which the steamship company is engaged is such as to preclude a finding that a refusal to accept such explosives on any of its vessels would subject the traffic in such explosives to an undue and unreasonable prejudice and discrimination. Plaintiff's contention in this regard is as follows:

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In the present case, the respondent company has expressly and publicly renounced the carriage of explosives, and expressly excluded the same terms from the business it conducts. This in itself were sufficient, even though such exclusion of explosives were based on no other ground than the mere whim, caprice or personal scruple of the carrier. It is unnecessary, however, to indulge in academic discussion of a moot question, for the decision not a carry explosives rests on substantial grounds which are self-evident. We think however that the answer to the question whether such a refusal to carry explosives involves an unnecessary or unreasonable preference or advantage to any person, locality or particular kind of traffic or subjects any person, locality or particular to traffic to an undue or unreasonable prejudice and discrimination is by no means "self-evident," and that it is a question of fact to be determined by the particular circumstances of each case. The words "dynamite, powder or other explosives" are broad enough to include matches, and other articles of like nature, and may fairly be held to include also kerosene oil, gasoline and similar products of a highly inflammable and explosive character. Many of these articles of merchandise are in the nature of necessities in any country open to modern progress and advancement. We are not fully advised as to the methods of transportation by which they are made commercially available throughout the world, but certain it is that dynamite, gunpowder, matches, kerosene oil and gasoline are transported on many vessels sailing the high seas. Indeed it is a matter of common knowledge that common carriers throughout the world transport enormous quantities of these explosives, on both land and sea, and there can be little doubt that a general refusal of the common carriers in any country to accept such explosives for carriage would involve many persons, firms and enterprises in utter ruin, and would disastrously affect the interests of the public and the general welfare of the community. It would be going to far to say that a refusal by a steam vessel engaged in the business of transporting general merchandise as a common carrier to accept for carriage a shipment of matches, solely on the ground of the dangers incident to the explosive quality of this class of merchandise, would not subject the traffic in matches to an unnecessary, undue or unreasonable prejudice and discrimination without proof that for some special reason the particular vessel is not fitted to carry articles of that nature. There may be and doubtless are some vessels engaged in business as common carriers of merchandise, which for lack of suitable deck space or storage rooms might be justified in declining to carry kerosene oil, gasoline, and similar products, even when offered for carriage securely packed in cases; and few vessels are equipped to transport those products in bulk. But in any case of a refusal to carry such products which would subject any person, locality or the traffic in such products would be necessary to hear evidence before making an affirmative finding that such prejudice or discrimination was or was not unnecessary, undue or unreasonable. The making of such a finding would involve a consideration of the suitability of the vessel for the transportation of such products ; the reasonable possibility of danger or disaster resulting from their transportation in the form and under the conditions in which they are offered for carriage; the general nature of the business done by the carrier and, in a word, all the attendant circumstances which might affect the question of the reasonable necessity for the refusal by the carrier to undertake the transportation of this class of merchandise. But it is contended that whatever the rule may be as to other explosives, the exceptional power and violence of dynamite and gunpowder in explosion will always furnish the owner of a vessel with a reasonable excuse for his failure or refusal to accept them for carriage or to carry them on board his boat. We think however that even as to dynamite and gunpowder we would not be justified in making such a holding unaided by evidence sustaining the proposition that these articles can never be carried with reasonable safety on any vessel engaged in the business of a common carrier. It is said that dynamite is so erratic an uncontrollable in its action that it is impossible to assert that it can be handled with safety in any given case. On the other hand it is contended that while this may be true of some kinds of dynamite, it is a fact that dynamite can be and is manufactured so as to eliminate any real danger from explosion during transportation. These are of course questions of fact upon which we are not qualified to pass judgment without the assistance of expert witnesses who have made special studies as to the chemical composition and reactions of the different kinds of dynamite, or attained a thorough knowledge of its properties as a result of wide experience in its manufacture and transportation. As we construe the Philippine statute, the mere fact that violent and destructive explosions can be obtained by the use of dynamite under certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly licensed as a common carrier of merchandise, to accept it for carriage, if it can be proven that in the condition in which it is offered for carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel or those on board his vessel will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the nature of his business as a common carrier engaged in the coastwise trade in the Philippine Islands, and his duty as a servant of the public engaged in a public employment. So also, if by the exercise of due diligence and the taking of unreasonable precautions the danger of explosions can be practically eliminated, the carrier would not be justified in subjecting the traffic in this commodity to prejudice or discrimination by proof that there would be a possibility of danger from explosion when no such precautions are taken. The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of the people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use throughout the Philippines, they must be transported by water from port to port in the various islands which make up the Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged as a common carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage would constitute a violation of the prohibitions against discriminations penalized under the statute, unless it can be shown by affirmative evidence that there is so real and substantial a danger of disaster necessarily involved in the carriage of any or all of these articles of merchandise as to render such refusal a due or a necessary or a reasonable exercise of prudence and discretion on the part of the shipowner. The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer must be sustained on the ground that the facts alleged do not constitute a cause of action. A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As to all of these questions we expressly reserve our opinion, believing as we do that in sustaining the demurrer on the grounds indicated in this opinion we are able to dispose of the real issue involved in the proceedings without entering upon the discussion of the nice questions which it might have been necessary to pass upon had it appeared that the facts alleged in the complaint constitute a cause of action. We think, however, that we should not finally dispose of the case without indicating that since the institution of these proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board of Public Utility Commissioners and for other purposes) may have materially modified the right to institute and maintain such proceedings in this jurisdiction. But the demurrer having been formallly submitted for judgment before the enactment of these statutes, counsel have not been heard in this connection. We therefore refrain from any comment upon any questions which might be raised as to whether or not there may be another adequate and appropriate remedy for the alleged wrong set forth in the complaint. Our disposition of the question raised by the demurrer renders that unnecessary at this time, though it may not be improper to observe that a careful examination of those acts confirms us in the holding upon which we base our ruling on this demurrer, that is to say "That whatever may have been the rule at the common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been reasonable and necessary under all the circumstances of the case." Unless an amended complaint be filed in the meantime, let judgment be entered ten days hereafter sustaining the demurrer and dismissing the complaint with costs against the complainant, and twenty days thereafter let the record be filed in the archives of original actions in this court. So ordered.

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Arellano, C.J., and Trent, J., concur. Torres and Johnson, JJ., concur in the result.

Separate Opinions MORELAND, J., concurring. I may briefly say, although the nature of the action is stated at length in the foregoing opinion, that it is an action by a shareholder of the Yangco Steamship Co. against the company itself and certain officials of the Insular Government for an injunction against the company prohibiting it from carrying dynamite on its ships and preventing the defendant officials from compelling the company to do so under Act No. 98. A demurrer was filed to the complaint raising the question not only of its sufficiency in general, but putting in issue also the right of the plaintiff to maintain the action under the allegations of his complaint. It should be noted that all of the boats of the defendant company, under the allegations of the complaint, are boatswhich carry passengers as well as freight, and that the holding of the opinion which I am discussing compelspassenger ships to carry dynamite and all other high explosives when offered for shipment. (See paragraph 3 of the complaint.) I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged in his complaint a single one of the grounds, apart from that of being a stockholder, necessary for him to allege to maintain a shareholder's action. In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a stockholder to bring an action which should regularly be bought by the company of which he is a stockholder: We understand that doctrine to be that, to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist as the foundation of the suit: Some action or threatened action of the managing board of directors or trustees of the corporation, which is beyond the authority conferred on them by their character or other source of organization; Or such a fraudulent transaction, completed or contemplated by the acting managers, in connection with some other party, or among themselves, or with other shareholders as will in serious injury to the corporation, or to the interest of the other shareholders; Or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other shareholders; Or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity. It was also said: "In this country the cases outside of the Federal Courts are not numerous, and while they admit the right of a stockholder to sue in cases where the corporation is the proper party to bring the suit, they limit this right to cases where the directors are guilty of a fraud or a breach of trust, or are proceeding ultra vires." Further on in the same case we find: "Conceding appellant's construction of the company's charter to be correct, there is nothing which forbids the corporation from dealing with the city in the manner it has done. That city conferred on the company valuable rights by special ordinance; namely, the use of the streets for the laying of its pipes, and the privilege of furnishing water to the whole population. It may be the exercise of the highest wisdom, to let the city use the water in the manner complained of. The directors are better able to act understandingly on this subject than a stockholder residing in New York. The great body of the stockholders residing in Oakland or other places in California may take this view of it, and be content to abide by the action of their directors." This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The complaint is devoid of allegations necessary to sustain a complaint by a shareholder. The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not sustained by that case. The decision there requires precisely the same allegations in the complaint as does the case of Hawes vs.Oakland. Not one of those allegations appears in the complaint in the case at bar except the allegation that the plaintiff is a stockholder. Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains allegations which affirmatively show the plaintiff is not entitled to maintain the action. I do not stop to enumerate them all. I call attention to one only, namely the allegation that the company, by its authorized officials, has acted in strict conformity with the plaintiff's wishes and has refused to accept dynamite for carriage. This allegation shows that the plaintiff has been able to obtain his remedy and accomplish his purpose within the corporation itself, and it is sufficient, therefore, under the case of Hawes vs. Oakland and that of Ex parte Young, to require that the demurrer be sustained. I am opposed to a decision of this case on the merits. In the first place, there has been no adequate discussion of the merits by the parties. Substantially all of the brief of the government was devoted to what may be called the technical defects of the complaint, such as I have referred to above. Indeed, it is doubtful if any portion of the brief can be said to be directly a discussion of the merits. In the second place, there is no real pending in this court. It is clear from the complaint that the case is a collusive one (not in any improper sense) between the plaintiff and the defendant company. There is no reason found in the complaint why the company should not have brought the action itself,

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every member of the board of directors and every stockholder, according to the allegations of the complaint, being in absolute accord with the contentions of the plaintiff on the proposition that the company should not carry dynamite, and having passed unanimously resolutions to that effect. Moreover, there has been no violation of Act No. 98. No shipper, or any other person, has offered dynamite to the defendant company for shipment, and, accordingly, the defendant company has not refused t o accept dynamite for carriage. Nor have the defendant government officials begun proceedings, or threatened to bring proceedings, against the defendant company in any given case. According to the allegations of the complaint, the parties are straw parties and the case a straw case. In the third place, Act No. 98, under which this proceeding is brought and under which, it is alleged, the defendant public officers are threatening to enforce, has been repealed, in so far as it affects public service corporations, by Act No. 2307, as amended by Act No. 2362. More than that; not only has the law been repealed, but proceedings of this character have been placed, in the first instance, under the exclusive jurisdiction of the Board of Public Utilities. I am unable to see why this court should, under the facts of this case, undertake to render a decision on the merits when the Act under which it is brought has been repealed and the jurisdiction to render a decision on the subject matter involved has been turned over to another body. As I have said before, it was unnecessary to a decision of this case to touch the merits in any way; and I am opposed to an attempt to lay down a doctrine on a subject which is within the exclusive jurisdiction of another body created by law expressly for the purpose of removing such cases as this from the jurisdiction of the courts. I am of the opinion that the complaint should be dismissed, but upon grounds apart from the merits. If the merits of the case were alone to govern, I should be distinctly in favor of the plaintiff's contention so far as it relates to the carriage of dynamite on ships carrying passengers; and, while I am opposed to a decision on the merits of this case, nevertheless, the merits having been brought into the case by the opinion of some of my brethren, I desire to refer briefly to the jurisprudence of the subject. So far as my researches go, the proposition that passenger boats must carry dynamite and other high explosives is without support in the decisions of any English speaking country. I have been unable to find a case anywhere which lays down such a doctrine. Indeed, I have been unable to find a case which holds that freight boats mustcarry dynamite or other high explosives. Every case that I have been able to find states a contrary doctrine; and neither in courts nor in text books is there even a hint supporting the contention of my brethren. The opinion cites no authorities to support it; and I am constrained to believe that, in any opinion so elaborately written, cases to support its thesis would have been cited if any such existed. On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the duty of carrying indifferently for all who may employ them, and in the order in which the application is made, and without discrimination as to terms. They may, however, restrict their business so as to exclude particular classes of goods, and they are not bound to receive dangerous articles, such as nitro-glycerine, dynamite, gunpowder, oil of vitriol, matches, etc." In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was said: "Nor are the exemptions contained in the contract of the shipping order void for lack of consideration. The defendant was not obliged to received and transport the powder at all. A common carrier is not bound to receive ... dangerous articles, as nitro-glycerine, dynamite, gunpowder, aqua fortis, oil of vitriol, matches, etc." This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36 L.R.A., 648 and has appended to it a note. It is well known that the L.R.A. cites in its notes all of the cases reasonably obtainable relative to the subject matter of the case which it annotates. The note in L.R.A. with reference to the California case cites a considerable number of authorities holding that a carrier of goods is not obliged to receive dynamite or other dangerous explosives for carriage. It does not cite or refer to a case which holds the contrary. The reporter of the L.R.A, at the beginning of the note with reference to the California case, says: "The law upon this question is to be drawn from inference or from dicta rather than from decided cases. California Powder Worksvs. Atlantic & Pacific R. R. Co. seems to be the first case to have squarely decided that the carrier is not bound to transport dangerous articles, although there has been what may be regarded as a general understanding that such is the fact." In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for carriage dynamite or other dangerous explosives: "He may, for instance, lawfully refuse to receive them (the goods) if they are improperly packed or if they are otherwise in an unfit condition for carriage. Or he may show that the goods offered were of a dangerous character, which might subject him or his vehicle, or strangers or his passengers, or his other freight, to the risk of injury." In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine, dynamite, gunpowder, oil of vitriol and the like." In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be refused which are tendered in an unfit condition for transportation, or which are dangerous, or which are reasonably believed to be dangerous." In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page 576: "Both the dualin and the exploders are thus alleged to be explosive and dangerous articles. Each of them was sent without giving notice of its character to the plaintiffs, and they were ignorant in respect to it. The rule of law on this subject is in conformity with the dictates of common sense and justice, and is well established. One who has in his possession a dangerous article, which he desires to send to another, am send it by a common carrier if he will take it; but it is his duty to give him notice of its character, so that he may either refuse to take it, or be enabled, if he takes it, to make suitable provision against the danger." This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192); Brass vs. Maitland (6 El. & Bl. 470; Farrant vs. Barnes (11 C.B. [N.S.], 553). In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval the following from Story on Bailments: "If he (the carrier) refuses to take charge of the goods because his coach is full or because they are of a nature which will at the time expose them to extraordinary danger or to popular rage, or because he has no convenient means of carrying such goods with security, etc., these will furnish reasonable grounds for his refusal, and will, if true, be a sufficient legal defense to a suit for the non-carriage of the goods." In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to convey the goods of any person offering to pay his hire, unless his carriage be already full, or the risk sought to be imposed upon him extraordinary, or unless the goods be of a sort which he cannot convey or is not in the habit of conveying." In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the dangerous character of the article and omitting to give notice of it to the carrier so that he might exercise his discretion as to whether he would take it or not was guilty of a clear breach of duty."

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To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing., 217); Lane vs.Cotton (1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward (5 T. R., 143); Dwight vs.Brewster (1 Pick., 50); Jencks vs. Coleman (2 Summ., 221); Story on Bail., 322, 323; Patton vs. Magrath (31 Am. Dec., 552). In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of goods because his coach is full; or because the goods are of a nature which will at the time expose them to extraordinary danger; ... these will furnish reasonable grounds for his refusal; and will, if true, be a sufficient legal defense to a suit for the non-carriage of the goods." It will be noted that all of these cases holding that a common carrier is not obliged to receive a dangerous substance, such as dynamite and other high explosives, refer exclusively to carriers of merchandise and not to carriers of passengers. If the authorities are uniform in holding that companies carrying freight are not obliged to accept dangerous explosives for carriage, there can be no question as to what the rule would be with reference to a carrier of passengers. Far from requiring passenger boats to accept dynamite and other high explosives for carriage, the attitude of the people of the United States and of various States is shown by their statutes. The laws of the United States and of many of the States prohibit passengers boats and passenger trains from carrying dangerous explosives. Sections 232, 233, 234, 2345 and 236 of the Criminal Code of the United States (Compiled Stat., 1901), read: SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder, or other explosive, between a place in a foreign country and a place within or subject to the jurisdiction of the United States, or between a place in any State, Territory, or District of the United States, or place non-contiguous to but subject to the jurisdiction thereof, and a place in any other State, Territory, or District of the United States, or place non-contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a common carrier, which vessel or vehicle is carrying passengers for hire: . . .. SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe transportation of explosives, which shall be binding all common carriers engaged in interstate or foreign commerce which transport explosives by land. Said commission, of its own motion, or upon application made by any interested party, may make changes or modifications in such regulations, made desirable by new information or altered conditions. Such regulations shall be in accord with the best known practicable means for securing in transit, covering the packing, marking, loading, handling while in transit, and the precautions necessary to determine whether the material when offered is in proper condition to transport. Such regulations, as well as all changes or modifications thereof, shall take effect after ninety days after their formulation and publication commission and shall be in effect until reversed, set aside, or modified. SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate in bulk "in dry condition, or other like explosive, between a place in a foreign country and a place within or subject to the jurisdiction of the United States, or between a place in one State, Territory, or District of the United States, or place non-contiguous to but subject to the jurisdiction thereof, and a place in any other State, Territory, or District of the United States, or place non-contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a common carrier in the transportation of passengers or articles of commerce by land or water. SEC. 235. Every package containing explosives or other dangerous articles when presented to a common carrier for shipment shall have plainly marked on the outside thereof the contents thereof; and it shall be unlawful for any person to deliver, or cause to be delivered, to any common carrier engaged in interstate or foreign commerce by land or water, for interstate or foreign transportation, or to carry upon any vessel or vehicle engaged in interstate or foreign transportation, any explosive, or other dangerous article, under any false or deceptive marking, description, invoice, shipping order, or other declaration, or without informing the agent of such carrier of the true character thereof, at or before the time such delivery or carriage is made. Whoever shall knowingly violate, or cause to be violated any provision of this section, or of the three sections last preceding, or any regulation made by the Interstate Commerce Commission in pursuance thereof, shall be fined not more than two thousand dollars, or imprisoned not more than eighteen months, or both. SEC. 236. When the death or bodily injury of any person is caused by the explosion of any article named in the four sections last preceding, while the same is being placed upon any vessel or vehicle to be transported in violation thereof, or while the same is being so transported, or while the same is being removed from such vessel or vehicle, the person knowingly placing, or aiding or permitting the placing of such articles upon any such vessel or vehicle, to be so transported, shall be imprisoned not more than ten years. Human ingenuity has been continuously exercised for ages to make sea travel safe, that men might sail the seas with as little risk as possible; that they might rely upon the quality of the ship and the character and experiences of the sailors who manned her; that they might feel that the dangers of the deep had been reduced to the minimum. Not only this; the abilities of legislators have been taxed to the same end; to frame that would ensure seaworthy ships, safe appliances, and reliable officers and crews; to curb the avarice of those who would subordinate the safety of passengers to a desire for freight; and to so regulate travel by sea that all might safely confide their property and their lives to the ships sailing under the flag of their country. Can a decision which requires passenger ships to carry dynamite and all high explosives be made to harmonize with this purpose? What is there in the Philippine Islands to justify the requirement that passenger ships carry dynamite, while in the United States the carrying of dynamite by passenger ships is a crime? Why should passengers in the Philippine Islands be subjected to conditions which are abhorent in the United States? Why compel shipowners in the Philippine Islands to perform acts which, if done in the United States, would send them to the penitentiary? I do not believe that we should require passengers to travel on ships carrying, perhaps, many tons of nitro-glycerine, dynamite or gunpowder in their holds; nor do I believe that any public official should do anything calculated to add to the calamity of fire, collision, or shipwreck the horrors of explosion.

ARAULLO, J., dissenting: I do not agree with the decision of the majority of this court in this case, first, because one of the grounds of the demurrer to the complaint the first one is that of lack of legal capacity to sue on the part of the plaintiff and nothing is said in the decision regarding this very important point. It is one which ought to have received special attention, even before the other alleged in the demurrer that the complaint does not state facts sufficient to constitute a cause of action, and the only one that received any consideration in the decision in question. Second, because notwithstanding that in the decision no consideration was paid to the alleged lack of legal capacity on the part of the plaintiff, he is, reason of the demurrer being sustained, authorized to present an amended complaint within ten days, an authorization which could not and should not have on the part of said plaintiff was not lacking. DECISION OF MARCH 31, 1915.

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CARSON, J.: This case is again before us upon a demurrer interposed by the respondent officials of the Philippine Government to an amended complaint filed after publication of our decision sustaining the demurrer to the original complaint. In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that the original complaint did not set forth facts sufficient to constitute a cause of action. In that decision we held that the statute (Act No. 98) the validity of which was attacked by counsel por plaintiff was, when rightly construed, a valid and constitutional enactment, and ruled: That whatever may have been the rule at the common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class in those goods, unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be substantial ones, such as will justify the courts in holding the discrimination to have been reasonable and necessary under all the circumstances of the case. xxx xxx xxx

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of the people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use throughout the Philippines, they must be transported by water from port to port in the various islands which make up the Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged as a common carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage would constitute a violation of the prohibitions against discriminations penalized under the statue, unless it can be shown by affirmative evidence that there is so real and substantial a danger of disaster necessarily involved in the carriage of any or all of these articles of merchandise as to render such refusal a due or a necessary or a reasonable exercise of prudence and discretion on the part of the ship owner. Resting our judgment on these rulings we held that the allegations of the complaint, which in substance alleged merely that the respondent officials were coercing the respondent steamship company to carry explosives upon some of their vessels, under authority of, and in reliance upon the provisions of the Act, did not set forth facts constituting a cause of action; or in other words, that the allegations of the complaint even if true, would sustain a finding that the respondent officials were acting "without or in excess of their jurisdiction" and lawful authority in the premises. The amended complaint filed on November 14, 1914, is substantially identical with the original complaint, except that it charges the respondent officials, as of the date of the amended complaint, with the unlawful exercise of the authority or intent to exercise unlawful authority which should be restrained, and substitutes the names of the officers now holding the offices of Collector of Customs, Attorney-General and prosecuting attorney for those of the officials holding those offices at the date of the filing of the original complaint; and except further that it adds the following allegations: That each and every one of the vessels of the defendant company is dedicated and devoted to the carriage of passengers between various ports in the Philippine Islands, and each of said vessels, on all of said voyages between the said ports, usually and ordinarily does carry a large number of such passengers. That dynamite, powder, and other explosives are dangerous commodities that cannot be handled and transported in the manner and from in which ordinary commodities are handled and transported. That no degree of care, preparation and special arrangement in the handling and transportation of dynamite, powder and other explosives will wholly eliminate the risk and danger of grave peril and loss therefrom, and that the highest possible degree of care, preparation of said commodities is only capable of reducing the degree of said danger and peril. That each and every one of the vessels of the defendant company is wholly without special means for the handling, carriage, or transportation of dynamite, powder and other explosives and such special means therefor which would appreciably and materially reduce the danger and peril therefrom cannot be installed in said vessels without a costs and expense unto said company that is unreasonable and prohibitive. As we read them, the allegations of the original complaint were intended to raise and did in fact raise, upon demurrer, a single question which, if ruled upon favorably to the contention of plaintiff, would, doubtless, have put an end to this litigation and to the dispute between the plaintiff stockholder of the steamship company and the officials of the Philippine Government out of which it has arisen. In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of prohibition, relied upon the authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted that: Upon the authority, therefore, of Ex parte Young, supra, the merits of the question pending between petitioner and respondents in this action is duly presented to this court by the complaint of petitioner and general demurrer of respondents thereto. That question, in plain terms, is as follows: Is the respondent Yangco Steamship Company legally required to accept for carriage and carry "any person or property offering for carriage?" "The petitioner contends that the respondent company is a common carrier of only such articles of freight as they profess to carry and hold themselves out as carrying;" and in discussing the legal capacity of plaintiff to maintain this action, counsel in their printed brief asserted that "here we have no address to the court to determine whether a minority or a majority shall prevail in the corporate affairs; here we ask plainly and unmistakably who shall fix the limits of the corporate business the shareholders and directors of the corporation, or certain officials of the government armed with an unconstitutional statute? Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a common carrier in the Philippine Islands may arbitrarily decline to accept for carriage any shipment or merchandise of a class which it expressly or impliedly declines to accept from all shippers alike; that "the duty of a common carrier to carry for all who offer arises from the public profession he has made, and is limited by it;" that under this doctrine the respondent steamship company might lawfully decline to accept for carriage "dynamite, powder or other explosives," without regard to any question as to the conditions under which such explosives are offered for carriage, or as to the suitableness of its vessels for the transportation of such explosives, or as to the possibility that the refusal to accept such articles of commerce in a particular case might have the effect of subjecting any person, locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or discrimination: and in line with these contentions counsel boldly asserted that Act No. 98 of the Philippine Commission is invalid and unconstitutional in so far as it announces a contrary doctrine or lays down a different rule. The pleader who drew up the original complaint appears to have studiously avoided the inclusion in that complaint of any allegation which might raise any other question. In doing so he was strictly within his rights, and having in mind the object sought to be attained, the original complaint is a model of skillful pleading, well calculated to secure the end in view, that is to say, a judgment on the precise legal issue which the pleader desired to raise as to the construction and validity of the statute, which would put an end to the controversy, if that issue were decided in his favor.

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Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a writ of prohibition from this court would have furnished an effective and appropriate remedy for the alleged wrong. The issue presented by the pleadings on the original complaint, involving a question as to the validity of a statute and affecting, as it did, the shipping and public interests of the whole Islands, and submitting be complicated question or series of questions of fact, was of such a nature that this court could not properly deny the right of the plaintiff to invoke its jurisdiction in original proceedings. We deemed it our duty therefore to resolve the real issue raised by the demurrer, and since we are of opinion that the contentions of counsel for plaintiff were not well founded, and since a ruling to that effect necessarily resulted in an order sustaining the demurrer, we did not deem it necessary or profitable to consider questions of practice or procedure which it might have been necessary to decide under a contrary ruling as to the principal question raised by the pleadings; nor did we stop to consider whether the "subject matter involved" in the controversy might properly be submitted to the Board of Public Utility Commissioners, because upon the authority of Ex parte Young (supra) we are satisfied as to the jurisdiction and competency of this court to deal with the real issues raised by the pleadings on the original complaint, and because, furthermore, the Act of the Philippine Legislature creating the Board of Public Utility Commissioners could not deprive this court of jurisdiction already invoked in prohibition proceedings instituted for the purpose of restraining the respondent official as of the Government from the alleged unlawful exercise of authority under color of an invalid and without jurisdiction in the premises. The amended complaint, however, presents for adjudication in original prohibition proceedings in this court questions of a wholly different character from those submitted in the original complaint. In so far as it reiterates the allegation s of the former complaint to the effect that the respondent officials are unlawfully coercing the steamship company by virtue and under color of the provisions of an invalid or unconstitutional statute, it is manifest, of course, that the amended complaint is no less subject to criticism than was the original complaint. If, therefore, the action can be maintained upon its allegations that those officials are coercing the company to carry explosives on vessels which, as a matter of fact, are not suitably equipped for that purpose, and which from the nature of the business in which they are engaged should not be required to carry explosives. It will readily be seen, under our former opinion, that these allegations raise no question as to the validity or constitutionality of any statute; that the real question which plaintiff seeks to submit to this court in original prohibition proceedings is whether the respondent officials of the Government are correctly exercising the discretion and authority with which they have been clothed; and that his contention in the amended complaint is not, as it was in the original complaint, that these officials are acting without authority and in reliance upon an invalid and unconstitutional statute, but rather that they are exercising their authority improvidently, unwisely or mistakenly. Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in prohibition proceedings is conferred upon the courts when the complaint alleges "the proceedings of any inferior tribunal, corporation, board, or person, whether exercising functions judicial or ministerial, were without or in excess of the jurisdiction of such tribunal, corporation, board or person." It is manifest therefore that the allegations of the amended complaint, even if true, will not sustain the issuance of a writ of prohibition without further amendment unless they be construed to in effect a charge that the respondent officials are abusing the discretion conferred upon them in the exercise of their authority in such manner that the acts complained of should be held to be without or in excess of their jurisdiction. It may well be doubted whether the doctrine of the case Ex parte Young (supra), relied upon by the plaintiff in his argument be invoked in support of a right of action predicated upon such premises; so also, since the acts complained of in the amended complaint are alleged to have been done at a date subsequent to the enactment of the statutes creating the Board of Public Utility Commissioners, it may well be doubted whether the courts should entertain prohibition proceedings seeking to restrain alleged abuses of discretion on the part of officers and officials of the Government, and of public service corporations with regard to the rules under which such corporations are operated, until and unless redress for the alleged wrong has been sought at the hands of the Board. We do not deem it expedient or necessary, however, to consider or decide any of these questions at this time, because we are of opinion that we should not permit our original jurisdiction to be set in motion upon the allegations of the amended complaint. It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516, Act No. 190). But this jurisdiction is concurrent with the original jurisdiction of the various Courts of First Instance throughout the Islands, except in cases where the writ runs to restrain those courts themselves, when of course it is exclusive; and we are satisfied that it could have been the intention of the legislator to require this court to assume original jurisdiction in all cases wherein the plaintiff elects to invoke it. Such a practice might result in overwhelming this court with the duty of entertaining and deciding original proceedings which from their nature could much better be adjudicated in the trial courts; and in unnecessarily diverting the time and attention of the court from its important appellate functions to the settlement of controversies of no especial interest to the public at large, in the course of which it might become necessary to take testimony and to make findings touching complicated and hotly contested issues of fact. We are of opinion and so hold that unless special reasons appear therefor, this court should decline to permit its original jurisdiction to be invoked in prohibition proceedings, and this especially when the adjudication of the issues raised involves the taking of evidence and the making of findings touching controverted facts, which, as a rule, can be done so much better in the first instance by a trial court than an appellate court organized as is ours. Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the cases in which the appellate courts in the United States permit their original jurisdiction to be invoked where that jurisdiction is concurrent with that of some inferior court, says: Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The Supreme Court of Appeals of that State has concurrent original jurisdiction with the circuit courts in cases of prohibition, but by a rule adopted by the former court it will not take such original jurisdiction unless reasons appear therefor. We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the rulings on the original complaint, involving as they did a question as to the validity of a public statute of vital interest to shippers and shipowners generally as also to the public at large, presenting for determination no difficult or complicated questions of fact: but we are satisfied that we should decline to take jurisdiction of the matters relied upon in the amended complaint in support of plaintiff's prayer for the writ. The question of the construction and validity of the statute having been disposed of in our ruling on the demurrer to the original complaint, it must be apparent that of the allegations of the amended complaint are sufficient to maintain the plaintiff's action for a writ of prohibition, a question as to which we expressly reserve our opinion, the action should be brought in one of the Courts of First Instance. Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the meantime it is amended so as to disclose a right upon the part of the plaintiff to invoke the original jurisdiction of this court without first proceeding in one of the Courts of First Instance. So ordered. G.R. No. 115381 December 23, 1994

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KILUSANG MAYO UNO LABOR CENTER, petitioner, vs. HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents. Potenciano A. Flores for petitioner. Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent. Jose F. Miravite for movants.

KAPUNAN, J.: Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he has thus created. 1 An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well. The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process. The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b) DOTC Department Order No. 92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112. The relevant antecedents are as follows: On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in full: One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987 1992) is the liberalization of regulations in the transport sector. Along this line, the Government intends to move away gradually from regulatory policies and make progress towards greater reliance on free market forces. Based on several surveys and observations, bus companies are already charging passenger rates above and below the official fare declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is to be tested on a pilot basis. In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country (except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year. Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service. The implementation of the said fare range scheme shall start on 6 August 1990. For compliance. (Emphasis ours.) Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit: With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those operating within Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration:

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1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates (a) the rates to be approved should be proposed by public service operators; (b) there should be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6 without complying with the requirements of the Public Service Act may not be legally feasible. 2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered by the untimely motu propioimplementation of the proposal by the mere expedient of publicizing the fare range scheme without calling a public hearing, which scheme many as early as during the Secretary's predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired. 3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc caused by the recent earthquake. 4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider measures and reforms in the industry that will be socially uplifting, especially for the people in the areas devastated by the recent earthquake. In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare range scheme this year be further studied and evaluated. On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought. On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel. The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates. On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following schedule of fares on a straight computation method, viz: AUTHORIZED FARES LUZON MIN. OF 5 KMS. SUCCEEDING KM. REGULAR P1.50 P0.37 STUDENT P1.15 P0.28 VISAYAS/MINDANAO REGULAR P1.60 P0.375 STUDENT P1.20 P0.285 FIRST CLASS (PER KM.) LUZON P0.385 VISAYAS/ MINDANAO P0.395 PREMIERE CLASS (PER KM.) LUZON P0.395 VISAYAS/ MINDANAO P0.405 AIRCON (PER KM.) P0.415. 4 On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued Department Order No. 92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in view of the importance of the provisions contained therein: WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the primary policy, planning, regulating and implementing agency on transportation; WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction; WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and bring the transport sector nearer to a balanced longer term regulatory framework;

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NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic regulation of land, air, and water transportation services are hereby adopted: 1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route. The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding public. In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s). In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchise application and not as a limit to the services offered. Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of demand management measures in conformity with market principles may be considered. The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services. 2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15% above and below the indicative or reference rate. Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the level of competition. For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the public and the government, following public bids for the services. The advisability of bidding out the services or using other kinds of incentives on such routes shall be studied by the government. 3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation warrants government intervention shall programs of this type be considered. Existing programs shall be phased out gradually. The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study. For the compliance of all concerned. (Emphasis ours) On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5 On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the following challenged portions: xxx xxx xxx IV. Policy Guidelines on the Issuance of Certificate of Public Convenience. The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s). xxx xxx xxx V. Rate and Fare Setting The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing. A. On the General Structure of Rates

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1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range. 2. Fare systems for aircon buses are liberalized to cover first class and premier services. xxx xxx xxx (Emphasis ours). Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994. On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares. On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion reads: PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitled under existing laws. SO ORDERED. 6 Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order. The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs. Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court. In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for. In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificates of public convenience. We find the instant petition impressed with merit. At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue. The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides: xxx xxx xxx Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standiof a party litigant. One who is directly affected by and whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8 In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored. Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As early as theEmergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz:

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. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)]. xxx xxx xxx In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmea v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]). Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendumplebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial crossexamination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]). In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the farreaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent." Now on the merits of the case. On the fare range scheme. Section 16(c) of the Public Service Act, as amended, reads: Sec. 16. Proceedings of the Commission, upon notice and hearing. The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary: xxx xxx xxx (c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours). xxx xxx xxx Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles."

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Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and delicate matters as route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service. In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this Court categorically declared that: In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to its advantage to do so. The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not authorized the Public Service Commission to delegate that power to a common carrier or other public service. The rates of public services like the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such rates must be authorized or approved by the Public Service Commission after they have been shown to be just and reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public Service Commission, and the Public Service Commission itself cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission. The commission must approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be. In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change them every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it would be to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13 (Emphasis ours). One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bank interest rates. Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the following: Year** LTFRB authorized Fare Range Fare to be rate*** collected per kilometer 1990 P0.37 15% (P0.05) P0.42 1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56 1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73 2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94 Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services. Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government must not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should the requisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase. The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved. To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will undermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to public interest. On the presumption of public need.

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A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC. While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states: The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. (Emphasis ours). The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail. By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence or non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators. Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which he has undertaken to render. 18 And all this will be possible only if a public hearing were conducted for that purpose. Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19 Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to exercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilities themselves. While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between administrative officers. WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decrease the duly prescribed transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for a certificate of public convenience and placing the burden of proving that there is no need for the proposed service to the oppositor. The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid. No pronouncement as to costs. SO ORDERED. G.R. No. L-30212 September 30, 1987 BIENVENIDO GELISAN, petitioner, vs. BENITO ALDAY, respondent.

PADILLA, J.: Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, as amended by its resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday, plaintiff-appellant, vs. Roberto Espiritu and Bienvenido Gelisan, defendants-appellees," which ordered the herein petitioner Bienvenido Gelisan to pay, jointly and severally, with Roberto Espiritu, the respondent Benito Alday the amount of P5,397.30, with.

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legal interest thereon from the filing of the complaint, and the costs of suit; and for the said Roberto Espiritu to pay or refund the petitioner Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday by virtue of the judgment. The uncontroverted facts of the case are, as follows: Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-2377. On January 31, 1962, defendant Bienvenido Gelisan and Roberto Espiritu entered into a contract marked Exhibit 3-Gelisan under which Espiritu hired the same freight truck of Gelisan for the purpose of hauling rice, sugar, flour and fertilizer at an agreed price of P18.00 per trip within the limits of the City of Manila provided the loads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and pay all losses and damages attending the carriage of the goods to be hauled by him. The truck was taken by a driver of Roberto Espiritu on February 1, 1962. Plaintiff Benito Alday, a trucking operator, and who owns about 15 freight trucks, had known the defendant Roberto Espiritu since 1948 as a truck operator. Plaintiff had a contract to haul the fertilizers of the Atlas Fertilizer Corporation from Pier 4, North Harbor, to its Warehouse in Mandaluyong. Alday met Espiritu at the gate of Pier 4 and the latter offered the use of his truck with the driver and helper at 9 centavos per bag of fertilizer. The offer was accepted by plaintiff Alday and he instructed his checker Celso Henson to let Roberto Espiritu haul the fertilizer. Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to the driver and helper of Espiritu with the necessary way bill receipts, Exhibits A and B. Espiritu, however, did not deliver the fertilizer to the Atlas Fertolizer bodega at Mandaluyong. The signatures appearing in the way bill receipts Exhibits A and B of the Alday Transportation admittedly not the signature of any representative or employee of the Atlas Fertilizer Corporation. Roberto Espiritu could not be found, and plaintiff reported the loss to the Manila Police Department. Roberto Espiritu was later arrested and booked for theft. ... Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he notified the Manila Police Department, and it was impounded by the police. It was claimed by Bienvenido Gelisan from the Police Department after he had been notified by his employees that the truck had been impounded by the police; but as he could not produce at the time the registration papers, the police would not release the truck to Gelisan. As a result of the impounding of the truck according to Gelisan, ... and that for the release of the truck he paid the premium of P300 to the surety company. 1 Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33, to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint against Roberto Espiritu and Bienvenido Gelisan with the Court of First Instance of Manila, docketed therein as Civil Case No. 49603, for the recovery of damages suffered by him thru the criminal acts committed by the defendants. The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default. The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that he had no contractual relations with the plaintiff Benito Alday as regards the hauling and/or delivery of the 400 bags of fertilizer mentioned in the complaint; that the alleged misappropriation or nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of fertilizer, was entirely beyond his (Gelisan's) control and knowledge, and which fact became known to him, for the first time, on 8 February 1962 when his freight truck, with plate No. TH-2377, was impounded by the Manila Police Department, at the instance of the plaintiff; and that in his written contract of hire with Roberto Espiritu, it was expressly provided that the latter will bear and pay all loss and damages attending the carriage of goods to be hauled by said Roberto Espiritu. After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito Alday, since Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. The dispositive portion of the decision reads, as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Roberto Espiritu for the sum of P6,000 with interest at the legal rate from the time of the filing of the complaint, and the costs of the suit. Plantiff's complaint is dismissed with respect to defendant Bienvenido Gelisan, and judgment is rendered in favor of defendant Bienvenido Gelisan and against the plaintiff for the sum of P350. 2 On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that Bienvenido Gelisan is likewise liable for being the registered owner of the truck; and that the lease contract, executed by and between Bienvenido Gelisan and Roberto Espiritu, is not binding upon Benito Alday for not having been previously approved by the Public Service Commission. Accordingly, it sentenced Bienvenido Gelisan to pay, jointly and severally with Roberto Espiritu, Benito Alday the amount of P5,397.30, with legal interest thereon from the filing of the complaint; and to pay the costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan whatever amount the latter may have paid to Benito Alday by virtue of the judgment. 4 Hence, the present recourse by Bienvenido Gelisan. The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to be reviewed, is in accord with the facts and the law on the case and we find no cogent reason to disturb the same. The Court has invariably held in several decisions that the registered owner of a public service vehicle is responsible for damages that may arise from consequences incident to its operation or that may be caused to any of the passengers therein. 5 The claim of the petitioner that he is not hable in view of the lease contract executed by and between him and Roberto Espiritu which exempts him from liability to third persons, cannot be sustained because it appears that the lease contract, adverted to, had not been approved by the Public Service Commission. It is settled in our jurisprudence that if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the public and third persons. 6 We also find no merit in the petitioner's argument that the rule requiring the previous approval by the Public Service Commission, of the transfer or lease of the motor vehicle, may be applied only in cases where there is no positive Identification of the owner or driver, or where there are very scant means of Identification, but not in those instances where the person responsible for damages has been fixed or determined beforehand, as in the case at bar. The reason for the rule we reiterate in the present case, was explained by the Court in Montoya vs. Ignacio, 7thus: There is merit in this contention. The law really requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so that the latter mav take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is granted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest. Such being the reason and philosophy behind this requirement, it follows that if the property covered by the franchise is transferred, or leased to another without obtaining the requisite approval, the transfer is not binding against the Public Service Commission and in contemplation of law the grantee continues to be responsible under the franchise in relation to the Commission and to the Public. Since the lease of the jeepney in question was made without such approval the only conclusion that

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can be drawn is that Marcelino Ignacio still continues to be its operator in contemplation of law, and as such is responsible for the consequences incident to its operation, one of them being the collision under consideration. Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be indemnified by Roberto Espiritu for the amount titat he may be required to pay as damages for the injury caused to Benito Alday, since the lease contract in question, although not effective against the public for not having been approved by the Public Service Commission, is valid and binding between the contracting parties. 8 We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has consistently considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said vehicles. Thus, in the case of Vargas vs. Langcay, 9 the Court said: We hold that the Court of Appeals erred in considering appellant-petitioner Diwata Vargas only subsidiarily liable under Article 103 of the Revised Penal Code. This court, in previous decisions, has always considered the registered owner/operator of a passenger vehicle, jointly and severally liable with the driver, for damages incurred by passengers or third persons as a consequence of injuries (or death) sustained in the operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol vs. Osias, G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506; Necesito vs. Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquino and Rayos vs Tamayo, 105 Phil., 949; 56 Off. Gaz. [36] 5617.) In the case of Erezo vs. Jepte, Supra, We held: * * * In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused * * * (Emphasis supplied) In the case of Tamayo vs. Aquino, supra, We said: * * * As Tamayo is the registered owner of the truck, his responsibffity to the public or to any passenger riding in the vehicle or truck must be direct * * * (Emphasis supplied) WHEREFORE, the petition is hereby DENIED. With costs against the petitioner. SO ORDERED. G.R. No. 70876 July 19, 1990 MA. LUISA BENEDICTO, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD INDUSTRIES COMPANY, INC.respondents. Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner. Abelardo V. Viray for private respondent.

FELICIANO, J.: This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the Regional Trial Court ("RTC") of Dagupan City in Civil Case No. 5206. There, the RTC held petitioner Ma. Luisa Benedicto liable to pay private respondent Greenhills Wood Industries Company, Inc. ("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills' lost sawn lumber and attorney's fees, respectively. Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City, operates sawmill in Maddela, Quirino. Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc., ("Blue Star") a company with business operations in Valenzuela, Bulacan 100,000 board feet of sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. 1 To effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business enterprise engaged in hauling freight, with main office in B.F. Homes, Paraaque. On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the loading of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck. Before the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices Nos. 3259 and 3260 both of which were initialed by the latter at the bottom left corner. 2 The first invoice was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber, while the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz instructed Licuden to give the original copies of the two (2) invoices to the consignee upon arrival in Valenzuela, Bulacan 3 and to retain the duplicate copies in order that he could afterwards claim the freightage from private respondent's Manila office. 4 On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills' president, Henry Lee Chuy, informing him that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela, Bulacan. The latter in turn informed Greenhills' resident manager in its Maddela saw-mill of what had happened. In a letter 5 dated 18 May 1980, Blue Star's administrative and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general manager that Blue Star still had not received the sawn lumber which was supposed to arrive on 15 May 1980 and because of this delay, "they were constrained to look for other suppliers." On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to continue with their contract, private respondent Greenhill's filed Criminal Case No. 668 against driver Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for recovery of the value of the lost sawn lumber plus damages before the RTC of Dagupan City.

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In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the contract of carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28 February 1980 as evidenced by a deed of sale. 7 She claimed that the truck had remained registered in her name notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00 out of the total agreed price of P68,000.00 However, she averred that Tee had been operating the said truck in Central Luzon from that date (28 February 1980) onwards, and that, therefore, Licuden was Tee's employee and not hers. On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the subject truck, and holding that Licuden was her employee, the trial court adjudged as follows: WHEREFORE, in the light of the foregoing considerations, this Court hereby renders judgment against defendant Maria Luisa Benedicto, ordering her to pay the Greenhills Wood Industries Co. Inc., thru its President and General Manager, the amount of P16,016 cost of the sawn lumber loaded on the cargo truck, with legal rate of interest from the filing of the complaint to pay attorney's fees in the amount of P2,000.00; and to pay the costs of this suit. SO ORDERED. 8 On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the decision of the trial court in toto. Like the trial court, the appellate court held that since petitioner was the registered owner of the subject vehicle, Licuden the driver of the truck, was her employee, and that accordingly petitioner should be responsible for the negligence of said driver and bear the loss of the sawn lumber plus damages. Petitioner moved for reconsideration, without success. 10 In the present Petition for Review, the sole issue raised is whether or not under the facts and applicable law, the appellate court was correct in finding that petitioner, being the registered owner of the carrier, should be held liable for the value of the undelivered or lost sawn lumber. Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine which makes the registered owner of a common carrier vehicle answerable to the public for the negligence of the driver despite the sale of the vehicle to another person, applies only to cases involving death of or injury to passengers. What applies in the present case, according to petitioner, is the rule that a contract of carriage requires proper delivery of the goods to and acceptance by the carrier. Thus, petitioner contends that the delivery to a person falsely representing himself to be an agent of the carrier prevents liability from attaching to the registered owner. The Court considers that petitioner has failed to show that appellate court committed reversible error in affirming the trial court's holding that petitioner was liable for the cost of the sawn lumber plus damages. There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in brief, a common carrier. The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the operations of the carrier, even though the specific vehicle involved may already have been transferred to another person. This doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law, the public has the right to assume that the registered owner is the actual or lawful owner thereof It would be very difficult and often impossible as a practical matter, for members of the general public to enforce the rights of action that they may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove who the actual owner is. 11 The registered owner is not allowed to deny liability by proving the identity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle's certificate of registration to ascertain the owner of the carrier. In this regard, the letter presented by petitioner allegedly written by Benjamin Tee admitting that Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented in court to testify on this matter but also because of the aforementioned doctrine. To permit the ostensible or registered owner to prove who the actual owner is, would be to set at naught the purpose or public policy which infuses that doctrine. In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a contract of carriage on behalf of the registered owner. It appears that, earlier, in the first week of May 1980, private respondent Greenhills had contracted Licuden who was then driving the same cargo truck to transport and carry a load of sawn lumber from the Maddela sawmill to Dagupan City. 12 No one came forward to question that contract or the authority of Licuden to represent the owner of the carrier truck. Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the freight truck for her own benefit and convenience, that is, to secure the payment of the balance of the selling price of the truck. She may have been unaware of the legal security device of chattel mortgage; or she, or her buyer, may have been unwilling to absorb the expenses of registering a chattel mortgage over the truck. In either case, considerations both of public policy and of equity require that she bear the consequences flowing from registered ownership of the subject vehicle. Petitioner Benedicto, however, insists that the said principle should apply only to cases involving negligence and resulting injury to or death of passengers, and not to cases involving merely carriage of goods. We believe otherwise. A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers but also in caring for goods transported by it. 13 The loss or destruction or deterioration of goods turned over to the common carrier for conveyance to a designated destination, raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damage arises from extreme circumstances such as a natural disaster or calamity or act of the public enemy in time of war, or from an act or omission of the shipper himself or from the character of the goods or their packaging or container. 14 This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier. 15 Clearly, to permit a common carrier to escape its responsibility for the passengers or goods transported by it by proving a prior sale of the vehicle or means of transportation to an alleged vendee would be to attenuate drastically the carrier's duty of extraordinary diligence. It would also open wide the door to collusion between the carrier and the supposed vendee and to shifting liability from the carrier to one without financial capability to respond for the resulting damages. In other words, the thrust of the public policy here involved is as sharp and real in the case of carriage of goods as it is in the transporting of human beings. Thus, to sustain petitioner Benedicto's contention, that is, to require the shipper to go behind a certificate of registration of a public utility vehicle, would be utterly subversive of the purpose of the law and doctrine. Petitioner further insists that there was no perfected contract of carriage for the reason that there was no proof that her consent or that of Tee had been obtained; no proof that the driver, Licuden was authorized to bind the registered owner; and no proof that the parties had agreed on the freightage to be paid.

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Once more, we are not persuaded by petitioner's arguments which appear to be a transparent attempt to evade statutory responsibilities. Driver Licuden was entrusted with possession and control of the freight truck by the registered owner (and by the alleged secret owner, for that matter).itc-asl Driver Licuden, under the circumstances, was clothed with at least implied authority to contract to carry goods and to accept delivery of such goods for carriage to a specified destination. That the freight to be paid may-not have been fixed before loading and carriage, did not prevent the contract of carriage from arising, since the freight was at least determinable if not fixed by the tariff schedules in petitioner's main business office. Put in somewhat different terms, driver Licuden is in law regarded as the employee and agent of the petitioner, for whose acts petitioner must respond. A contract of carriage of goods was shown; the sawn lumber was loaded on board the freight truck; loss or non-delivery of the lumber at Blue Star's premises in Valenzuela, Bulacan was also proven; and petitioner has not proven either that she had exercised extraordinary diligence to prevent such loss or non-delivery or that the loss or non-delivery was due to some casualty or force majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills was thus fixed and complete, without prejudice to petitioner's right to proceed against her putative transferee Benjamin Tee and driver Licuden for reimbursement or contribution. 17 WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former Intermediate Appellate Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner. SO ORDERED.

[G.R. No. 120553. June 17, 1997]

PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner, vs. COURT OF APPEALS and HEIRS OF THE LATE RAMON ACUESTA, respondents. DECISION DAVIDE, JR., J.: The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of Court from the 31 January 1995 Decision of the Court of Appeals in CA-G.R. CV No. 41140[1] affirming the 22 January 1993[2] Decision of Branch 31 of the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the petitioners to pay the private respondents damages as a result of a vehicular accident. Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of Ramon A. Acuesta, namely, Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O. Acuesta; Maximo O. Acuesta; Neri O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O. Acuesta. Atty. Julio O. Acuesta also appeared as counsel for the plaintiffs (herein private respondents).[3] The private respondents alleged that the petitioners were guilty of gross negligence, recklessness, violation of traffic rules and regulations, abandonment of victim, and attempt to escape from a crime. To support their allegations, the private respondents presented eight witnesses. On 10 February 1992, after the cross-examination of the last witness, the private respondents counsel made a reservation to present a ninth witness. The case was then set for continuation of the trial on 30 and 31 March 1992. Because of the non-appearance of the petitioners counsel, the 30 March 1992 hearing was cancelled. The next day, private respondents counsel manifested that he would no longer present the ninth witness. He thereafter made an oral offer of evidence and rested the case. The trial court summarized private respondents evidence in this wise: [I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy rider bicycle (Exhibit O), along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga Park. On the Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by some persons in order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St. and the said Philtranco bus 4025 was heading in the general direction of the said Gomez Street. Some of the persons who were pushing the bus were on its back, while the others were on the sides. As the bus was pushed, its engine started thereby the bus continued on its running motion and it occurred at the time when Ramon A. Acuesta who was still riding on his bicycle was directly in front of the said bus. As the engine of the Philtranco bus started abruptly and suddenly, its running motion was also enhanced by the said functioning engine, thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over by the said bus. The bus did not stop although it had already bumped and ran [sic] over the victim; instead, it proceeded running towards the direction of the Rosales Bridge which is located at one side of the Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was riding on his bicycle. P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting the victim Ramon A. Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being pushed by some passengers, when its engine abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver defendant Manilhig herein and signalled to him to stop, but the latter did not listen. So the police officer jumped into the bus and introducing himself to the driver defendant as policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus near the Nijaga Park and Sgt. Yabao thereafter, told the driver to proceed to the Police Headquarter which was only 100 meters away from Nijaga Park because he was apprehensive that the said driver might be harmed by the relatives of the victim who might come to the scene of the accident. Then Sgt. Yabao cordoned the scene where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an investigation and make a sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters away when he saw the bus of defendant Philtranco bumped [sic] and [sic] ran over the victim. From the place where the victim was actually bumped by the bus, the said vehicle still had run to a distance of about 15 meters away.[4] For their part, the petitioners filed an Answer[5] wherein they alleged that petitioner Philtranco exercised the diligence of a good father of a family in the selection and supervision of its employees, including petitioner Manilhig who had excellent record as a driver and had undergone months of rigid training before he was hired. Petitioner Manilhig had always been a prudent professional driver, religiously observing traffic rules and regulations. In driving Philtranco's buses, he exercised the diligence of a very cautious person. As might be expected, the petitioners had a different version of the incident. They alleged that in the morning of 24 March 1990, Manilhig, in preparation for his trip back to Pasay City, warmed up the engine of the bus and made a few rounds within the city proper of Calbayog. While the bus was slowly and moderately cruising along Gomez Street, the victim, who was biking towards the same direction as the bus, suddenly overtook two tricycles and swerved left to the center of the road. The swerving was abrupt and so sudden that even as Manilhig applied the brakes and blew the bus horn, the victim was bumped from behind and run over by the bus. It was neither willful nor deliberate on Manilhig's part to proceed with the trip after his bus bumped the victim, the truth being that when he looked at his rear-view window, he saw people crowding around the victim, with others running after his bus. Fearing that he might be mobbed, he moved away from the scene of the accident and intended to report the incident to the police. After a man boarded his bus and introduced himself as a policeman, Manilhig gave himself up to the custody of the police and reported the accident in question. The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles, without taking precautions such as seeing first that the road was clear, which caused the death of the victim. The latter did not even give any signal of his intention to overtake. The petitioners then counterclaimed for P50,000 as and for attorney's fees; P1 million as moral damages; and P50,000 for litigation expenses.

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However, the petitioners were not able to present their evidence, as they were deemed to have waived that right by the failure of their counsel to appear at the scheduled hearings on 30 and 31 March 1992. The trial court then issued an Order[6] declaring the case submitted for decision. Motions for the reconsideration of the said Order were both denied. On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and severally pay the private respondents the following amounts: 1) P55, 615.72 as actual damages; 2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta; 3) P1 million as moral damages; 4) P500,000 by way of exemplary damages; 5) P50,000 as attorneys fees; and 6) the costs of suit.[7] Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the trial court the following errors: (1) in preventing or barring them from presenting their evidence; (2) in finding that petitioner Manilhig was at fault; (3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to, his unfortunate accident; (4) in awarding damages to the private respondents; and (5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages.[8] In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held that the petitioners were not denied due process, as they were given an opportunity to present their defense. The records show that they were notified of the assignment of the case for 30 and 31 March 1992. Yet, their counsel did not appear on the said dates. Neither did he file a motion for postponement of the hearings, nor did he appeal from the denial of the motions for reconsideration of the 31 March 1992 Order of the trial court. The petitioners have thereby waived their right to present evidence. Their expectation that they would have to object yet to a formal offer of evidence by the private respondents was misplaced, for it was within the sound discretion of the court to allow oral offer of evidence. As to the second and third assigned errors, the respondent court disposed as follows: ... We cannot help but accord with the lower court's finding on appellant Manilhig's fault. First, it is not disputed that the bus driven by appellant Manilhig was being pushed at the time of the unfortunate happening. It is of common knowledge and experience that when a vehicle is pushed to a jump-start, its initial movement is far from slow. Rather, its movement is abrupt and jerky and it takes a while before the vehicle attains normal speed. The lower court had thus enough basis to conclude, as it did, that the bumping of the victim was due to appellant Manilhig's actionable negligence and inattention. Prudence should have dictated against jump-starting the bus in a busy section of the city. Militating further against appellants' posture was the fact that the precarious pushing of subject bus to a jumpstart was done where the bus had to take a left turn, thereby making the move too risky to take. The possibility that pedestrians on Gomez Street, where the bus turned left and the victim was biking, would be unaware of a vehicle being pushed to a jumpstart, was too obvious to be overlooked. Verily, contrary to their bare arguments, there was gross negligence on the part of appellants. The doctrine of last clear chance theorized upon by appellants, is inapplicable under the premises because the victim, who was bumped from behind, obviously, did not of course anticipate a Philtranco bus being pushed from a perpendicular street. The respondent court sustained the awards of moral and exemplary damages and of attorneys fees, for they are warranted under Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent the solidary liability of petitioner Philtranco, the same finds support in Articles 2180 and 2194 of the said Code. The defense that Philtranco exercised the diligence of a good father of a family in the selection and supervision of its employees crumbles in the face of the gross negligence of its driver, which caused the untimely death of the victim. Their motion for reconsideration having been denied, the petitioners came to us claiming that the Court of Appeals gravely erred I ...IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT THEIR EVIDENCE, AND THAT PETITIONERS WERE NOT DENIED DUE PROCESS. II ...IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND IN HOLDING THAT PETITIONER PHILTRANCO CAN NOT INVOKE THE DEFENSE OF DILIGENCE OF A GOOD FATHER OF A FAMILY. III ...IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE TRIAL COURT'S AWARD OF DAMAGES EXCESSIVE. We resolved to give due course to the petition and required the parties to submit their respective memoranda after due consideration of the allegations, issues, and arguments adduced in the petition, the comment thereon by the private respondents, and the reply to the comment filed by the petitioners. The petitioners filed their memorandum in due time; while the private respondents filed theirs only on 3 January 1997, after their counsel was fined in the amount of P1,000 for failure to submit the required memorandum. The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were duly notified in open court of the order of the trial court of 10 February 1992 setting the case for hearing on 30 and 31 March 1992.[9] On both dates neither the petitioners nor their counsel appeared. In his motion for reconsideration,[10] Atty. Buban gave the following reasons for his failure to appear on the said hearings: 1. That when this case was called on March 27, 1992, counsel was very much indisposed due to the rigors of a very hectic campaign as he is a candidate for City Councilor of Tacloban; he wanted to leave for Calbayog City, but he was seized with slight fever on the morning of said date; but then, during the last hearing, counsel was made to understand that plaintiffs would formally offer their exhibits in writing, for which reason, counsel for defendants waited for a copy of said formal offer, but counsel did not receive any copy as counsel for plaintiffs opted to formally offer their exhibits orally in open court;

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2. That counsel for defendants, in good faith believed that he would be given reasonable time within which to comment on the formal offer in writing, only to know that counsel for plaintiffs orally offered their exhibits in open court and that the same were admitted by the Honorable Court; and that when this case was called on March 30 and 31, 1992, the undersigned counsel honestly believed that said schedule would be cancelled, pending on the submission of the comments made by the defendants on the formal offer; but it was not so, as the exhibits were admitted in open court. [11] In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious basis," as Atty. Buban could have filed a motion for postponement.[12] Atty. Buban then filed a motion to reconsider[13] the order of denial, which was likewise denied by the trial court in its order of 12 August 1992.[14] Nothing more was done by the petitioners after receipt of the order of 12 August 1992. A perusal of the first and second motions for reconsideration discloses absence of any claim that the petitioners have meritorious defenses. Clearly, therefore, the trial court committed no error in declaring the case submitted for decision on the basis of private respondent's evidence. The second imputed error is without merit either. Civil Case No. 373 is an action for damages based on quasi-delict[15] under Article 2176 and 2180 of the Civil Code against petitioner Manilhig and his employer, petitioner Philtranco, respectively. These articles pertinently provide: ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. ... The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks even though the former are not engaged in any business or industry. ... The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. We have consistently held that the liability of the registered owner of a public service vehicle, like petitioner Philtranco, [16] for damages arising from the tortious acts of the driver isprimary, direct, and joint and several or solidary with the driver.[17] As to solidarity, Article 2194 expressly provides: ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary. Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it is to recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based on quasi-delict. Article 2181 of the Civil Code provides: ART. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim. There is, however, merit in the third imputed error. The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the award in their Opposition to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is computed on the basis of the life expectancy of the deceased." In that case, the "death indemnity" was computed by multiplying the victim's gross annual income by his life expectancy, less his yearly living expenses. Clearly then, the "death indemnity" referred to was the additional indemnity for the loss of earning capacity mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the first paragraph thereof. This article provides as follows: ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period of not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. We concur with petitioners view that the trial court intended the award of "P200,000.00 as death indemnity" not as compensation for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the same must be struck out for lack of basis. There is no evidence on the victim's earning capacity and life expectancy. Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by current jurisprudence at P50,000.[18] The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive and unreasonable. This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta, contained in his "Direct Testimony... As Plaintiff, conducted by Himself,"[19] to wit: Q. What was your feeling or reaction as a result of the death of your father Ramon A. Acuesta?

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A.

We, the family members, have suffered much from wounded feelings, moral shock, mental anguish, sleepless nights, to which we are entitled to moral damages at the reasonable amount of ONE MILLION (P1,000,000.00) PESOS or at the sound discretion of this Hon. Court."

Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for its award of moral damages to those who did not testify thereon. Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant's culpable action and must, perforce, be proportional to the suffering inflicted.[20] In light of the circumstances in this case, an award of P50,000 for moral damages is in order. The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be awarded if the party at fault acted with gross negligence.[21] The Court of Appeals found that there was gross negligence on the part of petitioner Manilhig.[22] Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it must be fair and reasonable in every case and should not be awarded to unjustly enrich a prevailing party. In the instant case, an award of P50,000 for the purpose would be adequate, fair, and reasonable. Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate.[23] Stated otherwise, the grant of attorney's fees as part of damages is the exception rather than the rule, as counsel's fees are not awarded every time a party prevails in a suit. [24] Such attorney's fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must bereasonable. In the instant case, the counsel for the plaintiffs is himself a co-plaintiff; it is then unlikely that he demanded from his brothers and sisters P100,000 as attorney's fees as alleged in the complaint and testified to by him.[25] He did not present any written contract for his fees. He is, however, entitled to a reasonable amount for attorney's fees, considering that exemplary damages are awarded. Among the instances mentioned in Article 2208 of the Civil Code when attorney's fees may be recovered is "(1) when exemplary damages are awarded." Under the circumstances in this case, an award of P25,000 for attorney's fees is reasonable. The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such award shall stand. IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of CA-G.R. CV No. 41140 is AFFIRMED, subject to modifications as to the damages awarded, which are reduced as follows: (a) Death indemnity, from P200,000 to P50,000; (b) Moral damages, from P1 million to P50,000; (c) Exemplary damages, from P500,000 to P50,000; and (d) Attorney's fees, from P50,000 to P25,000. No pronouncements as to costs in this instance. SO ORDERED. G.R. No. L-26815 May 26, 19810 ADOLFO L. SANTOS, petitioner, vs. ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J.:1wph1.t The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words, SANTOS became what is known in ordinary parlance as akabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement. On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred to as the BRANCH XVII CASE. On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1 On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD, and scheduled the public auction sale thereof on May 8,1964. On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the thirdparty complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld. On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the BONDING COMPANY as a party defendant although its bond had not become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of operating said vehicle as a passenger

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jeepney under the latter's franchise; that SANTOS did not receive any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2 No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond securing him against the thirdparty-claim. But the decision to proceed or not with the public sale lies with him. As said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and personal liability." The mentioned discretional power and personal liability have been further elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the property levied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless he is given by the judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the Indemnity bond, but in such case he will answer for any damages with his own personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39.). It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant. On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, and decreed: 1wph1.t WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale of the vehicle in question ordering its return to the plaintiff and furthermore sentencing the defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's fee's as well as the costs. 4 This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the BONDING COMPANY as jointly slid severally liable with SIBUG. 51wph1.t ... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums it is ordered to pay under this decision. The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed. Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: 1wph1.t ... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... (g) to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof. In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards the public and third persons 7 even if the vehicle involved in the accident had been sold to another where such sale had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling public. As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplary damages. 10 From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X had no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11 On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree of another court of concurrent jurisdiction." 12

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Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled that: 1wph1.t ... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVII when it issued a restraining order and finally a decision permanently enjoining the other court from excuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an interference with the powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitably lead to confusion which might hamper or hinder the proper administration of justice. ... 14 Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being levied upon but registered in another's name in a separated action, observing that: 1wph1.t As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any person affected by the representation that said vehicle is registered under the name of a particular person had the right to rely on his declaration of ownership and registration: and the registered owner or any other person for that matter cannot be permitted to repudiate said declaration with the objective of proving that said registered vehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code) xxx xxx xxx Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be opened to collusion between a person and a registered owner for the latter to escape said responsibility to the public or to any person. ... SANTOS now seeks a review of respondent Court's Decision contending that: 1wph1.t 1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy the judgment indebtedness of another person: 2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its registered owner; 3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482. We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for decision on July 20, 1967. One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the vehicle levied upon through a separate action. Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15speaking through Mr. Justice Ramon Aquino, succinctly held: 1wph1.t It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is applied in cases, where no third-party claimant is involved, in order to prevent one court from nullifying the judgment or process of another court of the same rank or category, a power which devolves upon the proper appellate court. xxx xxx xxx When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction, which is issued to stop the auction sale of that property, is not an interference with the writ of execution issued by another court because the writ of execution was improperly implemented by the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102). An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively: 1wph1.t Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of concurrent jurisdiction. No court has power to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction. Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court must interfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and the relief sought by such injunction must be one which could be granted by the court which rendered the judgment or issued the decree. Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims property levied upon on execution. Under section 17 of Rule 39 a third person who claims property levied upon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring him to be the owner of the property - would not constitute interference with the powers or processes of the court which rendered the judgment to enforce which the execution was levied. lf that be so - and it is so

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because the property, being that of a stranger, is not subject to levy - then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as such interference either. Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules of Court, interpreted The right of a person who claims to be the owner of property levied upon on execution to file a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be suffered by the third party claimant. By "action", as stated in the Rule, what is meant is a separate and independent action. Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers or processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in question was in custodia legis, and should not be interfered with without the permission of the proper Court, the property must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply and interference with his custody is not interference with another Court's Order of attachment. 17 However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent Court of Appeals to be in consonance with justice. WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santos is dismissed with costs against the petitioner. SO ORDERED. Lita Enterprises vs. IAC, 129 SCRA 79, 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 Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name. About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees. This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez. Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: t.hqw WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned. Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff. Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo) Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p. 121, Ibid.) On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive portion another paragraph, to wit: t.hqw

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

PARAS, J.: "'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.) The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, as follows: On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his own request, the period of paying the balance was extended to one year in monthly installments until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees.

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In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of the balance of the purchase price. It has been the practice of financing firms that whenever there is a balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank. On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of the condition that the plaintiff would be the one to register every year the motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle the defendant suffered damages when he failed to claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being registered. The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting in its not being registered. The truth being that the motorcycle was being used for transporting passengers and it kept on travelling from one place to another. The motor vehicle sold to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer for a fee on not less than P1,000.00. xxx xxx xxx ... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the transportation business and for this purpose said trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the unit.Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit. Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositive portion of which reads: WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs. SO ORDERED. On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of which reads However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code]. xxx xxx xxx WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed. No pronouncement as to costs. SO ORDERED. The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto." We find the petition devoid of merit. Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices.

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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. 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 himP20,000.00, the assessment of the damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected; instead, private respondent demanded a brand-new jeep or the amount of P236,000.00. Lim increased his bid to P40,000.00 but private respondent was unyielding. Under the circumstances, negotiations had to be abandoned; hence, the filing of the complaint for damages by private respondent against petitioners. In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his employees. He further asserted that as the jeepney was registered in Vallartas name, it was Vallarta and not private respondent who was the real party in interest.[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 andP30,000.00 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 [6] task. 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 wellestablished 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

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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 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 kabitsystem is being held liable for damages. Second, the case arose from the negligence of another vehicle in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny him his right. In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue should be discouraged, if not repelled. In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by putting the plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on damages that a defendant cannot be held liable in damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no more than the just and adequate compensation for the injury suffered. His recovery is, in the absence of circumstances giving rise to an allowance of punitive damages, limited to a fair compensation for the harm done. The law will not put him in a position better than where he should be in had not the wrong happened.[12] In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award damages considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that indemnification for damages comprehends not only the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other words, indemnification for damages is not limited to damnum emergens or actual loss but extends to lucrum cessans or the amount of profit lost.[13] Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued earning from the business in which it was engaged. Private respondent avers that he derives an average income of P300.00 per day from his passenger jeepney and this earning was included in the award of damages made by the trial court and upheld by the appeals court. The award therefore of P236,000.00 as compensatory damages is not beyond reason nor speculative as it is based on a reasonable estimate of the total damage suffered by private respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation business. Petitioners for their part did not offer any substantive evidence to refute the estimate made by the courts a quo. However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory damages legal interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof, interest at the rate of six percent (6%) per annum should be from the date the judgment of the court is made (at which time the quantification of damages may be deemed to be reasonably ascertained).[14] In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated upon by the parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they could have the vehicle repaired easily for P20,000.00. In fine, the amount due private respondent was not a liquidated account that was already demandable and payable. One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the elements. Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. One who is injured then by the wrongful or negligent act of another should exercise reasonable care and diligence to minimize the resulting damage. Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured and for injuries incurred in attempting to prevent damage to it.[15] However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage caused by private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only that the injured party could have mitigated his damages but also the amount thereof; failing in this regard, the amount of damages awarded cannot be proportionately reduced. WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as compensatory damages andP30,000.00 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-16790 April 30, 1963

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URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees, vs. DELFIN BERNARDO, defendant-appellant. Parades, Gaw and Associates for plaintiffs-appellees. Bonifacio B. Camacho for defendant-appellant. MAKALINTAL, J.: Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter to this Court on the ground that only questions of law are involved. The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for enforcement of his subsidiary liability as employer in accordance with Article 103, Revised Penal Code. The trial court ordered defendant to pay plaintiffs P3,000.00 and costs upon the following stipulated facts: 1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them and was under their custody until his death on October 24,1956 when he was killed in a motor vehicle accident, the fatal vehicle being a passenger jeepney with Plate No, AC-1963 (56) owned by the defendant; 2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque; 3. That the contract between Conrado Roque and defendant Delfin Bernardo was that Roque was to pay to defendant the sum of P8.00, which he paid to said defendant, for privilege of driving the jeepney on October 24, 1956, it being their agreement that whatever earnings Roque could make out of the use of the jeepney in transporting passengers from one point to another in the City of Manila would belong entirely to Conrado Roque; 4. That as a consequence of the accident and as a result of the death of Cesar Magboo in said accident, Conrado Roque was prosecuted for homicide thru reckless imprudence before the Court of First Instance of Manila, the information having been docketed as Criminal Case No. 37736, and that upon arraignment Conrado Roque pleaded guilty to the information and was sentenced to six (6) months of arresto mayor, with the accessory penalties of the law; to indemnify the heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, and to pay the costs; 5. That pursuant to said judgment Conrado Roque served his sentence but he was not able to pay the indemnity because he was insolvent." Appellant assails said decision, assigning three errors which boil down to the question of whether or not an employer-employee relationship exists between a jeepney-owner and a driver under a "boundary system" arrangement. Appellant contends that the relationship is essentially that of lessor and lessee. A similar contention has been rejected by this Court in several cases. In National Labor Union v. Dinglasan, 52 O.G., No. 4, 1933, it was held that the features which characterize the "boundary system" namely, the fact that the driver does not receive a fixed wage but gets only the excess of the receipt of fares collected by him over the amount he pays to the jeep-owner and that the gasoline consumed by the jeep is for the account of the driver are not sufficient to withdraw the relationship between them from that of employer and employee. The ruling was subsequently cited and applied in Doce v. Workmen's Compensation Commission, L-9417, December 22, 1958, which involved the liability of a bus owner for injury compensation to a conductor working under the "boundary system." The same principle applies with greater reason in negligence cases concerning the right of third parties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, the owner and operator of a passenger jeepney leased it to another, but without the approval of the Public Service Commission. In a subsequent collision a passenger died. We ruled that since the lease was made without such approval, which was required by law, the owner continued to be the operator of the vehicle in legal contemplation and as such was responsible for the consequences incident to its operation. The same responsibility was held to attach in a case where the injured party was not a passenger but a third person, who sued on the theory of culpa aquiliana (Timbol vs. Osias, L-7547, April 30, 1955). There is no reason why a different rule should be applied in a subsidiary liability case under Article 103 of the Revised Penal Code. As in the existence of an employer-employee relationship between the owner of the vehicle and the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law but also to place the riding public at the mercy of reckless and irresponsible drivers - reckless because the measure of their earnings depends largely upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no position to pay the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957). Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t Appellant further argues that he should not have been held subsidiarily liable because Conrado Roque (the driver of the jeepney) pleaded guilty to the charge in the criminal case without appellant's knowledge and contrary to the agreement between them that such plea would not be entered but, instead evidence would be presented to prove Roque's innocence. On this point we quote with approval the pertinent portion of the decision appealed from: "'With respect to the contention of the defendant that he was taken unaware by the spontaneous plea of guilt entered by the driver Conrado Roque, and that he did not have a chance to prove the innocence of said Conrado Roque, the Court holds that at this stage, it is already too late to try the criminal case all over again. Defendant's allegation that he relied on his belief that Conrado Roque would defend himself and they had sufficient proof to show that Roque was not guilty of the crime charged cannot be entertained. Defendant should have taken it to himself to aid in the defense of Conrado Roque. Having failed to take this step and the accused having been declared guilty by final judgment of the crime of homicide thru reckless imprudence, there appears no more way for the defendant to escape his subsidiary liability as provided for in Article 103 of the Revised Penal Code."' WHEREFORE, the judgment appealed from, being in accordance with law, is hereby affirmed, with costs against defendant-appellant.

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