G.R. No.

125948 December 29, 1998

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.

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.
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.

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

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 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 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

On January 20, 1994, petitioner filed a letter-protest addressed to

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

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

common carrier, but a

special carrier extending
its services and facilities
to a single specific or
"special customer" under
a "special contract."
2. The Local Tax Code of
1992 was basically
enacted to give more and
effective local autonomy
to local governments
than the previous
enactments, to make
them economically and
financially viable to serve
the people and discharge
their functions with a
concomitant obligation to
accept certain devolution
of powers, . . . 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

On October 3, 1994, the trial court rendered a decision dismissing

the complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent
contractor.
. . . 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.

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

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
onlycommon carriers so
as not to overburden the
riding public or
commuters with
taxes. Plaintif is not a

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 22, 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.

indifferently, that is, to all persons who choose to employ its

services, and transports the goods by land and for compensation.
The fact that petitioner has a limited clientele does not exclude it
from the definition of a common carrier. In De Guzman vs. Court of
Appeals 16 we ruled that:

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.

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 . . . 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.

Art. 1732 of the Civil Code defines a "common carrier" as "any

person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of
goods is:
1. He must be engaged in
the business of carrying
goods for others as a
public employment, and
must hold himself out as
ready to engage in the
transportation of goods
for person generally as a
business and not as a
casual occupation;
2. He must undertake to
carry goods of the kind to
which his business is
confined;

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:

3. He must undertake to
carry by the method by
which his business is
conducted and over his
established roads; and
4. The transportation
must be for hire. 15
Based on the above definitions and requirements, there is no doubt
that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons

every person that now or

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

services. (Emphasis
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
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 . . . and everything relating
to the manufacture, refining, storage,
or transportation by special methods of
petroleum, is hereby declared to be
a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a

"common carrier." In BIR Ruling No. 069-83, it declared:

water,
except as
provided in
this Code.

. . . 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 . . . . Such being
the case, it is not subject to withholding
tax prescribed by Revenue Regulations
No. 13-78, as amended.

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

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:

1. It states: "SEC. 121 [now Sec. 131].

Common Limitations on the Taxing
Powers of Local Government Units." . . .

Sec. 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:

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?

xxx xxx xxx

(j) Taxes on
the gross
receipts of
transportat
ion
contractors
and
persons
engaged in
the
transportat
ion of
passengers
or freight
by hire and
common
carriers by
air, land or

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.

G.R. No. 111127 July 26, 1996

MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO
CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN
FELLOWSHIP, INC., AMYLINE ANTONIO, JOHN RICHARDS,
GONZALO GONZALES, VICENTE V. QUE, JR., ICLI CORDOVA,
ARLENE GOJOCCO, ALBERTO ROXAS CORDERO, RICHARD
BAUTISTA, JOCELYN GARCIA, YOLANDA CORDOVA, NOEL
ROQUE, EDWARD TAN, ERNESTO NARCISO, ENRIQUETA
LOCSIN, FRANCIS NORMAN O. LOPES, JULIUS CAESAR,
GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE
SENIEL, ROSARIO MARA-MARA, TERESITA REGALA, MELINDA
TORRES, MARELLA MIJARES, JOSEFA CABATINGAN, MARA
NADOC, DIANE MAYO, TESS PLATA, MAYETTE JOCSON,
ARLENE Y. MORTIZ, LIZA MAYO, CARLOS RANARIO,
ROSAMARIA T. RADOC and BERNADETTE FERRER, respondents.

MR. AQUINO (A.). Thank you for that

clarification, Mr. Speaker. . . . 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.

MENDOZA, J.:p
This is a petition for review on certiorari of the decision of the Court
of Appeals 1 in CA-GR No. 28245, dated September 30, 1992, which
affirmed with modification the decision of the Regional Trial Court of
Makati, Branch 58, ordering petitioners jointly and severally to pay
damages to private respondent Amyline Antonio, and its resolution
which denied petitioners' motion for reconsideration for lack of
merit.

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.

Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982
model Mazda minibus. They used the bus principally in connection
with a bus service for school children which they operated in Manila.
The couple had a driver, Porfirio J. Cabil, whom they hired in 1981,
after trying him out for two weeks, His job was to take school
children to and from the St. Scholastica's College in Malate, Manila.

On November 2, 1984 private respondent Word for the World

Christian Fellowship Inc. (WWCF) arranged with petitioners for the
transportation of 33 members of its Young Adults Ministry from
Manila to La Union and back in consideration of which private
respondent paid petitioners the amount of P3,000.00.

with the Lingayen Regional Trial Court. Petitioners Fabre paid Jesus
Escano P1,500.00 for the damage to the latter's fence. On the basis
of Escano's affidavit of desistance the case against petitioners Fabre
was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the
RTC of Makati, Metro Manila. As a result of the accident, she is now
suffering from paraplegia and is permanently paralyzed from the
waist down. During the trial she described the operations she
underwent and adduced evidence regarding the cost of her
treatment and therapy. Immediately after the accident, she was
taken to the Nazareth Hospital in Baay, Lingayen. As this hospital
was not adequately equipped, she was transferred to the Sto. Nio
Hospital, also in the town of Ba-ay, where she was given sedatives.
An x-ray was taken and the damage to her spine was determined to
be too severe to be treated there. She was therefore brought to
Manila, first to the Philippine General Hospital and later to the
Makati Medical Center where she underwent an operation to correct
the dislocation of her spine.

The group was scheduled to leave on November 2, 1984, at 5:00

o'clock in the afternoon. However, as several members of the party
were late, the bus did not leave the Tropical Hut at the corner of
Ortigas Avenue and EDSA until 8:00 o'clock in the evening.
Petitioner Porfirio Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen, Pangasinan.
However, the bridge at Carmen was under repair, so that petitioner
Cabil, who was unfamiliar with the area (it being his first trip to La
Union), was forced to take a detour through the town of Baay in
Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came
upon a sharp curve on the highway, running on a south to east
direction, which he described as "siete." The road was slippery
because it was raining, causing the bus, which was running at the
speed of 50 kilometers per hour, to skid to the left road shoulder.
The bus hit the left traffic steel brace and sign along the road and
rammed the fence of one Jesus Escano, then turned over and landed
on its left side, coming to a full stop only after a series of impacts.
The bus came to rest off the road. A coconut tree which it had hit fell
on it and smashed its front portion.

In its decision dated April 17, 1989, the trial court found that:
No convincing evidence was shown that the minibus was properly
checked for travel to a long distance trip and that the driver was
properly screened and tested before being admitted for
employment. Indeed, all the evidence presented have shown the
negligent act of the defendants which ultimately resulted to the
accident subject of this case.

Several passengers were injured. Private respondent Amyline

Antonio was thrown on the floor of the bus and pinned down by a
wooden seat which came down by a wooden seat which came off
after being unscrewed. It took three persons to safely remove her
from this portion. She was in great pain and could not move.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship,
Inc. and Ms. Amyline Antonio were the only ones who adduced
evidence in support of their claim for damages, the Court is
therefore not in a position to award damages to the other plaintiffs.

The driver, petitioner Cabil, claimed he did not see the curve until it
was too late. He said he was not familiar with the area and he could
not have seen the curve despite the care he took in driving the bus,
because it was dark and there was no sign on the road. He said that
he saw the curve when he was already within 15 to 30 meters of it.
He allegedly slowed down to 30 kilometers per hour, but it was too
late.

WHEREFORE, premises considered, the Court hereby renders

judgment against defendants Mr. & Mrs. Engracio Fabre, Jr. and
Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil
Code of the Philippines and said defendants are ordered to pay
jointly and severally to the plaintiffs the following amount:
1) P93,657.11 as compensatory and actual damages;

The Lingayen police investigated the incident the next day,

November 3, 1984. On the basis of their finding they filed a criminal
complaint against the driver, Porfirio Cabil. The case was later filed

2) P500,000.00 as the reasonable amount of loss of

earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

employees do not have security of tenure, the award of

P600,000.00, considering Amyline Antonio's earnings, is without
factual basis as there is no assurance that she would be regularly
earning these amounts.

4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorney's fees;
6) Costs of suit.

With the exception of the award of damages, the petition is devoid

of merit.

SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with
respect to Amyline Antonio but dismissed it with respect to the other
plaintiffs on the ground that they failed to prove their respective
claims. The Court of Appeals modified the award of damages as
follows:

First, it is unnecessary for our purpose to determine whether to

decide this case on the theory that petitioners are liable for breach
of contract of carriage or culpa contractual or on the theory of quasi
delict or culpa aquiliana as both the Regional Trial Court and the
Court of Appeals held, for although the relation of passenger and
carrier is "contractual both in origin and nature," nevertheless "the
act that breaks the contract may be also a tort." 2 In either case, the
question is whether the bus driver, petitioner Porfirio Cabil, was
negligent.

1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;
3) P50,000.00 as moral damages;
4) P20,000.00 as exemplary damages;

The finding that Cabil drove his bus negligently, while his employer,
the Fabres, who owned the bus, failed to exercise the diligence of a
good father of the family in the selection and supervision of their
employee is fully supported by the evidence on record. These
factual findings of the two courts we regard as final and conclusive,
supported as they are by the evidence. Indeed, it was admitted by
Cabil that on the night in question, it was raining, and as a
consequence, the road was slippery, and it was dark. He averred
these facts to justify his failure to see that there lay a sharp curve
ahead. However, it is undisputed that Cabil drove his bus at the
speed of 50 kilometers per hour and only slowed down when he
noticed the curve some 15 to 30 meters ahead. 3 By then it was too
late for him to avoid falling off the road. Given the conditions of the
road and considering that the trip was Cabil's first one outside of
Manila, Cabil should have driven his vehicle at a moderate speed.
There is testimony 4 that the vehicles passing on that portion of the
road should only be running 20 kilometers per hour, so that at 50
kilometers per hour, Cabil was running at a very high speed.

5) P10,000.00 as attorney's fees; and

6) Costs of suit.
The Court of Appeals sustained the trial court's finding that
petitioner Cabil failed to exercise due care and precaution in the
operation of his vehicle considering the time and the place of the
accident. The Court of Appeals held that the Fabres were themselves
presumptively negligent. Hence, this petition. Petitioners raise the
following issues:
I. WHETHER OR NOT PETITIONERS
WERE NEGLIGENT.
II. WHETHER OF NOT PETITIONERS
WERE LIABLE FOR THE INJURIES
SUFFERED BY PRIVATE RESPONDENTS.
III WHETHER OR NOT DAMAGES CAN BE
AWARDED AND IN THE POSITIVE, UP TO
WHAT EXTENT.
Petitioners challenge the propriety of the award of compensatory
damages in the amount of P600,000.00. It is insisted that, on the
assumption that petitioners are liable an award of P600,000.00 is
unconscionable and highly speculative. Amyline Antonio testified
that she was a casual employee of a company called "Suaco,"
earning P1,650.00 a month, and a dealer of Avon products, earning
an average of P1,000.00 monthly. Petitioners contend that as casual

Considering the foregoing the fact that it was raining and the road
was slippery, that it was dark, that he drove his bus at 50 kilometers
an hour when even on a good day the normal speed was only 20
kilometers an hour, and that he was unfamiliar with the terrain,
Cabil was grossly negligent and should be held liable for the injuries
suffered by private respondent Amyline Antonio.

Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence
gave rise to the presumption that his employers, the Fabres, were
themselves negligent in the selection and supervisions of their
employee.

As already stated, this case actually involves a contract of carriage.

Petitioners, the Fabres, did not have to be engaged in the business
of public transportation for the provisions of the Civil Code on
common carriers to apply to them. As this Court has held: 10

Due diligence in selection of employees is not satisfied by finding

that the applicant possessed a professional driver's license. The
employer should also examine the applicant for his qualifications,
experience and record of service. 5 Due diligence in supervision, on
the other hand, requires the formulation of rules and regulations for
the guidance of employees and issuance of proper instructions as
well as actual implementation and monitoring of consistent
compliance with the rules. 6

Art. 1732. Common carriers are persons, corporations,

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

In the case at bar, the Fabres, in allowing Cabil to drive the bus to La
Union, apparently did not consider the fact that Cabil had been
driving for school children only, from their homes to the St.
Scholastica's College in Metro Manila. 7 They had hired him only
after a two-week apprenticeship. They had hired him only after a
two-week apprenticeship. They had tested him for certain matters,
such as whether he could remember the names of the children he
would be taking to school, which were irrelevant to his qualification
to drive on a long distance travel, especially considering that the
trip to La Union was his first. The existence of hiring procedures and
supervisory policies cannot be casually invoked to overturn the
presumption of negligence on the part of an employer. 8
Petitioners argue that they are not liable because (1) an earlier
departure (made impossible by the congregation's delayed meeting)
could have a averted the mishap and (2) under the contract, the
WWCF was directly responsible for the conduct of the trip. Neither of
these contentions hold water. The hour of departure had not been
fixed. Even if it had been, the delay did not bear directly on the
cause of the accident. With respect to the second contention, it was
held in an early case that:

As common carriers, the Fabres were found to

exercise "extraordinary diligence" for the safe
transportation of the passengers to their destination.
This duty of care is not excused by proof that they
exercise the diligence of a good father of the family in
the selection and supervision of their employee. As
Art. 1759 of the Code provides:

[A] person who hires a public automobile and gives the driver
directions as to the place to which he wishes to be conveyed, but
exercises no other control over the conduct of the driver, is not
responsible for acts of negligence of the latter or prevented from
recovering for injuries suffered from a collision between the
automobile and a train, caused by the negligence or the automobile
driver. 9

Common carriers are liable for the death of or injuries

to passengers through the negligence or willful acts of
the former's employees although such employees
may have acted beyond the scope of their authority
or in violation of the orders of the common carriers.
This liability of the common carriers does not cease
upon proof that they exercised all the diligence of a

good father of a family in the selection and

supervision of their employees.

As above stated, the decision of the Court of Appeals can be

sustained either on the theory of quasi delict or on that of breach of
contract. The question is whether, as the two courts below held,
petitioners, who are the owners and driver of the bus, may be made
to respond jointly and severally to private respondent. We hold that
they may be. In Dangwa Trans. Co. Inc. v. Court of Appeals, 14 on
facts similar to those in this case, this Court held the bus company
and the driver jointly and severally liable for damages for injuries
suffered by a passenger. Again, in Bachelor Express, Inc. v. Court of
Appeals 15 a driver found negligent in failing to stop the bus in order
to let off passengers when a fellow passenger ran amuck, as a result
of which the passengers jumped out of the speeding bus and
suffered injuries, was held also jointly and severally liable with the
bus company to the injured passengers.

The same circumstances detailed above, supporting the finding of

the trial court and of the appellate court that petitioners are liable
under Arts. 2176 and 2180 for quasi delict, fully justify findings them
guilty of breach of contract of carriage under Arts. 1733, 1755 and
1759 of the Civil Code.
Secondly, we sustain the award of damages in favor of Amyline
Antonio. However, we think the Court of Appeals erred in increasing
the amount of compensatory damages because private respondents
did not question this award as inadequate. 11 To the contrary, the
award of P500,000.00 for compensatory damages which the
Regional Trial Court made is reasonable considering the contingent
nature of her income as a casual employee of a company and as
distributor of beauty products and the fact that the possibility that
she might be able to work again has not been foreclosed. In fact she
testified that one of her previous employers had expressed
willingness to employ her again.

The same rule of liability was applied in situations where the

negligence of the driver of the bus on which plaintiff was riding
concurred with the negligence of a third party who was the driver of
another vehicle, thus causing an accident. In Anuran
v. Buo, 16 Batangas Laguna Tayabas Bus Co. v. Intermediate
Appellate Court, 17 and Metro Manila Transit Corporation v. Court of
Appeals, 18 the bus company, its driver, the operator of the other
vehicle and the driver of the vehicle were jointly and severally held
liable to the injured passenger or the latters' heirs. The basis of this
allocation of liability was explained in Viluan v. Court of
Appeals, 19 thus:

With respect to the other awards, while the decisions of the trial
court and the Court of Appeals do not sufficiently indicate the
factual and legal basis for them, we find that they are nevertheless
supported by evidence in the records of this case. Viewed as an
action for quasi delict, this case falls squarely within the purview of
Art. 2219(2) providing for the payment of moral damages in cases
of quasi delict. On the theory that petitioners are liable for breach of
contract of carriage, the award of moral damages is authorized by
Art. 1764, in relation to Art. 2220, since Cabil's gross negligence
amounted to bad faith. 12 Amyline Antonio's testimony, as well as
the testimonies of her father and copassengers, fully establish the
physical suffering and mental anguish she endured as a result of the
injuries caused by petitioners' negligence.

Nor should it make any difference that the liability of

petitioner [bus owner] springs from contract while
that of respondents [owner and driver of other
vehicle] arises from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177,
that in case of injury to a passenger due to the
negligence of the driver of the bus on which he was
riding and of the driver of another vehicle, the drivers
as well as the owners of the two vehicles are jointly
and severally liable for damages. Some members of
the Court, though, are of the view that under the
circumstances they are liable on quasi-delict. 20

The award of exemplary damages and attorney's fees was also

properly made. However, for the same reason that it was error for
the appellate court to increase the award of compensatory
damages, we hold that it was also error for it to increase the award
of moral damages and reduce the award of attorney's fees,
inasmuch as private respondents, in whose favor the awards were
made, have not appealed. 13

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of

Appeals 21 this Court exonerated the jeepney driver from liability to

10

the injured passengers and their families while holding the owners
of the jeepney jointly and severally liable, but that is because that
case was expressly tried and decided exclusively on the theory
of culpa contractual. As this Court there explained:

SO ORDERED.

The trial court was therefore right in finding that Manalo (the driver)
and spouses Mangune and Carreon (the jeepney owners) were
negligent. However, its ruling that spouses Mangune and Carreon
are jointly and severally liable with Manalo is erroneous. The driver
cannot be held jointly and severally liable with carrier in case of
breach of the contract of carriage. The rationale behind this is
readily discernible. Firstly, the contract of carriage is between the
carrier is exclusively responsible therefore to the passenger, even if
such breach be due to the negligence of his driver (see Viluan v. The
Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16
SCRA 742). 22

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

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying
up used bottles and scrap metal in Pangasinan. Upon gathering
sufficient quantities of such scrap material, respondent would bring
such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the
return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged
freight rates which were commonly lower than regular commercial
rates.

As in the case of BLTB, private respondents in this case and her

coplaintiffs did not stake out their claim against the carrier and the
driver exclusively on one theory, much less on that of breach of
contract alone. After all, it was permitted for them to allege
alternative causes of action and join as many parties as may be
liable on such causes of action 23 so long as private respondent and
her coplaintiffs do not recover twice for the same injury. What is
clear from the cases is the intent of the plaintiff there to recover
from both the carrier and the driver, thus, justifying the holding that
the carrier and the driver were jointly and severally liable because
their separate and distinct acts concurred to produce the same
injury.

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.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

MODIFICATION as to award of damages. Petitioners are ORDERED to
PAY jointly and severally the private respondent Amyline Antonio the
following amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity
of plaintiff Amyline Antonio;
3) P20,000.00 as moral damages;

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.

4) P20,000.00 as exemplary damages;

5) 25% of the recoverable amount as attorney's fees; and
6) costs of suit.

11

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.

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.

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.

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:

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:

... 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)

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

12

It appears to the Court that private respondent is properly

characterized as a common carrier even though he merely "backhauled" 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.

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.

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.

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,

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

13

may be overthrown by proof of extraordinary diligence on the part of

private respondent.

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."

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.

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 unlaw fully 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) holduppers 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

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;

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.

(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)

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.

14

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.

load 800 to 1,100 metric tons of silica quartz on board the M/T
Espiritu Santo7 at Ayungon, Negros Occidental for transport to and
discharge at Tagoloan, Misamis Oriental to consignee Ferrochrome
Phils., Inc.8

SO ORDERED.

Pursuant to the contract, on December 23, 1984, petitioner received

and loaded 1,100 metric tons of silica quartz on board the M/T
Espiritu Santo which left Ayungon for Tagoloan the next day. 9 The
shipment never reached its destination, however, because the M/T
Espiritu Santo sank in the afternoon of December 24, 1984 off the
beach of Opol, Misamis Oriental, resulting in the total loss of the
cargo.10
MCCII filed a claim for the loss of the shipment with its insurer,
respondent Philippine Home Assurance Corporation.11 Respondent
paid the claim in the amount of P211,500 and was subrogated to the
rights of MCCII.12 Thereafter, it filed a case in the RTC 13 against
petitioner for reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It
ordered petitioner to pay respondent P211,500 plus legal interest,
attorneys fees equivalent to 25% of the award and costs of suit.
G.R. No. 150403

On appeal, the CA affirmed the decision of the RTC. Hence, this

petition.

January 25, 2007

Petitioner and MCCII entered into a "voyage charter," also known as

a contract of affreightment wherein the ship was leased for a single
voyage for the conveyance of goods, in consideration of the
payment of freight.14 Under a voyage charter, the shipowner retains
the possession, command and navigation of the ship, the charterer
or freighter merely having use of the space in the vessel in return
for his payment of freight.15 An owner who retains possession of the
ship remains liable as carrier and must answer for loss or nondelivery of the goods received for transportation.16

CEBU SALVAGE CORPORATION, Petitioner,

vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the
sinking of a ship it does not own?
This is the issue presented for the Courts resolution in this petition
for review on certiorari1 assailing the March 16, 2001 decision2 and
September 17, 2001 resolution3 of the Court of Appeals (CA) in CAG.R. CV No. 40473 which in turn affirmed the December 27, 1989
decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro
Manila.5

Petitioner argues that the CA erred when it affirmed the RTC finding
that the voyage charter it entered into with MCCII was a contract of
carriage.17 It insists that the agreement was merely a contract of
hire wherein MCCII hired the vessel from its owner, ALS Timber
Enterprises (ALS).18 Not being the owner of the M/T Espiritu Santo,
petitioner did not have control and supervision over the vessel, its
master and crew.19 Thus, it could not be held liable for the loss of the
shipment caused by the sinking of a ship it did not own.

The pertinent facts follow.

On November 12, 1984, petitioner Cebu Salvage Corporation (as
carrier) and Maria Cristina Chemicals Industries, Inc. [MCCII] (as
charterer) entered into a voyage charter6 wherein petitioner was to

15

We disagree.

The bill of lading was merely a receipt issued by ALS to evidence the
fact that the goods had been received for transportation. It was not
signed by MCCII, as in fact it was simply signed by the supercargo of
ALS.28 This is consistent with the fact that MCCII did not contract
directly with ALS. While it is true that a bill of lading may serve as
the contract of carriage between the parties,29 it cannot prevail over
the express provision of the voyage charter that MCCII and
petitioner executed:

Based on the agreement signed by the parties and the testimony of

petitioners operations manager, it is clear that it was a contract of
carriage petitioner signed with MCCII. It actively negotiated and
solicited MCCIIs account, offered its services to ship the silica quartz
and proposed to utilize the M/T Espiritu Santo in lieu of the M/T
Seebees or the M/T Shirley (as previously agreed upon in the voyage
charter) since these vessels had broken down. 20

[I]n cases where a Bill of Lading has been issued by a carrier

covering goods shipped aboard a vessel under a charter party, and
the charterer is also the holder of the bill of lading, "the bill of lading
operates as the receipt for the goods, and as document of title
passing the property of the goods, but not as varying the contract
between the charterer and the shipowner." The Bill of Lading
becomes, therefore, only a receipt and not the contract of carriage
in a charter of the entire vessel, for the contract is the Charter Party,
and is the law between the parties who are bound by its terms and
condition provided that these are not contrary to law, morals, good
customs, public order and public policy. 30

There is no dispute that petitioner was a common carrier. At the

time of the loss of the cargo, it was engaged in the business of
carrying and transporting goods by water, for compensation, and
offered its services to the public.21
From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence over
the goods they transport according to the circumstances of each
case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by
the causes specified in Article 1734 of the Civil Code. 23 In all other
cases, common carriers are presumed to be at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence.24

Finally, petitioner asserts that MCCII should be held liable for its own
loss since the voyage charter stipulated that cargo insurance was
for the charterers account.31 This deserves scant consideration. This
simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the
breach of its contract of carriage. The law, in fact, prohibits it and
condemns it as unjust and contrary to public policy.32

Petitioner was the one which contracted with MCCII for the transport
of the cargo. It had control over what vessel it would use. All
throughout its dealings with MCCII, it represented itself as a
common carrier. The fact that it did not own the vessel it decided to
use to consummate the contract of carriage did not negate its
character and duties as a common carrier. The MCCII (respondents
subrogor) could not be reasonably expected to inquire about the
ownership of the vessels which petitioner carrier offered to utilize.
As a practical matter, it is very difficult and often impossible for the
general public to enforce its rights of action under a contract of
carriage if it should be required to know who the actual owner of the
vessel is.25 In fact, in this case, the voyage charter itself
denominated petitioner as the "owner/operator" of the vessel. 26

To summarize, a contract of carriage of goods was shown to exist;

the cargo was loaded on board the vessel; loss or non-delivery of
the cargo was proven; and petitioner failed to prove that it exercised
extraordinary diligence to prevent such loss or that it was due to
some casualty or force majeure. The voyage charter here being a
contract of affreightment, the carrier was answerable for the loss of
the goods received for transportation.33
The idea proposed by petitioner is not only preposterous, it is also
dangerous. It says that a carrier that enters into a contract of
carriage is not liable to the charterer or shipper if it does not own
the vessel it chooses to use. MCCII never dealt with ALS and yet
petitioner insists that MCCII should sue ALS for reimbursement for its
loss. Certainly, to permit a common carrier to escape its

Petitioner next contends that if there was a contract of carriage,

then it was between MCCII and ALS as evidenced by the bill of lading
ALS issued.27
Again, we disagree.

16

responsibility for the goods it agreed to transport (by the expedient

of alleging non-ownership of the vessel it employed) would radically
derogate from the carrier's duty of extraordinary diligence. It would
also open the door to collusion between the carrier and the
supposed owner and to the possible shifting of liability from the
carrier to one without any financial capability to answer for the
resulting damages.34

The operator of a. school bus service is a common carrier in the

eyes of the law. He is bound to observe extraordinary diligence in
the conduct of his business. He is presumed to be negligent when
death occurs to a passenger. His liability may include indemnity for
loss of earning capacity even if the deceased passenger may only
be an unemployed high school student at the time of the accident.

WHEREFORE, the petition is hereby DENIED.

By petition for review on certiorari, Spouses Teodoro and Nanette

Perefia (Perefias) appeal the adverse decision promulgated on
November 13, 2002, by which the Court of Appeals (CA) affirmed
with modification the decision rendered on December 3, 1999 by the
Regional Trial Court (RTC), Branch 260, in Paraaque City that had
decreed them jointly and severally liable with Philippine National
Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L.
Zarate (Aaron), then a high school student of Don Bosco Technical
Institute (Don Bosco).

The Case

Costs against petitioner.

SO ORDERED.

Antecedents
The Pereas were engaged in the business of transporting students
from their respective residences in Paraaque City to Don Bosco in
Pasong Tamo, Makati City, and back. In their business, the Pereas
used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be
seated in the front beside the driver, and the others in the rear, with
six students on either side. They employed Clemente Alfaro (Alfaro)
as driver of the van.

G.R. No. 157917

In June 1996, the Zarates contracted the Pereas to transport Aaron

to and from Don Bosco. On August 22, 1996, as on previous school
days, the van picked Aaron up around 6:00 a.m. from the Zarates
residence. Aaron took his place on the left side of the van near the
rear door. The van, with its air-conditioning unit turned on and the
stereo playing loudly, ultimately carried all the 14 student riders on
their way to Don Bosco. Considering that the students were due at
Don Bosco by 7:15 a.m., and that they were already running late
because of the heavy vehicular traffic on the South Superhighway,
Alfaro took the van to an alternate route at about 6:45 a.m. by
traversing the narrow path underneath the Magallanes Interchange
that was then commonly used by Makati-bound vehicles as a short
cut into Makati. At the time, the narrow path was marked by piles of

August 29, 2012

1

SPOUSES TEODORO and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE,
NATIONAL RAILWAYS, and the COURT OF
APPEALS Respondents.
DECISION
BERSAMIN, J.:

17

construction materials and parked passenger jeepneys, and the

railroad crossing in the narrow path had no railroad warning signs, or
watchmen, or other responsible persons manning the crossing. In
fact, the bamboo barandilla was up, leaving the railroad crossing
open to traversing motorists.

which occurred while Aaron was riding the contracted carrier

Kia Ceres van of spouses Perea, then driven and operated
by the latter's employee/authorized driver Clemente Alfaro,
which van collided with the train of PNR, at around 6:45 A.M.
of August 22, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;

At about the time the van was to traverse the railroad crossing, PNR
Commuter No. 302 (train), operated by Jhonny Alano (Alano), was in
the vicinity of the Magallanes Interchange travelling northbound. As
the train neared the railroad crossing, Alfaro drove the van eastward
across the railroad tracks, closely tailing a large passenger bus. His
view of the oncoming train was blocked because he overtook the
passenger bus on its left side. The train blew its horn to warn
motorists of its approach. When the train was about 50 meters away
from the passenger bus and the van, Alano applied the ordinary
brakes of the train. He applied the emergency brakes only when he
saw that a collision was imminent. The passenger bus successfully
crossed the railroad tracks, but the van driven by Alfaro did not. The
train hit the rear end of the van, and the impact threw nine of the 12
students in the rear, including Aaron, out of the van. Aaron landed in
the path of the train, which dragged his body and severed his head,
instantaneously killing him. Alano fled the scene on board the train,
and did not wait for the police investigator to arrive.

(4) At the time of the vehicular/train collision, the subject

site of the vehicular/train collision was a railroad crossing
used by motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there
were no appropriate and safety warning signs and railings at
the site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound
public utility and private vehicles used on a daily basis the
site of the collision as an alternative route and short-cut to
Makati;
(7) The train driver or operator left the scene of the incident
on board the commuter train involved without waiting for the
police investigator;
(8) The site commonly used for railroad crossing by
motorists was not in fact intended by the railroad operator
for railroad crossing at the time of the vehicular collision;

Devastated by the early and unexpected death of Aaron, the

Zarates commenced this action for damages against Alfaro, the
Pereas, PNR and Alano. The Pereas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not
be served with summons.

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

(10) PNR refused to acknowledge any liability for the
vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by
PNR was an internal arrangement between the former and its
project contractor; and

At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of
Aaron John L. Zarate;

(12) The site of the vehicular/train collision was within the

vicinity or less than 100 meters from the Magallanes station
of PNR.

(2) Spouses Zarate engaged the services of spouses Perea

for the adequate and safe transportation carriage of the
former spouses' son from their residence in Paraaque to his
school at the Don Bosco Technical Institute in Makati City;

B. ISSUES
(1) Whether or not defendant-driver of the van is, in the
performance of his functions, liable for negligence
constituting the proximate cause of the vehicular collision,
which resulted in the death of plaintiff spouses' son;

(3) During the effectivity of the contract of carriage and in

the implementation thereof, Aaron, the minor son of spouses
Zarate died in connection with a vehicular/train collision

18

(2) Whether or not the defendant spouses Perea being the

employer of defendant Alfaro are liable for any negligence
which may be attributed to defendant Alfaro;

The Zarates claim against the Pereas was upon breach of the
contract of carriage for the safe transport of Aaron; but that against
PNR was based on quasi-delict under Article 2176, Civil Code.

(3) Whether or not defendant Philippine National Railways

being the operator of the railroad system is liable for
negligence in failing to provide adequate safety warning
signs and railings in the area commonly used by motorists for
railroad crossings, constituting the proximate cause of the
vehicular collision which resulted in the death of the plaintiff
spouses' son;

In their defense, the Pereas adduced evidence to show that they

had exercised the diligence of a good father of the family in the
selection and supervision of Alfaro, by making sure that Alfaro had
been issued a drivers license and had not been involved in any
vehicular accident prior to the collision; that their own son had taken
the van daily; and that Teodoro Perea had sometimes accompanied
Alfaro in the vans trips transporting the students to school.

(4) Whether or not defendant spouses Perea are liable for

breach of the contract of carriage with plaintiff-spouses in
failing to provide adequate and safe transportation for the
latter's son;

For its part, PNR tended to show that the proximate cause of the
collision had been the reckless crossing of the van whose driver had
not first stopped, looked and listened; and that the narrow path
traversed by the van had not been intended to be a railroad crossing
for motorists.

(5) Whether or not defendants spouses are liable for actual,

moral damages, exemplary damages, and attorney's fees;

Ruling of the RTC

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

(6) Whether or not defendants spouses Teodorico and

Nanette Perea observed the diligence of employers and
school bus operators;

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiff and against the defendants ordering them to
jointly and severally pay the plaintiffs as follows:

(7) Whether or not defendant-spouses are civilly liable for the

accidental death of Aaron John Zarate;

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

(8) Whether or not defendant PNR was grossly negligent in

operating the commuter train involved in the accident, in
allowing or tolerating the motoring public to cross, and its
failure to install safety devices or equipment at the site of the
accident for the protection of the public;

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

(9) Whether or not defendant PNR should be made to

reimburse defendant spouses for any and whatever amount
the latter may be held answerable or which they may be
ordered to pay in favor of plaintiffs by reason of the action;

(6) Attorneys fees in the amount of Php200,000.00; and

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

(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for
reconsideration,4 reiterating that the cooperative gross negligence
of the Pereas and PNR had caused the collision that led to the
death of Aaron; and that the damages awarded to the Zarates were
not excessive, but based on the established circumstances.

(10) Whether or not defendant PNR should pay plaintiffs

directly and fully on the amounts claimed by the latter in
their Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants
spouses for actual, moral and exemplary damages and
attorney's fees.2

The CAs Ruling

Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5

19

The Court a quo erred in:

the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:

1. In finding the defendant-appellant Philippine National

Railways jointly and severally liable together with defendantappellants spouses Teodorico and Nanette Perea and
defendant-appellant Clemente Alfaro to pay plaintiffsappellees for the death of Aaron Zarate and damages.

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years
upon reckoning his life expectancy from age of 21 (the age when he
would have graduated from college and started working for his own
livelihood) instead of 15 years (his age when he died). Considering
that the nature of his work and his salary at the time of Aarons
death were unknown, it used the prevailing minimum wage
of P 280.00/day to compute Aarons gross annual salary to
be P 110,716.65, inclusive of the thirteenth month pay. Multiplying
this annual salary by Aarons life expectancy of 39.3 years, his gross
income would aggregate to P 4,351,164.30, from which his
estimated expenses in the sum of P 2,189,664.30 was deducted to
finally arrive at P 2,161,500.00 as net income. Due to Aarons
computed net income turning out to be higher than the amount
claimed by the Zarates, only P 2,109,071.00, the amount expressly
prayed for by them, was granted.

2. In giving full faith and merit to the oral testimonies of

plaintiffs-appellees witnesses despite overwhelming
documentary evidence on record, supporting the case of
defendants-appellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and
severally liable for actual, moral and exemplary damages and
attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants
Pereas against the Philippine National Railways and in not holding
the latter and its train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorneys
fees.

On April 4, 2003, the CA denied the Pereas motion for

reconsideration.8

The trial court erred in awarding damages in the form of deceaseds

loss of earning capacity in the absence of sufficient basis for such an
award.

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

On November 13, 2002, the CA promulgated its decision, affirming

the findings of the RTC, but limited the moral damages
to P 2,500,000.00; and deleted the attorneys fees because the RTC
did not state the factual and legal bases, to wit:6

I. The lower court erred when it upheld the trial courts decision
holding the petitioners jointly and severally liable to pay damages
with Philippine National Railways and dismissing their cross-claim
against the latter.

WHEREFORE, premises considered, the assailed Decision of the

Regional Trial Court, Branch 260 of Paraaque City is AFFIRMED with
the modification that the award of Actual Damages is reduced
to P59,502.76; Moral Damages is reduced to P 2,500,000.00; and
the award for Attorneys Fees is Deleted.

II. The lower court erred in affirming the trial courts decision
awarding damages for loss of earning capacity of a minor who was
only a high school student at the time of his death in the absence of
sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of
damages awarded, assuming petitioners are liable at all.

SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity,
taking cognizance of the ruling in Cariaga v. Laguna Tayabas Bus
Company and Manila Railroad Company,7 wherein the Court gave
the heirs of Cariaga a sum representing the loss of the deceaseds
earning capacity despite Cariaga being only a medical student at

Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?

20

The Zarates brought this action for recovery of damages against

both the Pereas and the PNR, basing their claim against the
Pereas on breach of contract of carriage and against the PNR on
quasi-delict.

person, corporation, firm or association engaged in the business of

carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering such services to the
public.12Contracts of common carriage are governed by the
provisions on common carriers of the Civil Code, the Public Service
Act,13 and other special laws relating to transportation. A common
carrier is required to observe extraordinary diligence, and is
presumed to be at fault or to have acted negligently in case of the
loss of the effects of passengers, or the death or injuries to
passengers.14

The RTC found the Pereas and the PNR negligent. The CA affirmed
the findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the
diligence of a good father of the family in the selection and
supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
drivers license and that he had not been involved in any vehicular
accident prior to the fatal collision with the train; that they even had
their own son travel to and from school on a daily basis; and that
Teodoro Perea himself sometimes accompanied Alfaro in
transporting the passengers to and from school. The RTC gave scant
consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.

In relation to common carriers, the Court defined public use in the

following terms in United States v. Tan Piaco,15viz:
"Public use" is the same as "use by the public". The essential feature
of the public use is not confined to privileged individuals, but is open
to the indefinite public. It is this indefinite or unrestricted quality
that gives it its public character. In determining whether a use is
public, we must look not only to the character of the business to be
done, but also to the proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is merely incidental, it
is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. There must be, in general, a right which
the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public
use is not synonymous with public interest. The true criterion by
which to judge the character of the use is whether the public may
enjoy it by right or only by permission.

We find no adequate cause to differ from the conclusions of the

lower courts that the Pereas operated as a common carrier; and
that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has
been usually regarded as a private carrier,9primarily because he
only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use,
the exact nature of the operation of a school bus service has not
been finally settled. This is the occasion to lay the matter to rest.

In De Guzman v. Court of Appeals,16 the Court noted that Article

1732 of the Civil Code avoided any distinction between a person or
an enterprise offering transportation on a regular or an isolated
basis; and has not distinguished a carrier offering his services to the
general public, that is, the general community or population, from
one offering his services only to a narrow segment of the general
population.

A carrier is a person or corporation who undertakes to transport or

convey goods or persons from one place to another, gratuitously or
for hire. The carrier is classified either as a private/special carrier or
as a common/public carrier.10 A private carrier is one who, without
making the activity a vocation, or without holding himself or itself
out to the public as ready to act for all who may desire his or its
services, undertakes, by special agreement in a particular instance
only, to transport goods or persons from one place to another either
gratuitously or for hire.11The provisions on ordinary contracts of the
Civil Code govern the contract of private carriage.The diligence
required of a private carrier is only ordinary, that is, the diligence of
a good father of the family. In contrast, a common carrier is a

Nonetheless, the concept of a common carrier embodied in Article

1732 of the Civil Code coincides neatly with the notion of public
service under the Public Service Act, which supplements the law on
common carriers found in the Civil Code. Public service, according to
Section 13, paragraph (b) of the Public Service Act, includes:

21

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

manage, or control in the Philippines, for hire or compensation, with
general or limited clientle, whether permanent or occasional, and
done for the general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting
stations and other similar public services. x x x.17

transportation indiscriminately to the students of a particular school

living within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety
of the passengers is defined by law. Given the nature of the business
and for reasons of public policy, the common carrier is bound "to
observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to
all the circumstances of each case."22 Article 1755 of the Civil Code
specifies that the common carrier should "carry the passengers
safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all
the circumstances." To successfully fend off liability in an action
upon the death or injury to a passenger, the common carrier must
prove his or its observance of that extraordinary diligence;
otherwise, the legal presumption that he or it was at fault or acted
negligently would stand.23 No device, whether by stipulation, posting
of notices, statements on tickets, or otherwise, may dispense with or
lessen the responsibility of the common carrier as defined under
Article 1755 of the Civil Code. 24

Given the breadth of the aforequoted characterization of a common

carrier, the Court has considered as common carriers pipeline
operators,18 custom brokers and warehousemen,19 and barge
operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is
not the quantity or extent of the business actually transacted, or the
number and character of the conveyances used in the activity, but
whether the undertaking is a part of the activity engaged in by the
carrier that he has held out to the general public as his business or
occupation. If the undertaking is a single transaction, not a part of
the general business or occupation engaged in, as advertised and
held out to the general public, the individual or the entity rendering
such service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried on
by the carrier, not by any secret intention or mental reservation it
may entertain or assert when charged with the duties and
obligations that the law imposes.21

And, secondly, the Pereas have not presented any compelling

defense or reason by which the Court might now reverse the CAs
findings on their liability. On the contrary, an examination of the
records shows that the evidence fully supported the findings of the
CA.
As earlier stated, the Pereas, acting as a common carrier, were
already presumed to be negligent at the time of the accident
because death had occurred to their passenger. 25 The presumption
of negligence, being a presumption of law, laid the burden of
evidence on their shoulders to establish that they had not been
negligent.26 It was the law no less that required them to prove their
observance of extraordinary diligence in seeing to the safe and
secure carriage of the passengers to their destination. Until they did
so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural
consequences of such death.

Applying these considerations to the case before us, there is no

question that the Pereas as the operators of a school bus service
were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry
passengers over established roads by the method by which the
business was conducted; and (c) transporting students for a fee.
Despite catering to a limited clientle, the Pereas operated as a
common carrier because they held themselves out as a ready

There is no question that the Pereas did not overturn the

presumption of their negligence by credible evidence. Their defense
of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient.

22

a prudent and reasonable man would not do,32 or as Judge Cooley

defines it, (t)he failure to observe for the protection of the interests
of another person, that degree of care, precaution, and vigilance
which the circumstances justly demand, whereby such other person
suffers injury."33

According to Article 1759 of the Civil Code, their liability as a

common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and
supervision of their employee. This was the reason why the RTC
treated this defense of the Pereas as inappropriate in this action for
breach of contract of carriage.

The test by which to determine the existence of negligence in a

particular case has been aptly stated in the leading case of Picart v.
Smith,34 thuswise:

The Pereas were liable for the death of Aaron despite the fact that
their driver might have acted beyond the scope of his authority or
even in violation of the orders of the common carrier.27 In this
connection, the records showed their drivers actual negligence.
There was a showing, to begin with, that their driver traversed the
railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that
point had been used by motorists as a shortcut into the Makati area,
that fact alone did not excuse their driver into taking that route. On
the other hand, with his familiarity with that shortcut, their driver
was fully aware of the risks to his passengers but he still disregarded
the risks. Compounding his lack of care was that loud music was
playing inside the air-conditioned van at the time of the accident.
The loudness most probably reduced his ability to hear the warning
horns of the oncoming train to allow him to correctly appreciate the
lurking dangers on the railroad tracks. Also, he sought to overtake a
passenger bus on the left side as both vehicles traversed the
railroad tracks. In so doing, he lost his view of the train that was
then coming from the opposite side of the passenger bus, leading
him to miscalculate his chances of beating the bus in their race, and
of getting clear of the train. As a result, the bus avoided a collision
with the train but the van got slammed at its rear, causing the
fatality. Lastly, he did not slow down or go to a full stop before
traversing the railroad tracks despite knowing that his slackening of
speed and going to a full stop were in observance of the right of way
at railroad tracks as defined by the traffic laws and regulations. 28 He
thereby violated a specific traffic regulation on right of way, by
virtue of which he was immediately presumed to be negligent. 29

The test by which to determine the existence of negligence in a

particular case may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. The law here in
effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless, blameworthy,
or negligent in the man of ordinary intelligence and prudence and
determines liability by that.
The question as to what would constitute the conduct of a prudent
man in a given situation must of course be always determined in the
light of human experience and in view of the facts involved in the
particular case. Abstract speculation cannot here be of much value
but this much can be profitably said: Reasonable men govern their
conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the
future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a
result of the course actually pursued? If so, it was the duty of the
actor to take precautions to guard against that harm. Reasonable
foresight of harm, followed by the ignoring of the suggestion born of
this prevision, is always necessary before negligence can be held to
exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be
negligent when a prudent man in the position of the tortfeasor
would have foreseen that an effect harmful to another was

The omissions of care on the part of the van driver constituted

negligence,30 which, according to Layugan v. Intermediate Appellate
Court,31 is "the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which

23

sufficiently probable to warrant his foregoing the conduct or

guarding against its consequences. (Emphasis supplied)

negligence despite the school van of the Pereas traversing the

railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not
ensure the safety of others through the placing of crossbars, signal
lights, warning signs, and other permanent safety barriers to
prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to
man that point from 7 a.m. to 5 p.m. was a good indicium that the
PNR was aware of the risks to others as well as the need to control
the vehicular and other traffic there. Verily, the Pereas and the PNR
were joint tortfeasors.

Pursuant to the Picart v. Smith test of negligence, the Pereas

driver was entirely negligent when he traversed the railroad tracks
at a point not allowed for a motorists crossing despite being fully
aware of the grave harm to be thereby caused to his passengers;
and when he disregarded the foresight of harm to his passengers by
overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite
side of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate
Appellate Court,35 where the Court held the PNR solely liable for the
damages caused to a passenger bus and its passengers when its
train hit the rear end of the bus that was then traversing the railroad
crossing. But the circumstances of that case and this one share no
similarities. In Philippine National Railways v. Intermediate Appellate
Court, no evidence of contributory negligence was adduced against
the owner of the bus. Instead, it was the owner of the bus who
proved the exercise of extraordinary diligence by preponderant
evidence. Also, the records are replete with the showing of
negligence on the part of both the Pereas and the PNR. Another
distinction is that the passenger bus in Philippine National Railways
v. Intermediate Appellate Court was traversing the dedicated
railroad crossing when it was hit by the train, but the Pereas
school van traversed the railroad tracks at a point not intended for
that purpose.

2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity.
Although agreeing with the RTC on the liability, the CA modified the
amount. Both lower courts took into consideration that Aaron, while
only a high school student, had been enrolled in one of the
reputable schools in the Philippines and that he had been a normal
and able-bodied child prior to his death. The basis for the
computation of Aarons earning capacity was not what he would
have become or what he would have wanted to be if not for his
untimely death, but the minimum wage in effect at the time of his
death. Moreover, the RTCs computation of Aarons life expectancy
rate was not reckoned from his age of 15 years at the time of his
death, but on 21 years, his age when he would have graduated from
college.

At any rate, the lower courts correctly held both the Pereas and the
PNR "jointly and severally" liable for damages arising from the death
of Aaron. They had been impleaded in the same complaint as
defendants against whom the Zarates had the right to relief,
whether jointly, severally, or in the alternative, in respect to or
arising out of the accident, and questions of fact and of law were
common as to the Zarates.36 Although the basis of the right to relief
of the Zarates (i.e., breach of contract of carriage) against the
Pereas was distinct from the basis of the Zarates right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code),
they nonetheless could be held jointly and severally liable by virtue
of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of

We find the considerations taken into account by the lower courts to

be reasonable and fully warranted.
Yet, the Pereas submit that the indemnity for loss of earning
capacity was speculative and unfounded.1wphi1 They cited People
v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
Jussi Leinos loss of earning capacity as a pilot for being speculative
due to his having graduated from high school at the International
School in Manila only two years before the shooting, and was at the
time of the shooting only enrolled in the first semester at the Manila
Aero Club to pursue his ambition to become a professional pilot.
That meant, according to the Court, that he was for all intents and
purposes only a high school graduate.

24

We reject the Pereas submission.

from P 10,000.00 to P 15,000.00 upon their graduation. Their

earning capacities were computed at rates higher than the minimum
wage at the time of their deaths due to their being already senior
agriculture students of the University of the Philippines in Los Baos,
the countrys leading educational institution in agriculture.

First of all, a careful perusal of the Teehankee, Jr. case shows that
the situation there of Jussi Leino was not akin to that of Aaron here.
The CA and the RTC were not speculating that Aaron would be some
highly-paid professional, like a pilot (or, for that matter, an engineer,
a physician, or a lawyer). Instead, the computation of Aarons
earning capacity was premised on him being a lowly minimum wage
earner despite his being then enrolled at a prestigious high school
like Don Bosco in Makati, a fact that would have likely ensured his
success in his later years in life and at work.

3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary
damages awarded to the Zarates in the respective amounts
of P 2,500,000.00 and P 1,000,000.00 on the ground that such
amounts were excessive.

And, secondly, the fact that Aaron was then without a history of
earnings should not be taken against his parents and in favor of the
defendants whose negligence not only cost Aaron his life and his
right to work and earn money, but also deprived his parents of their
right to his presence and his services as well. Our law itself states
that the loss of the earning capacity of the deceased shall be the
liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless
the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his
death."38Accordingly, we emphatically hold in favor of the
indemnification for Aarons loss of earning capacity despite him
having been unemployed, because compensation of this nature is
awarded not for loss of time or earnings but for loss of the
deceaseds power or ability to earn money.39

The plea is unwarranted.

The moral damages of P 2,500,000.00 were really just and
reasonable under the established circumstances of this case
because they were intended by the law to assuage the Zarates
deep mental anguish over their sons unexpected and violent death,
and their moral shock over the senseless accident. That amount
would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate
their suffering for the loss of their child. At any rate, reducing the
amount as excessive might prove to be an injustice, given the
passage of a long time from when their mental anguish was inflicted
on them on August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we
should not reduce the amount if only to render effective the desired
example for the public good. As a common carrier, the Pereas
needed to be vigorously reminded to observe their duty to exercise
extraordinary diligence to prevent a similarly senseless accident
from happening again. Only by an award of exemplary damages in
that amount would suffice to instill in them and others similarly
situated like them the ever-present need for greater and constant
vigilance in the conduct of a business imbued with public interest.

This favorable treatment of the Zarates claim is not unprecedented.

In Cariaga v. Laguna Tayabas Bus Company and Manila Railroad
Company,40 fourth-year medical student Edgardo Carriagas earning
capacity, although he survived the accident but his injuries rendered
him permanently incapacitated, was computed to be that of the
physician that he dreamed to become. The Court considered his
scholastic record sufficient to justify the assumption that he could
have finished the medical course and would have passed the
medical board examinations in due time, and that he could have
possibly earned a modest income as a medical practitioner. Also, in
People v. Sanchez,41 the Court opined that murder and rape victim
Eileen Sarmienta and murder victim Allan Gomez could have easily
landed good-paying jobs had they graduated in due time, and that
their jobs would probably pay them high monthly salaries

WHEREFORE, we DENY the petition for review

on certiorari; AFFIRM the decision promulgated on November 13,
2002; and ORDER the petitioners to pay the costs of suit.
SO ORDERED.

25

captain to step forward to the front, leaving the wheel to one of the
crew members.
The waves got more unwieldy. After getting hit by two big waves
which came one after the other, M/B Coco Beach III capsized putting
all passengers underwater.
The passengers, who had put on their life jackets, struggled to get
out of the boat. Upon seeing the captain, Matute and the other
passengers who reached the surface asked him what they could do
to save the people who were still trapped under the boat. The
captain replied "Iligtas niyo na lang ang sarili niyo" (Just save
yourselves).
Help came after about 45 minutes when two boats owned by Asia
Divers in Sabang, Puerto Galera passed by the capsized M/B Coco
Beach III. Boarded on those two boats were 22 persons, consisting of
18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died
during the incident.
At the time of Ruelitos death, he was 28 years old and employed as
a contractual worker for Mitsui Engineering & Shipbuilding Arabia,
Ltd. in Saudi Arabia, with a basic monthly salary of $900.3
Petitioners, by letter of October 26, 2000,4 demanded
indemnification from respondent for the death of their son in the
amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied
any responsibility for the incident which it considered to be a
fortuitous event. It nevertheless offered, as an act of commiseration,
the amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint,
as earlier reflected, alleging that respondent, as a common carrier,
was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration
(PAGASA) as early as 5:00 a.m. of September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging
that its boats are not available to the general public as they only
ferry Resort guests and crew members. Nonetheless, it claimed that
it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the
voyage; and M/B Coco Beach III was not filled to capacity and had
sufficient life jackets for its passengers. By way of Counterclaim,
respondent alleged that it is entitled to an award for attorneys fees
and litigation expenses amounting to not less than P300,000.

G.R. No. 186312

June 29, 2010
SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,
vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint
on January 25, 20011 against Sun Holidays, Inc. (respondent) with
the Regional Trial Court (RTC) of Pasig City for damages arising from
the death of their son Ruelito C. Cruz (Ruelito) who perished with his
wife on September 11, 2000 on board the boat M/B Coco Beach III
that capsized en route to Batangas from Puerto Galera, Oriental
Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from
September 9 to 11, 2000 was by virtue of a tour package-contract
with respondent that included transportation to and from the Resort
and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the
survivors, gave his account of the incident that led to the filing of
the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was
originally scheduled to leave the Resort in the afternoon of
September 10, 2000, but was advised to stay for another night
because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other
Resort guests including petitioners son and his wife trekked to the
other side of the Coco Beach mountain that was sheltered from the
wind where they boarded M/B Coco Beach III, which was to ferry
them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther
away from Puerto Galera and into the open seas, the rain and wind
got stronger, causing the boat to tilt from side to side and the

26

Carlos Bonquin, captain of M/B Coco Beach III, averred that the
Resort customarily requires four conditions to be met before a boat
is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
from the Coast Guard, (3) there is clearance from the captain and
(4) there is clearance from the Resorts assistant manager.8 He
added that M/B Coco Beach III met all four conditions on September
11, 2000,9 but a subasco or squall, characterized by strong winds
and big waves, suddenly occurred, causing the boat to capsize. 10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC
dismissed petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order
dated September 2, 2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied
petitioners appeal, holding, among other things, that the trial court
correctly ruled that respondent is a private carrier which is only
required to observe ordinary diligence; that respondent in fact
observed extraordinary diligence in transporting its guests on board
M/B Coco Beach III; and that the proximate cause of the incident was
a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by
Resolution dated January 16, 2009,14 they filed the present Petition
for Review.15
Petitioners maintain the position they took before the trial court,
adding that respondent is a common carrier since by its tour
package, the transporting of its guests is an integral part of its
resort business. They inform that another division of the appellate
court in fact held respondent liable for damages to the other
survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to
present evidence to prove that it is a common carrier; that the
Resorts ferry services for guests cannot be considered as ancillary
to its business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed
before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on
its part; and that the other case wherein the appellate court held it
liable for damages involved different plaintiffs, issues and
evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in
characterizing respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:

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

associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity (in local
idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services
to the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a narrow
segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732
may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage,
or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services . . .
18
(emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so
intertwined with its main business as to be properly considered
ancillary thereto. The constancy of respondents ferry services in its
resort operations is underscored by its having its own Coco Beach
boats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.

27

That respondent does not charge a separate fee or fare for its ferry
services is of no moment. It would be imprudent to suppose that it
provides said services at a loss. The Court is aware of the practice of
beach resort operators offering tour packages to factor the
transportation fee in arriving at the tour package price. That guests
who opt not to avail of respondents ferry services pay the same
amount is likewise inconsequential. These guests may only be
deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining
"common carriers" has deliberately refrained from making
distinctions on whether the carrying of persons or goods is the
carriers principal business, whether it is offered on a regular basis,
or whether it is offered to the general public. The intent of the law is
thus to not consider such distinctions. Otherwise, there is no telling
how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to
avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence for the safety of the passengers transported
by them, according to all the circumstances of each case. 19 They are
bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of
carriage, it is presumed that the common carrier is at fault or
negligent. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common
carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence. 21
Respondent nevertheless harps on its strict compliance with the
earlier mentioned conditions of voyage before it allowed M/B Coco
Beach III to sail on September 11, 2000. Respondents position does
not impress.
The evidence shows that PAGASA issued 24-hour public weather
forecasts and tropical cyclone warnings for shipping on September
10 and 11, 2000 advising of tropical depressions in Northern Luzon
which would also affect the province of Mindoro.22 By the testimony
of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls
are to be expected under such weather condition.23
A very cautious person exercising the utmost diligence would thus
not brave such stormy weather and put other peoples lives at risk.
The extraordinary diligence required of common carriers demands

that they take care of the goods or lives entrusted to their hands as
if they were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous
event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors
to comply with their obligations, must have been independent of
human will; (b) the event that constituted the caso fortuito must
have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it
impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the
creditor.24
To fully free a common carrier from any liability, the fortuitous event
must have been the proximate and only cause of the loss. And it
should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event. 25
Respondent cites the squall that occurred during the voyage as the
fortuitous event that overturned M/B Coco Beach III. As reflected
above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence
shows that M/B Coco Beach III suffered engine trouble before it
capsized and sank.26 The incident was, therefore, not completely
free from human intervention.
The Court need not belabor how respondents evidence likewise fails
to demonstrate that it exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the
squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the
common carrier in breach of its contract of carriage that results in
the death of a passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity and (3) moral
damages.
Petitioners are entitled to indemnity for the death of Ruelito which is
fixed at P50,000.29
As for damages representing unearned income, the formula for its
computation is:
Net Earning Capacity = life expectancy x (gross annual income reasonable and necessary living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30

28

The first factor, i.e., life expectancy, is computed by applying the

formula (2/3 x [80 age at death]) adopted in the American
Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by
the net earnings of the deceased, i.e., the total earnings less
expenses necessary in the creation of such earnings or income and
less living and other incidental expenses.32 The loss is not equivalent
to the entire earnings of the deceased, but only such portion as he
would have used to support his dependents or heirs. Hence, to be
deducted from his gross earnings are the necessary expenses
supposed to be used by the deceased for his own needs.33
In computing the third factor necessary living expense, Smith Bell
Dodwell Shipping Agency Corp. v. Borja34teaches that when, as in
this case, there is no showing that the living expenses constituted
the smaller percentage of the gross income, the living expenses are
fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life
expectancy as follows:
Life expectancy
=

Life expectancy
=

Since respondent failed to prove that it exercised the extraordinary

diligence required of common carriers, it is presumed to have acted
recklessly, thus warranting the award too of exemplary damages,
which are granted in contractual obligations if the defendant acted
in a wanton, fraudulent, reckless, oppressive or malevolent
manner.37
Under the circumstances, it is reasonable to award petitioners the
amount of P100,000 as moral damages andP100,000 as exemplary
damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also
be awarded where exemplary damages are awarded. The Court
finds that 10% of the total amount adjudged against respondent is
reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches
that when an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

2/3 x [80 - age of deceased at the time of

death]
2/3 x [80 - 28]
2/3 x [52]
35

Documentary evidence shows that Ruelito was earning a basic

monthly salary of $90035 which, when converted to Philippine peso
applying the annual average exchange rate of $1 = P44 in
2000,36 amounts to P39,600. Ruelitos net earning capacity is thus
computed as follows:
Net Earning
Capacity

Net Earning
Capacity

= life expectancy x (gross annual income reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
= P8,316,000

Respecting the award of moral damages, since respondent common

carriers breach of contract of carriage resulted in the death of
petitioners son, following Article 1764 vis--vis Article 2206 of the
Civil Code, petitioners are entitled to moral damages.

29

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

becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined
with certainty only in the present petition, the interest due shall be
computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of
the immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is
REVERSED and SET ASIDE. Judgment is rendered in favor of
petitioners ordering respondent to pay petitioners the following:
(1) P50,000 as indemnity for the death of Ruelito Cruz;
(2) P8,316,000 as indemnity for Ruelitos loss of earning capacity;
(3) P100,000 as moral damages; (4) P100,000 as exemplary
damages; (5) 10% of the total amount adjudged against respondent
as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at
the rate of 12% per annum computed from the finality of this
decision until full payment.
SO ORDERED.

G.R. No. 200289

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS
INC., Respondents.
DECISION
PERALTA, J.:
These two consolidated cases challenge, by way of petition for
certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
September 13, 2011 Decision1 and January 19, 2012 Resolution2 of
the Court of Appeals (CA) in CA-G.R. CV No. 86752, which reversed
and set aside the January 27, 2006 Decision3 of the Manila City
Regional Trial Court Branch (RTC) 30. The facts, as established by
the records, are as follows:
On August 23, 1993, Kinsho-Mataichi Corporation shipped from the
port of Kobe, Japan, 197 metal containers/skids of tin-free steel for
delivery to the consignee, San Miguel Corporation (SMC). The
shipment, covered by Bill of Lading No. KBMA-1074, 4 was loaded and
received clean on board M/V Golden Harvest Voyage No. 66, a vessel
owned and operated by Westwind Shipping Corporation (Westwind).
SMC insured the cargoes against all risks with UCPB General
Insurance Co., Inc. (UCPB) for US Dollars: One Hundred Eighty-Four
Thousand Seven Hundred Ninety-Eight and Ninety-Seven Centavos
(US$184,798.97), which, at the time, was equivalent to Philippine
Pesos: Six Million Two Hundred Nine Thousand Two Hundred FortyFive and Twenty-Eight Centavos (P6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and
was discharged in the custody of the arrastre operator, Asian
Terminals, Inc. (ATI), formerly Marina Port Services, Inc.5 During the
unloading operation, however, six containers/skids worth Philippine
Pesos: One Hundred Seventeen Thousand Ninety-Three and Twelve
Centavos (P117,093.12) sustained dents and punctures from the
forklift used by the stevedores of Ocean Terminal Services, Inc.
(OTSI) in centering and shuttling the containers/skids. As a
consequence, the local ship agent of the vessel, Baliwag Shipping
Agency, Inc., issued two Bad Order Cargo Receipt dated September
1, 1993.

November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS
INC., Respondents.
x-----------------------x

On September 7, 1993, Orient Freight International, Inc. (OFII), the

customs broker of SMC, withdrew from ATI the 197 containers/skids,

G.R. No. 200314

30

including the six in damaged condition, and delivered the same at

SMCs warehouse in Calamba, Laguna through J.B. Limcaoco
Trucking (JBL). It was discovered upon discharge that additional nine
containers/skids valued at Philippine Pesos: One Hundred SeventyFive Thousand Six Hundred Thirty-Nine and Sixty-Eight Centavos
(P175,639.68) were also damaged due to the forklift operations;
thus, making the total number of 15 containers/skids in bad order.

WHEREFORE, premises considered, the instant appeal is hereby

GRANTED. The Decision dated January 27, 2006 rendered by the
court a quo is REVERSED AND SET ASIDE. Appellee Westwind
Shipping Corporation is hereby ordered to pay to the appellant UCPB
General Insurance Co., Inc., the amount of One Hundred Seventeen
Thousand and Ninety-Three Pesos and Twelve Centavos
(Php117,093.12), while Orient Freight International, Inc. is hereby
ordered to pay to UCPB the sum of One Hundred Seventy-Five
Thousand Six Hundred Thirty-Nine Pesos and Sixty-Eight Centavos
(Php175,639.68). Both sums shall bear interest at the rate of six
(6%) percent per annum, from the filing of the complaint on August
30, 1994 until the judgment becomes final and executory.
Thereafter, an interest rate of twelve (12%) percent per annum shall
be imposed from the time this decision becomes final and executory
until full payment of said amounts.

Almost a year after, on August 15, 1994, SMC filed a claim against
UCPB, Westwind, ATI, and OFII to recover the amount corresponding
to the damaged 15 containers/skids. When UCPB paid the total sum
of Philippine Pesos: Two Hundred Ninety-Two Thousand Seven
Hundred Thirty-Two and Eighty Centavos (P292,732.80), SMC signed
the subrogation receipt. Thereafter, in the exercise of its right of
subrogation, UCPB instituted on August 30, 1994 a complaint for
damages against Westwind, ATI, and OFII.6

SO ORDERED.10

After trial, the RTC dismissed UCPBs complaint and the

counterclaims of Westwind, ATI, and OFII. It ruled that the right, if
any, against ATI already prescribed based on the stipulation in the
16 Cargo Gate Passes issued, as well as the doctrine laid down in
International Container Terminal Services, Inc. v. Prudential
Guarantee & Assurance Co. Inc.7 that a claim for reimbursement for
damaged goods must be filed within 15 days from the date of
consignees knowledge. With respect to Westwind, even if the action
against it is not yet barred by prescription, conformably with Section
3 (6) of the Carriage of Goods by Sea Act (COGSA) and Our rulings in
E.E. Elser, Inc., et al. v. Court of Appeals, et al.8 and Belgian
Overseas Chartering and Shipping N.V. v. Phil. First Insurance Co.,
Inc.,9 the court a quo still opined that Westwind is not liable, since
the discharging of the cargoes were done by ATI personnel using
forklifts and that there was no allegation that it (Westwind) had a
hand in the conduct of the stevedoring operations. Finally, the trial
court likewise absolved OFII from any liability, reasoning that it
never undertook the operation of the forklifts which caused the
dents and punctures, and that it merely facilitated the release and
delivery of the shipment as the customs broker and representative
of SMC.

While the CA sustained the RTC judgment that the claim against ATI
already prescribed, it rendered a contrary view as regards the
liability of Westwind and OFII. For the appellate court, Westwind, not
ATI, is responsible for the six damaged containers/skids at the time
of its unloading. In its rationale, which substantially followed
Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc., 11 it
concluded that the common carrier, not the arrastre operator, is
responsible during the unloading of the cargoes from the vessel and
that it is not relieved from liability and is still bound to exercise
extraordinary diligence at the time in order to see to it that the
cargoes under its possession remain in good order and condition.
The CA also considered that OFII is liable for the additional nine
damaged containers/skids, agreeing with UCPBs contention that
OFII is a common carrier bound to observe extraordinary diligence
and is presumed to be at fault or have acted negligently for such
damage. Noting the testimony of OFIIs own witness that the
delivery of the shipment to the consignee is part of OFIIs job as a
cargo forwarder, the appellate court ruled that Article 1732 of the
New Civil Code (NCC) does not distinguish between one whose
principal business activity is the carrying of persons or goods or both
and one who does so as an ancillary activity. The appellate court
further ruled that OFII cannot excuse itself from liability by insisting
that JBL undertook the delivery of the cargoes to SMCs warehouse.

On appeal by UCPB, the CA reversed and set aside the trial court.
The fallo of its September 13, 2011 Decision directed:

31

It opined that the delivery receipts signed by the inspector of SMC

showed that the containers/skids were received from OFII, not JBL.
At the most, the CA said, JBL was engaged by OFII to supply the
trucks necessary to deliver the shipment, under its supervision, to
SMC.

acknowledgment by the consignee of the fact of delivery makes a

person or entity a common carrier, since delivery alone is not the
controlling factor in order to be considered as such.
Both petitions lack merit.

Only Westwind and OFII filed their respective motions for

reconsideration, which the CA denied; hence, they elevated the case
before Us via petitions docketed as G.R. Nos. 200289 and 200314,
respectively.

The case of Philippines First Insurance Co., Inc. v. Wallem Phils.

Shipping, Inc.12 applies, as it settled the query on which between a
common carrier and an arrastre operator should be responsible for
damage or loss incurred by the shipment during its unloading. We
elucidated at length:

Westwind argues that it no longer had actual or constructive custody

of the containers/skids at the time they were damaged by ATIs
forklift operator during the unloading operations. In accordance with
the stipulation of the bill of lading, which allegedly conforms to
Article 1736 of the NCC, it contends that its responsibility already
ceased from the moment the cargoes were delivered to ATI, which is
reckoned from the moment the goods were taken into the latters
custody. Westwind adds that ATI, which is a completely independent
entity that had the right to receive the goods as exclusive operator
of stevedoring and arrastre functions in South Harbor, Manila, had
full control over its employees and stevedores as well as the manner
and procedure of the discharging operations.

Common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who
has a right to receive them.
For marine vessels, Article 619 of the Code of Commerce provides
that the ship captain is liable for the cargo from the time it is turned
over to him at the dock or afloat alongside the vessel at the port of
loading, until he delivers it on the shore or on the discharging wharf
at the port of unloading, unless agreed otherwise. In Standard Oil
Co. of New York v. Lopez Castelo, the Court interpreted the ship
captains liability as ultimately that of the shipowner by regarding
the captain as the representative of the shipowner.

As for OFII, it maintains that it is not a common carrier, but only a

customs broker whose participation is limited to facilitating
withdrawal of the shipment in the custody of ATI by overseeing and
documenting the turnover and counterchecking if the quantity of the
shipments were in tally with the shipping documents at hand, but
without participating in the physical withdrawal and loading of the
shipments into the delivery trucks of JBL. Assuming that it is a
common carrier, OFII insists that there is no need to rely on the
presumption of the law that, as a common carrier, it is presumed
to have been at fault or have acted negligently in case of damaged
goods considering the undisputed fact that the damages to the
containers/skids were caused by the forklift blades, and that there is
no evidence presented to show that OFII and Westwind were the
owners/operators of the forklifts. It asserts that the loading to the
trucks were made by way of forklifts owned and operated by ATI and
the unloading from the trucks at the SMC warehouse was done by
way of forklifts owned and operated by SMC employees. Lastly, OFII
avers that neither the undertaking to deliver nor the

Lastly, Section 2 of the COGSA provides that under every contract of

carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and
entitled to the rights and immunities set forth in the Act. Section 3
(2) thereof then states that among the carriers responsibilities are
to properly and carefully load, handle, stow, carry, keep, care for,
and discharge the goods carried.
xxxx

32

On the other hand, the functions of an arrastre operator involve the

handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship's tackle.
Being the custodian of the goods discharged from a vessel, an
arrastre operator's duty is to take good care of the goods and to turn
them over to the party entitled to their possession.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M/V

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

Handling cargo is mainly the arrastre operator's principal work so its

drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
In Firemans Fund Insurance Co. v. Metro Port Service, Inc., the Court
explained the relationship and responsibility of an arrastre operator
to a consignee of a cargo, to quote:

xxxx
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier x x x. 13

The legal relationship between the consignee and the arrastre

operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is
the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)

In Regional Container Lines (RCL) of Singapore v. The Netherlands

Insurance Co. (Philippines), Inc.14 and Asian Terminals, Inc. v. Philam
Insurance Co., Inc.,15 the Court echoed the doctrine that cargoes,
while being unloaded, generally remain under the custody of the
carrier. We cannot agree with Westwinds disputation that "the
carrier in Wallem clearly exercised supervision during the discharge
of the shipment and that is why it was faulted and held liable for the
damage incurred by the shipment during such time." What
Westwind failed to realize is that the extraordinary responsibility of
the common carrier lasts until the time the goods are actually or
constructively delivered by the carrier to the consignee or to the
person who has a right to receive them. 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. 16 In this case,
since the discharging of the containers/skids, which were covered by
only one bill of lading, had not yet been completed at the time the
damage occurred, there is no reason to imply that there was already
delivery, actual or constructive, of the cargoes to ATI. Indeed, the
earlier case of Delsan Transport Lines, Inc. v. American Home
Assurance Corp.17serves as a useful guide, thus:

The liability of the arrastre operator was reiterated in Eastern

Shipping Lines, Inc. v. Court of Appeals with the clarification that the
arrastre operator and the carrier are not always and necessarily
solidarily liable as the facts of a case may vary the rule.
Thus, in this case, the appellate court is correct insofar as it ruled
that an arrastre operator and a carrier may not be held solidarily
liable at all times. But the precise question is which entity had
custody of the shipment during its unloading from the vessel?
The aforementioned Section 3 (2) of the COGSA states that among
the carriers responsibilities are to properly and carefully load, care
for and discharge the goods carried. The bill of lading covering the
subject shipment likewise stipulates that the carriers liability for
loss or damage to the goods ceases after its discharge from the
vessel. Article 619 of the Code of Commerce holds a ship captain
liable for the cargo from the time it is turned over to him until its
delivery at the port of unloading.

Delsans argument that it should not be held liable for the loss of
diesel oil due to backflow because the same had already been
actually and legally delivered to Caltex at the time it entered the

33

shore tank holds no water. It had been settled that the subject cargo
was still in the custody of Delsan because the discharging thereof
has not yet been finished when the backflow occurred. Since the
discharging of the cargo into the depot has not yet been completed
at the time of the spillage when the backflow occurred, there is no
reason to imply that there was actual delivery of the cargo to the
consignee. Delsan is straining the issue by insisting that when the
diesel oil entered into the tank of Caltex on shore, there was legally,
at that moment, a complete delivery thereof to Caltex. To be sure,
the extraordinary responsibility of 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 a person who has the right to receive them. The discharging of
oil products to Caltex Bulk Depot has not yet been finished, Delsan
still has the duty to guard and to preserve the cargo. The carrier still
has in it the responsibility to guard and preserve the goods, a duty
incident to its having the goods transported.

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.
xxxx
Article 1732 does not distinguish between one whose principal
business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. The contention, therefore, of
petitioner that it is not a common carrier but a customs broker
whose principal function is to prepare the correct customs
declaration and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to deliver the
goods for pecuniary consideration.
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that
as the transportation of goods is an integral part of a customs
broker, the customs broker is also a common carrier. For to declare
otherwise "would be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding the fact that
the obligation to carry goods for [its] customers, is part and parcel
of petitioners business."21

To recapitulate, common carriers, from the nature of their business

and for reasons of public policy, are bound to observe extraordinary
diligence in vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances
of each case. The mere proof of delivery of goods in good order to
the carrier, and their arrival in the place of destination in bad order,
make 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.18

That OFII is a common carrier is buttressed by the testimony of its

own witness, Mr. Loveric Panganiban Cueto, that part of the services
it offers to clients is cargo forwarding, which includes the delivery of
the shipment to the consignee.22 Thus, for undertaking the transport
of cargoes from ATI to SMCs warehouse in Calamba, Laguna, OFII is
considered a common carrier. As long as a person or corporation
holds itself to the public for the purpose of transporting goods as a
business, it is already considered a common carrier regardless of
whether it owns the vehicle to be used or has to actually hire one.
As a common carrier, OFII is mandated to observe, under Article
1733 of the Civil Code,23 extraordinary diligence in the vigilance over
the goods24 it transports according to the peculiar circumstances of
each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted
negligently unless it proves that it observed extraordinary
diligence.25 In the case at bar it was established that except for the
six containers/skids already damaged OFII received the cargoes
from ATI in good order and condition; and that upon its delivery to
SMC additional nine containers/skids were found to be in bad order
as noted in the Delivery Receipts issued by OFII and as indicated in

The contention of OFII is likewise untenable. A customs broker has

been regarded as a common carrier because transportation of goods
is an integral part of its business.19 In Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,20 the Court already reiterated:
It is settled that under a given set of facts, a customs broker may be
regarded as a common carrier.1wphi1 Thus, this Court, in A.F.
Sanchez Brokerage, Inc. v. The Honorable Court of Appeals held:
The appellate court did not err in finding petitioner, a customs
broker, to be also a common carrier, as defined under Article 1732
of the Civil Code, to wit, Art. 1732. Common carriers are persons,

34

the Report of Cares Marine Cargo Surveyors. Instead of merely

excusing itself from liability by putting the blame to ATI and SMC it is
incumbent upon OFII to prove that it actively took care of the goods
by exercising extraordinary diligence in the carriage thereof. It failed
to do so. Hence its presumed negligence under Article 1735 of the
Civil Code remains unrebutted.

G.R. No. 184300

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE
FORWARDER SERVICES, INC., Respondents.

WHEREFORE, premises considered the petitions of Westwind and

OFII in G.R. Nos. 200289 and 200314 respectively are DENIED. The
September 13 2011 Decision and January 19 2012 Resolution of the
Court of Appeals in CA-G.R. CV No. 86752 which reversed and set
aside the January 27 2006 Decision of the Manila City Regional Trial
Court Branch 30 are AFFIRMED.

DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by
petitioner Malayan Insurance Co., lnc. (Malayan) assailing the
Decision1 dated February 29, 2008 and Resolution2 dated August 28,
2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which
affirmed with modification the decision of the Regional Trial Court
(RTC), Branch 38 of Manila.

SO ORDERED.

Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent
Reputable Forwarder Services, Inc. (Reputable) had been annually
executing a contract of carriage, whereby the latter undertook to
transport and deliver the formers products to its customers, dealers
or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR
13797 (Marine Policy) from respondent Philippines First Insurance
Co., Inc. (Philippines First) to secure its interest over its own
products. Philippines First thereby insured Wyeths nutritional,
pharmaceutical and other products usual or incidental to the
insureds business while the same were being transported or
shipped in the Philippines. The policy covers all risks of direct
physical loss or damage from any external cause, if by land, and
provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of
carriage with Reputable. It turned out, however, that the contract
was not signed by Wyeths representative/s.4 Nevertheless, it was
admittedly signed by Reputables representatives, the terms thereof
faithfully observed by the parties and, as previously stated, the
same contract of carriage had been annually executed by the
parties every year since 1989.5

35

Under the contract, Reputable undertook to answer for "all risks with
respect to the goods and shall be liable to the COMPANY (Wyeth), for
the loss, destruction, or damage of the goods/products due to any
and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the
goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY".6

February 1, 1995" and that the SR Policy covered the risk of robbery
or hijacking.10

The contract also required Reputable to secure an insurance policy

on Wyeths goods.7 Thus, on February 11, 1994, Reputable signed a
Special Risk Insurance Policy (SR Policy) with petitioner Malayan for
the amount of P1,000,000.00.

After trial, the RTC rendered its Decision11 finding Reputable liable to
Philippines First for the amount of indemnity it paid to Wyeth,
among others. In turn, Malayan was found by the RTC to be liable to
Reputable to the extent of the policy coverage. The dispositive
portion of the RTC decision provides:

Disclaiming any liability, Malayan argued, among others, that under

Section 5 of the SR Policy, the insurance does not cover any loss or
damage to property which at the time of the happening of such loss
or damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.

On October 6, 1994, during the effectivity of the Marine Policy and

SR Policy, Reputable received from Wyeth 1,000 boxes of Promil
infant formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on
the same date, the truck carrying Wyeths products was hijacked by
about 10 armed men. They threatened to kill the truck driver and
two of his helpers should they refuse to turn over the truck and its
contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo.

WHEREFORE, on the main Complaint, judgment is hereby rendered

finding [Reputable] liable for the loss of the Wyeth products and
orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount
paid by Philippines First to Wyeth for the loss of the products
in question;
2. the amount of P15,650.00 representing the adjustment
fees paid by Philippines First to hired adjusters/surveyors;

On March 8, 1995, Philippines First, after due investigation and

adjustment, and pursuant to the Marine Policy, paid Wyeth
P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the
rights of Wyeth by virtue of the payment. The latter, however,
ignored the demand.

3. the amount of P50,000.00 as attorneys fees; and

4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of
the insurance policy;

Consequently, Philippines First instituted an action for sum of money

against Reputable on August 12, 1996.8 In its complaint, Philippines
First stated that Reputable is a "private corporation engaged in the
business of a common carrier." In its answer,9 Reputable claimed
that it is a private carrier. It also claimed that it cannot be made
liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeths representative and that the cause of the
loss was force majeure, i.e., the hijacking incident.

2. the amount of P50,000.00 as attorneys fees; and

3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective
appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of
carriage with Wyeth was binding despite Wyeths failure to sign the
same. Reputable further contended that the provisions of the
contract are unreasonable, unjust, and contrary to law and public
policy.

Subsequently, Reputable impleaded Malayan as third-party

defendant in an effort to collect the amount covered in the SR Policy.
According to Reputable, "it was validly insured with Malayan for
P1,000,000.00 with respect to the lost products under the latters
Insurance Policy No. SR-0001-02577 effective February 1, 1994 to

36

For its part, Malayan invoked Section 5 of its SR Policy, which

provides:

the ratable proportion provision of Section 12 applies only in case of

double insurance, which is not present, then it should not be applied
and Malayan should be held liable for the full amount of the policy
coverage, that is, P1,000,000.00.14

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does

not cover any loss or damage to property which at the time of the
happening of such loss or damage is insured by or would but for the
existence of this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the amount which
would have been payable under the Fire or Marine policy or policies
had this insurance not been effected.

On March 14, 2008, Malayan moved for reconsideration of the

assailed decision but it was denied by the CA in its Resolution dated
August 28, 2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on
the "statutory limitations on the liability of common carriers" and
the "difference between an other insurance clause and an over
insurance clause."

Malayan argued that inasmuch as there was already a marine policy

issued by Philippines First securing the same subject matter against
loss and that since the monetary coverage/value of the Marine
Policy is more than enough to indemnify the hijacked cargo,
Philippines First alone must bear the loss.

Malayan also contends that the CA erred when it held that Reputable
is a private carrier and should be bound by the contractual
stipulations in the contract of carriage. This argument is based on its
assertion that Philippines First judicially admitted in its complaint
that Reputable is a common carrier and as such, Reputable should
not be held liable pursuant to Article 1745(6) of the Civil
Code.16 Necessarily, if Reputable is not liable for the loss, then there
is no reason to hold Malayan liable to Reputable.

Malayan sought the dismissal of the third-party complaint against it.

In the alternative, it prayed that it be held liable for no more than
P468,766.70, its alleged pro-rata share of the loss based on the
amount covered by the policy, subject to the provision of Section 12
of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage
happening to any property hereby insured, there be any other
subsisting insurance or insurances, whether effected by the insured
or by any other person or persons, covering the same property, the
company shall not be liable to pay or contribute more than its
ratable proportion of such loss or damage.

Further, Malayan posits that there resulted in an impairment of

contract when the CA failed to apply the express provisions of
Section 5 (referred to by Malayan as over insurance clause) and
Section 12 (referred to by Malayan as other insurance clause) of its
SR Policy as these provisions could have been read together there
being no actual conflict between them.

On February 29, 2008, the CA rendered the assailed decision

sustaining the ruling of the RTC, the decretal portion of which reads:

Reputable, meanwhile, contends that it is exempt from liability for

acts committed by thieves/robbers who act with grave or irresistible
threat whether it is a common carrier or a private/special carrier. It,
however, maintains the correctness of the CA ruling that Malayan is
liable to Philippines First for the full amount of its policy coverage
and not merely a ratable portion thereof under Section 12 of the SR
Policy.

WHEREFORE, in view of the foregoing, the assailed Decision dated

29 September 2000, as modified in the Order dated 21 July 2001, is
AFFIRMED with MODIFICATION in that the award of attorneys fees in
favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from
assailing the validity of the contract of carriage on the ground of
lack of signature of Wyeths representative/s; (2) Reputable is liable
under the contract for the value of the goods even if the same was
lost due to fortuitous event; and (3) Section 12 of the SR Policy
prevails over Section 5, it being the latter provision; however, since

Finally, Philippines First contends that the factual finding that

Reputable is a private carrier should be accorded the highest degree
of respect and must be considered conclusive between the parties,
and that a review of such finding by the Court is not warranted
under the circumstances. As to its alleged judicial admission that

37

Reputable is a common carrier, Philippines First proffered the

declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party
complaint, which in turn was duly admitted by Malayan in its answer
to the said third-party complaint. In addition, Reputable even
presented evidence to prove that it is a private carrier.

written, made by a party in the course of the proceeding in the

same case, does not require proof," it is Malayans position that the
RTC and CA should have ruled that

As to the applicability of Sections 5 and 12 in the SR Policy,

Philippines First reiterated the ruling of the CA. Philippines First,
however, prayed for a slight modification of the assailed decision,
praying that Reputable and Malayan be rendered solidarily liable to
it in the amount of P998,000.00, which represents the balance from
the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy.17

It is true that judicial admissions, such as matters alleged in the

pleadings do not require proof, and need not be offered to be
considered by the court. "The court, for the proper decision of the
case, may and should consider, without the introduction of
evidence, the facts admitted by the parties."20 The rule on judicial
admission, however, also states that such allegation, statement, or
admission is conclusive as against the pleader,21 and that the facts
alleged in the complaint are deemed admissions of the plaintiff and
binding upon him.22 In this case, the pleader or the plaintiff who
alleged that Reputable is a common carrier was Philippines First. It
cannot, by any stretch of imagination, be made conclusive as
against Reputable whose nature of business is in question.

Reputable is a common carrier. Consequently, pursuant to Article

1745(6) of the Civil Code, the liability of Reputable for the loss of
Wyeths goods should be dispensed with, or at least diminished.

Issues
The liability of Malayan under the SR Policy hinges on the following
issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in
its contract of carriage with Wyeth, such that it should be
liable for any risk of loss or damage, for any cause
whatsoever, including that due to theft or robbery and other
force majeure;

It should be stressed that Philippines First is not privy to the SR

Policy between Wyeth and Reputable; rather, it is a mere subrogee
to the right of Wyeth to collect from Reputable under the terms of
the contract of carriage. Philippines First is not in any position to
make any admission, much more a definitive pronouncement, as to
the nature of Reputables business and there appears no other
connection between Philippines First and Reputable which suggests
mutual familiarity between them.

3) Whether the RTC and CA erred in rendering "nugatory"

Sections 5 and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with
Malayan for the amount of P998,000.00 due to Philippines
First.

Moreover, records show that the alleged judicial admission of

Philippines First was essentially disputed by Reputable when it
stated in paragraphs 2, 4, and 11 of its answer that it is actually a
private or special carrier.23In addition, Reputable stated in paragraph
2 of its third-party complaint that it is "a private carrier engaged in
the carriage of goods."24 Such allegation was, in turn, admitted by
Malayan in paragraph 2 of its answer to the third-party
complaint.25 There is also nothing in the records which show that
Philippines First persistently maintained its stance that Reputable is
a common carrier or that it even contested or proved otherwise
Reputables position that it is a private or special carrier.

The Courts Ruling

On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private
carrier. Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respect and considered
conclusive between the parties, save for certain exceptional and
meritorious circumstances, none of which are present in this case. 18
Malayan relies on the alleged judicial admission of Philippines First in
its complaint that Reputable is a common carrier.19 Invoking Section
4, Rule 129 of the Rules on Evidence that "an admission verbal or

Hence, in the face of Reputables contrary admission as to the

nature of its own business, what was stated by Philippines First in its

38

complaint is reduced to nothing more than mere allegation, which

must be proved for it to be given any weight or value. The settled
rule is that mere allegation is not proof.26

Malayan refers to Section 5 of its SR Policy as an "over insurance

clause" and to Section 12 as a "modified other insurance
clause".32 In rendering inapplicable said provisions in the SR Policy,
the CA ruled in this wise:

More importantly, the finding of the RTC and CA that Reputable is a

special or private carrier is warranted by the evidence on record,
primarily, the unrebutted testimony of Reputables Vice President
and General Manager, Mr. William Ang Lian Suan, who expressly
stated in open court that Reputable serves only one customer,
Wyeth.27

Since Sec. 5 calls for Malayans complete absolution in case the

other insurance would be sufficient to cover the entire amount of
the loss, it is in direct conflict with Sec. 12 which provides only for a
pro-rated contribution between the two insurers. Being the later
provision, and pursuant to the rules on interpretation of contracts,
Sec. 12 should therefore prevail.

Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of
carrying or transporting passenger or goods, or both by land, water
or air for compensation, offering their services to the public. On the
other hand, a private carrier is one wherein the carriage is generally
undertaken by special agreement and it does not hold itself out to
carry goods for the general public.28 A common carrier becomes a
private carrier when it undertakes to carry a special cargo or
chartered to a special person only.29 For all intents and purposes,
therefore, Reputable operated as a private/special carrier with
regard to its contract of carriage with Wyeth.

xxxx
x x x The intention of both Reputable and Malayan should be given
effect as against the wordings of Sec. 12 of their contract, as it was
intended by the parties to operate only in case of double insurance,
or where the benefits of the policies of both plaintiff-appellee and
Malayan should pertain to Reputable alone. But since the court a
quo correctly ruled that there is no double insurance in this case
inasmuch as Reputable was not privy thereto, and therefore did not
stand to benefit from the policy issued by plaintiff-appellee in favor
of Wyeth, then Malayans stand should be rejected.

On the second issue Reputable is bound by the terms of the

contract of carriage.

To rule that Sec. 12 operates even in the absence of double

insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not stand to
benefit. Plainly, this unfair situation could not have been the
intention of both Reputable and Malayan in signing the insurance
contract in question.33

The extent of a private carriers obligation is dictated by the

stipulations of a contract it entered into, provided its stipulations,
clauses, terms and conditions are not contrary to law, morals, good
customs, public order, or public policy. "The Civil Code provisions on
common carriers should not be applied where the carrier is not
acting as such but as a private carrier. Public policy governing
common carriers has no force where the public at large is not
involved."30

In questioning said ruling, Malayan posits that Sections 5 and 12 are

separate provisions applicable under distinct circumstances.
Malayan argues that "it will not be completely absolved under
Section 5 of its policy if it were the assured itself who obtained
additional insurance coverage on the same property and the loss
incurred by Wyeths cargo was more than that insured by Philippines
Firsts marine policy. On the other hand, Section 12 will not
completely absolve Malayan if additional insurance coverage on the
same cargo were obtained by someone besides Reputable, in which

Thus, being a private carrier, the extent of Reputables liability is

fully governed by the stipulations of the contract of carriage, one of
which is that it shall be liable to Wyeth for the loss of the
goods/products due to any and all causes whatsoever, including
theft, robbery and other force majeure while the goods/products are
in transit and until actual delivery to Wyeths customers, salesmen
and dealers.31
On the third issue other insurance vis--vis over insurance.

39

case Malayans SR policy will contribute or share ratable proportion

of a covered cargo loss."34

Clearly, both Sections 5 and 12 presuppose the existence of a

double insurance. The pivotal question that now arises is whether
there is double insurance in this case such that either Section 5 or
Section 12 of the SR Policy may be applied.

Malayans position cannot be countenanced.

Section 5 is actually the other insurance clause (also called
"additional insurance" and "double insurance"), one akin to
Condition No. 3 in issue in Geagonia v. CA,35 which validity was
upheld by the Court as a warranty that no other insurance exists.
The Court ruled that Condition No. 336 is a condition which is not
proscribed by law as its incorporation in the policy is allowed by
Section 75 of the Insurance Code. It was also the Courts finding that
unlike the other insurance clauses, Condition No. 3 does not
absolutely declare void any violation thereof but expressly provides
that the condition "shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more
than P200,000.00."

By the express provision of Section 93 of the Insurance Code, double

insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows: 38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR
Policy were both issued over the same subject matter, i.e. goods
belonging to Wyeth, and both covered the same peril insured
against, it is, however, beyond cavil that the said policies were
issued to two different persons or entities. It is undisputed that
Wyeth is the recognized insured of Philippines First under its Marine
Policy, while Reputable is the recognized insured of Malayan under
the SR Policy. The fact that Reputable procured Malayans SR Policy
over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not
make Reputable a mere agent of Wyeth in obtaining the said SR
Policy.

In this case, similar to Condition No. 3 in Geagonia, Section 5 does

not provide for the nullity of the SR Policy but simply limits the
liability of Malayan only up to the excess of the amount that was not
covered by the other insurance policy. In interpreting the "other
insurance clause" in Geagonia, the Court ruled that the prohibition
applies only in case of double insurance. The Court ruled that in
order to constitute a violation of the clause, the other insurance
must be upon same subject matter, the same interest therein, and
the same risk. Thus, even though the multiple insurance policies
involved were all issued in the name of the same assured, over the
same subject matter and covering the same risk, it was ruled that
there was no violation of the "other insurance clause" since there
was no double insurance.

The interest of Wyeth over the property subject matter of both

insurance contracts is also different and distinct from that of
Reputables. The policy issued by Philippines First was in
consideration of the legal and/or equitable interest of Wyeth over its
own goods. On the other hand, what was issued by Malayan to
Reputable was over the latters insurable interest over the safety of
the goods, which may become the basis of the latters liability in
case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.39

Section 12 of the SR Policy, on the other hand, is the over insurance

clause. More particularly, it covers the situation where there is over
insurance due to double insurance. In such case, Section 15
provides that Malayan shall "not be liable to pay or contribute more
than its ratable proportion of such loss or damage." This is in accord
with the principle of contribution provided under Section 94(e) of the
Insurance Code,37 which states that "where the insured is over
insured by double insurance, each insurer is bound, as between
himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract."

Therefore, even though the two concerned insurance policies were

issued over the same goods and cover the same risk, there arises no
double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over

40

insurance by double insurance cannot likewise exist. Hence, as

correctly ruled by the RTC and CA, neither Section 5 nor Section 12
of the SR Policy can be applied.

provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy:43 (Citation omitted and
emphasis supplied)

Apart from the foregoing, the Court is also wont to strictly construe
the controversial provisions of the SR Policy against
Malayan.1wphi1 This is in keeping with the rule that:

Suffice it to say that Malayan's and Reputable's respective liabilities

arose from different obligations- Malayan's is based on the SR Policy
while Reputable's is based on the contract of carriage.

"Indemnity and liability insurance policies are construed in

accordance with the general rule of resolving any ambiguity therein
in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion,
par excellence, any ambiguity therein should be resolved against
the insurer; in other words, it should be construed liberally in favor
of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its
obligations."40

All told, the Court finds no reversible error in the judgment sought to
be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The
Decision dated February 29, 2008 and Resolution dated August 28,
2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby
AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double
insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not stand to
benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the
obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the
Court ruled that:
Where the insurance contract provides for indemnity against liability
to third persons, the liability of the insurer is direct and such third
persons can directly sue the insurer. The direct liability of the insurer
under indemnity contracts against third party[- ]liability does not
mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being
held liable under different obligations. The liability of the insured
carrier or vehicle owner is based on tort, in accordance with the

41

G.R. No. 101503 September 15, 1993

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)

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND
KYOSEI KISEN KABUSHIKI KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.

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

Siguion Reyna, Montecillo & Ongsiako Law Office for private

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

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

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.

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

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 preprinted 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:

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18
July 1974 (except July 12th, 14th and 18th).10 A private marine and
cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was
hired by PPI to determine the "outturn" of the cargo shipped, by
taking draft readings of the vessel prior to and after
discharge. 11 The survey report submitted by CSCI to the consignee
(PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726
M/T and that a portion of the Urea fertilizer approximating 18 M/T

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

42

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

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

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

. . . In the absence of such presumption, it was

incumbent upon the plaintif-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).

. . . 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

But, the record shows that the plaintif-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

43

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.

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

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.

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 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

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

44

incidents of maritime navigation were all consigned to the officers

and crew who were screened, chosen and hired by the shipowner. 27

occur; and the same difficulty in discovering the truth

as to what has taken place arises . . .

It is therefore imperative that a public carrier shall remain as such,

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

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

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.

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

To our mind, respondent carrier has sufficiently overcome, by clear

and convincing proof, the prima faciepresumption of negligence.

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

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

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

45

. . . 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 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 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

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.

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 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

46

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.

47

G.R. No. 187701

July 23, 2014

PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.

(DONGNAMA) which in turn loaded the same on M/V Heung-A
Bangkok V-019 owned and operated by Heung-A Shipping
Corporation, (HEUNG-A), a Korean corporation, pursuant to a slot
charter agreement whereby a space in the latters vessel was
reserved for the exclusive use of the former. Wallem Philippines
Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the
Philippines. NOVARTIS insured the shipment with Philam Insurance
Company, Inc. (PHILAM, now Chartis Philippines Insurance, Inc.)
under All Risk Marine Open Insurance Policy No. MOP-0801011828
against all loss, damage, liability, or expense before, during transit
and even after the discharge of the shipment from the carrying
vessel until its complete delivery to the consignees premises. The
vessel arrived at the port ofManila, South Harbor, on December 27,
2000 and the subject shipment contained in Sea Van Container No.
DNAU 420280-9 was discharged without exception into the
possession, custody and care of Asian Terminals, Inc. (ATI) as the
customs arrastre operator.

PHILAM INSURANCE COMPANY, INC. (now CHARTIS

PHILIPPINES INSURANCE, INC.*), Petitioner,
vs.
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES
SHIPPING, INC., Respondents.
x-----------------------x
G.R. No. 187812
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES
SHIPPING, INC., Petitioners,
vs.
PHILAM INSURANCE COMPANY, INC. (now CHARTIS
PHILIPPINES INSURANCE, INC.), Respondent.
DECISION
REYES, J.:
At bar are consolidated petitions for review on certiorari1 under Rule
45 of the Rules of Court assailing the Decision2 dated January 30,
2009 of the Court of Appeals (CA) in CA-G.R. CV No. 89482 affirming
with modifications the Decision3 dated February 26, 2007 of the
Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case
No. 01-889.

The shipment was thereafter withdrawn on January 4, 2001, by

NOVARTIS appointed broker, Stephanie Customs Brokerage
Corporation (STEPHANIE) from ATIs container yard.
The shipment reached NOVARTIS premises on January 5, 2001 and
was thereupon inspected by the companys Senior Laboratory
Technician, Annie Rose Caparoso (Caparoso).5

The Factual Antecedents

On December 19, 2000, Novartis Consumer Health Philippines, Inc.
(NOVARTIS) imported from Jinsuk Trading Co. Ltd., (JINSUK) in South
Korea, 19 pallets of 200 rolls of Ovaltine Power 18 Glaminated
plastic packaging material.

Upon initial inspection, Caparoso found the container van locked

with its load intact. After opening the same, she inspected its
contents and discovered that the boxes of the shipment were wet
and damp. The boxes on one side of the van were in disarray while
others were opened or damaged due to the dampness. Caparoso
further observed that parts of the container van were damaged and
rusty. There were also water droplets on the walls and the floor was
wet. Since the damaged packaging materials might contaminate the
product they were meant to hold, Caparoso rejected the entire
shipment.

In order to ship the goods to the Philippines, JINSUK engaged the

services of Protop Shipping Corporation (PROTOP), a freight
forwarder likewise based in South Korea, to forward the goods to
their consignee, NOVARTIS.
Based on Bill of Lading No. PROTAS 200387 issued by PROTOP, the
cargo was on freight prepaid basis and on "shippers load and count"
which means that the "container [was] packed with cargo by one
shipper where the quantity, description and condition of the cargo is
the sole responsibility of the shipper."4 Likewise stated in the bill of
lading is the name Sagawa Express Phils., Inc., (SAGAWA)
designated as the entity in the Philippines which will obtain the
delivery contract.

Renato Layug and Mario Chin, duly certified adjusters of the Manila
Adjusters and Surveyors Company wereforthwith hailed to inspect
and conduct a survey of the shipment.6 Their Certificate of
Survey7 dated January 17, 2001 yielded results similar to the
observations of Caparoso, thus:

48

[T]he sea van panels/sidings and roofing were noted with varying
degrees of indentations and partly corroded/rusty. Internally, water
bead clung along the roofs from rear to front section. The mid
section dented/sagged with affected area was noted withminutes
hole evidently due to thinning/corroded rusty metal plates. The
shipment was noted with several palletized cartons already in
collapsed condition due to wetting. The vans entire floor length was
also observed wet.8

defendant in an Amended Complaint duly admitted by the trial court

on October 19, 2001.12

All 17 pallets of the 184 cartons/rolls contained in the sea van were
found wet/water damaged. Sixteen (16)cartons/rolls supposedly
contained in 2 pallets were unaccounted for although the surveyors
remarked that this may be due to short shipment by the supplier
considering that the sea van was fully loaded and can no longer
accommodate the said unaccounted items. The survey report
further stated that the "wetting sustained by the shipment may
have reasonably be attributed to the water seepage that gain entry
into the sea van container damageroofs (minutes hole) during
transit period[sic]."9

PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied

liability for the lost/damaged shipment.

On December 11, 2001, PHILAM filed a Motion to Admit Second

Amended Complaint this time designating PROTOP as the
owner/operator of M/V Heung-A Bangkok V-019 and adding HEUNG-A
as party defendant for being the registered owner of the
vessel.13 The motion was granted and the second amended
complaint was admitted by the trial court on December 14, 2001. 14

SAGAWA refuted the allegation that it is the ship agent of PROTOP

and argued that a ship agent represents the owner of the vessel and
not a mere freight forwarder like PROTOP. SAGAWA averred that its
only role with respect to the shipment was to inform NOVARTIS of its
arrival in the Philippines and to facilitate the surrender of the
original bill of lading issued by PROTOP.
SAGAWA further remarked that it was deprived an opportunity to
examine and investigate the nature and extent of the damage while
the matter was still fresh so as tosafeguard itself from
false/fraudulent claims because NOVARTIS failed totimely give notice
about the loss/damage.15

Samples from the wet packing materials/boxes were submitted to

the chemist of Precision Analytical Services, Inc. (PRECISION), Virgin
Hernandez (Hernandez), and per Laboratory Report No. 042-07
dated January 16, 2001, the cause of wetting in the carton boxes
and kraft paper/lining materials as well as the aluminum foil
laminated plastic packaging material, was salt water.10

SAGAWA admitted that it has a non-exclusive agency agreement

with PROTOP to serve as the latters delivery contact person in the
Philippines with respect to the subject shipment. SAGAWA is also a
freight forwarding company and that PROTOPwas not charged any
fee for the services rendered by SAGAWA with respect to the subject
shipment and instead the latter was given US$10 as
commission.16 For having been dragged into court on a baseless
cause, SAGAWA counterclaimed for damages in the form of
attorneys fees.

Aggrieved, NOVARTIS demanded indemnification for the

lost/damaged shipment from PROTOP, SAGAWA, ATI and STEPHANIE
but was denied. Insurance claims were, thus, filed with PHILAM
which paid the insured value of the shipment inthe adjusted amount
of One Million Nine Hundred Four Thousand Six Hundred Thirteen
Pesos and Twenty Centavos (P1,904,613.20). Claiming that after
such payment, it was subrogated to all the rights and claims of
NOVARTIS against the parties liable for the lost/damaged shipment,
PHILAM filed on June 4, 2001, a complaint for damages against
PROTOP, as the issuer of Bill of Lading No. PROTAS 200387, its ship
agent in the Philippines, SAGAWA, consignee, ATI and the broker,
STEPHANIE.

ATI likewise interposed a counterclaim for damages against PHILAM

for its allegedly baseless complaint. ATI averred that it exercised due
care and diligence in handling the subject container. Also, NOVARTIS,
through PHILAM, is now barred from filing any claim for
indemnification because the latter failed to file the same within 15
days from receipt of the shipment.17 Meanwhile, STEPHANIE asserted
that its only role with respect to the shipment was its physical
retrieval from ATI and thereafter its delivery to NOVARTIS. That
entire time, the sealwas intact and not broken. Also, based on the

On October 12, 2001, PHILAM sent a demand letter to WALLEM for

reimbursement of the insurance claims paid to NOVARTIS.11 When
WALLEM ignored the demand, PHILAM impleaded it as additional

49

Certificate of Survey, the damage to the shipment was due to salt

water which means that it could not have occurred while STEPHANIE
was in possession thereof during its delivery from ATIs container
yard to NOVARTIS premises. STEPHANIE counterclaimed for moral
damages and attorneys fees.18

HEUNG-A was adjudged as the common carrier of the subject

shipment by virtue of the admissions of WALLEMs witness, Ronald
Gonzales (Gonzales) that despite the slot charter agreement with
DONGNAMA, it was still the obligation of HEUNG-A to transport the
cargo from Busan, Korea to Manila and thus any damage to the
shipment is the responsibility of the carrier to the consignee.

WALLEM alleged that the damageand shortages in the shipment

were the responsibility of the shipper, JINSUK, because it was taken
on board on a "shippers load and count" basis which means that it
was the shipper that packed, contained and stuffed the shipment in
the container van without the carriers participation. The container
van was already sealed when it was loadedon the vessel and hence,
the carrier was in no position to verify the condition and other
particulars of the shipment.

The RTC further observed that HEUNG-A failed to present evidence

showing that it exercised the diligence required of a common carrier
in ensuring the safety of the shipment.
The RTC discounted the slot charter agreement between HEUNG-A
and DONGNAMA, and held that it did not bind the consignee who
was not a party thereto. Further, it was HEUNG-As duty to ensure
that the container van was in good condition by taking an initiative
to state in its contract and demand from the owner of the container
van that it should be in a good condition all the time. Such initiative
cannot be shifted to the shipper because it is in no position to
demand the same from the owner of the container van.

WALLEM also asserted that the shipment was opened long after it
was discharged from the vessel and that WALLEM or HEUNG-A were
not present during the inspection, examination and survey.
WALLEM pointed the blame to PROTOP because its obligation to the
shipper as freight forwarder carried the concomitant responsibility of
ensuring the shipments safety from the port of loading until the
final place of delivery. WALLEM claimed to haveexercised due care
and diligence in handling the shipment.

WALLEM was held liable as HEUNG-As ship agent in the Philippines

while PROTOP was adjudged liable because the damage sustained
by the shipment was due to the bad condition of the container van.
Also, based on the statement at the backof the bill of lading, it
assumed responsibility for loss and damage as freight forwarder, viz:

In the alternative, WALLEM averred that any liability which may be

imputed to it is limited only to US$8,500.00 pursuant to the Carriage
of Goods by Sea Act (COGSA).19

6.1 The responsibility of the Freight Forwarder for the goods under
these conditions covers the period from the time the Freight
Forwarder has taken the goods in his charge to the time of the
delivery.

HEUNG-A argued that it is not the carrier insofar as NOVARTIS is

concerned. The carrier was either PROTOP, a freight forwarder
considered as a non-vessel operating common carrier or
DONGNAMA which provided the container van to PROTOP.20 HEUNGA denied being the carrier of the subjectshipment and asserted that
its only obligation was to provide DONGNAMA a space on board M/V
Heung-A Bangkok V-019.

6.2 The Freight Forwarde[r] shall beliable for loss or damage to the
goods as well as for delay in delivery if the occurrence which caused
the loss, damage, delay in delivery took place while the goods were
in his charge as defined in clause 2.1.a unless the Freight Forwarder
proves that no fault or neglect of his own servants or agents or any
other person referred to in Clause 2.2 has caused or contributed to
such loss, damage or delay. However, the Freight Forwarder shall
only be liable for loss following from delay in delivery if the
Consignor has made a declaration of interest in timely delivery
which has been accepted by the Freight Forwarder and stated in this
FBL.23

PROTOP failed to file an answer to the complaint despite having

been effectively served with alias summons. It was declared in
default in the RTC Order dated June 6, 2002.21
Ruling of the RTC
22

In a Decision dated February 26, 2007, the RTC ruled that the
damage to the shipment occurred onboard the vessel while in
transit from Korea to the Philippines.

50

PHILAM was declared to havebeen validly subrogated in NOVARTIS

stead and thus entitled to recover the insurance claims it paid to the
latter.

agreeing to transport the goods contained in the sea van providedby

DONGNAMA, HEUNG-A impliedly entered into a contract of carriage
with NOVARTIS with whom the goods were consigned. Hence, it
assumed the obligations of a common carrier to observe
extraordinary diligence in the vigilance over the goods transported
by it. Further the Slot Charter Agreement did not change HEUNG-As
character as a common carrier.

ATI and STEPHANIE were exonerated from any liability. SAGAWA was
likewise adjudged not liable for the loss/damage to the shipment by
virtue of the phrase "Shippers Load and Count" reflected in the bill
of lading issued by PROTOP. Since the container van was packed
under the sole responsibility of the shipper in Korea, SAGAWA, which
is based in the Philippines, had no chance to check if the contents
were in good condition or not. The RTC concluded that SAGAWA
cannot be expected to observe the diligence or care required of a
carrier or ship agent. SAGAWA, ATI and STEPHANIEs counterclaims
for attorneys fees were granted and PHILAM was ordered to pay the
same for having been filed a shotgun case against them.
Accordingly, the dispositive portion of the RTC decision read:

Moreover, the proximate cause ofthe damage was the failure of

HEUNG-A to inspect and examine the actual condition of the sea van
before loading it on the vessel. Also, propermeasures in handling
and stowage should have been adopted to prevent seepage of sea
water into the sea van.
The CA rejected WALLEM and HEUNG-As argument that NOVARTIS
failed to comply with Article 366 of the Code of Commerce requiring
that a claim must be made against the carrier within 24 hours from
receipt of the merchandise because such provision applies only to
inter-island shipments within the Philippines.

WHEREFORE, premises considered, judgment is hereby rendered

declaring defendants PROTOP SHIPPING CORPORATION, HEUNG-A
SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING, INC.
solidarily liable to pay x x x PHILAM INSURANCE COMPANY, INC. the
following amounts:

The CA limited the liability of PROTOP, WALLEM and HEUNG-A to

US$8,500.00 pursuant to the liability limitation under the COGSA
since the shipper failed to declare the value of the subject cargo in
the bill of lading and since they could not be made answerable for
the two (2) unaccounted pallets because the shipment was on a
"shippers load, count and seal" basis.

1. [P]1,904,613.20 plus interest of 12% per annum from

December 26, 2001 (date of service of summons to
defendant Heung-A) until full payment;
2. [P]350,000.00 as attorneys fees; and 3. Cost of suit.

The attorneys fees awarded to SAGAWA, ATI and STEPHANIE were

deleted because it was not shown that PHILAM was motivated by
malice and bad faith in impleading them as defendants. Thus, the
CA decision was disposed as follows:

With regards to the counter claims, x x x PHILAM INSURANCE

COMPANY, INC. is hereby ordered to pay defendants SAGAWA
EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC., and STEPHANIE
CUSTOMS BROKERAGE CORPORATION the amount of [P]100,000.00
each as attorneys fees.

WHEREFORE, premises considered, the appealed Decision is hereby

AFFIRMED with MODIFICATION.Defendants PROTOP SHIPPING
CORPORATION, HEUNG-A SHIPPING CORPORATION [and] WALLEM
PHILIPPINES SHIPPING,INC.s solidary liability to PHILAM INSURANCE
COMPANY, INC. is reduced to $8,500.00 plus interest per annum
from26 December 2001 (date ofservice of summons to defendant
Heung-A) until full payment. The award of attorneys fees in the
amount of One Hundred Thousand Pesos ([P]100,000.[00]) each to
SAGAWA EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC. and
STEPHANIE CUSTOMS BROKERAGE is hereby DELETED.

SO ORDERED.24
Ruling of the CA
An appeal to the CA was interposed by PHILAM, WALLEM and
HEUNG-A. In a Decision25 dated January 30, 2009, the CA agreed
with the RTC that PROTOP, HEUNG-A and WALLEM are liable for the
damaged shipment. The fact that HEUNG-A was not a party to the
bill of lading did not negate the existence of a contract of carriage
between HEUNG-A and/or WALLEM and NOVARTIS. A bill of lading is
not indispensable for the creation of a contract of carriage. By

SO ORDERED.26

51

The foregoing judgment was reiterated in the CA Resolution 27 dated

May 8, 2009 which denied the motions for reconsideration filed by
PHILAM, WALLEM and HEUNG-A.

ARTICLE 366 OF THE CODE OF COMMERCE OR THE PROVISIONS OF

THE BILL OF LADING NO.DNALGOBUM 005019[;]
THE [CA] GRAVELY ABUSED ITS DISCRETION AMOUNTING TO EXCESS
OR LACK OF JURISDICTION IN FINDING THAT THE CONTAINERIZED
CARGO WAS DAMAGED WHILE IN THE POSSESSION OR CUSTODY OF
THE VESSEL "HEUNG-A BANGKOK".30

PHILAM thereafter filed a petition for review before the Court

docketed as G.R. No. 187701. WALLEM and HEUNG-A followed suit
and their petition was docketed as G.R. No. 187812. Considering
that both petitions involved similar parties and issue, emanated
from the same Civil Case No. 01-889 and assailed the same CA
judgment, they were ordered consolidated in a Resolution28 dated
January 13, 2010.

Issues
The arguments proffered by the parties can be summed up into the
following issues: (1) Whether the shipment sustained damage while
in the possession and custody of HEUNG-A, and if so, whether
HEUNG-As liability can be limited to US$500 per package pursuant
tothe COGSA; (2) Whether or not NOVARTIS/PHILAM failed to file a
timely claim against HEUNG-A and/or WALLEM.

In G.R. No. 187701, PHILAM raised the following grounds:

THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT RULED
IN ITS DECISION OF 30 JANUARY 2009 THAT [HEUNG-A and WALLEM]
HAVE THE RIGHT TO LIMIT THEIR LIABILITY UNDER THE PACKAGE
LIMITATION OF LIABILITY OF SECTION 4(5) OF THE CARRIAGE OF
GOODS BY SEA ACT, 1924, IN VIEW OF ITS OBSERVATION THAT
[NOWHERE] IN THE BILL OF LADING DID THE SHIPPER DECLARE THE
VALUE OF THE SUBJECT CARGO;

Ruling of the Court

It must be stressed that the question on whether the subject
shipment sustained damaged while in the possession and custody of
HEUNG-A is a factual matter which has already beendetermined by
the RTC and the CA. The courts a quowere uniform in finding that
the goods inside the container van were damaged by sea water
whilein transit on board HEUNG-As vessel.

THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT

COMPLETELY DISREGARDED THE FUNDAMENTAL BREACHES OF
[HEUNG-A and WALLEM] OF [THEIR] OBLIGATIONS AND
RESPONSIBILITIES UNDER THE CONTRACT OF CARRIAGE AND LAW
OF THE CASE AS LEGAL GROUNDS TO PRECLUDE ITS AVAILMENT OF
THE PACKAGE LIMITATION OF LIABILITY UNDER SECTION 4(5) OF THE
CARRIAGE OF GOODS BY SEA ACT, 1924.29

Being a factual question, it is notreviewable in the herein petition

filed under Rule 45 of the Rules of Court. It isnot the Courts duty to
evaluate and weigh the evidence all over again as such function is
conceded to be within the expertise of the trial court whose findings,
when supported by substantial evidence on record and affirmed by
the CA, are regarded with respect, if not binding effect, by this
Court.31

In G.R. No. 187812, HEUNG-A and WALLEM argued that:

THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT
THE CODE OFCOMMERCE, SPECIFICALLY ARTICLE 366 THEREOF,
DOES NOT APPLY IN THIS CASE[;]

There are certain instances, however, when the Court is compelled

to deviate from this rule, dismantle the factual findings of the courts
a quoand conduct a probe into the factual questions at issue. These
circumstances are: (1) the inference made ismanifestly mistaken,
absurd or impossible; (2) there is grave abuse of discretion; (3) the
findings are grounded entirely on speculations, surmises or
conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went
beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (6) the findings of fact
are conclusions without citation of specific evidence on which

THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT

THE SO-CALLED "PARAMOUNT CLAUSE" IN THE BILL OF LADING,
WHICH PROVIDED THAT "COGSA" SHALL GOVERN THE
TRANSACTION, RESULTED IN THE EXCLUSION OR INAPPLICABILITY OF
THE CODE OF COMMERCE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN NOT RULING
THAT [PHILAM] HAS NO RIGHT OF ACTION AGAINST [HEUNG-A and
WALLEM] INSOFAR AS DAMAGE TO CARGO IS CONCERNED IN VIEW
OF THE FACT THAT NO TIMELY CLAIM WAS FILED PURSUANT TO

52

theyare based; (7) the CA manifestly overlooked certain relevant

facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and (8) the findings of fact of
the CA are premised on the absence ofevidence and are
contradicted by the evidence on record.32

Based on the testimony of Gonzales,33 WALLEMs employee and

witness, the charter party between HEUNG-A and DONGNAMA was a
contract of affreightment and not a bare boat or demise charter, viz:

None of the foregoing instances is extant from records of the

present case. Instead, the Court finds that the factual findings of the
courts a quo are supported by evidence on record.

A: Yes, sir.

Q: Now, the space charter that you are mentioning is not either a
bareboat or a demise?
Q: Okay. So in other words, that space charter party is only to allow
the shipper, Dongnama, to load its cargo for a certain specified
space?

The uncontested results of the inspection survey conducted by

Manila Adjusters Surveyors Company showed that sea water seeped
into the panels/sidings and roofing of the container van. This was
confirmed by the examination conducted by Hernandez, the chemist
of PRECISION, on samples from the cartons, boxes, aluminum foil
and laminated plastic packaging materials. Based on the laboratory
examination results, the contents of the van were drenched by sea
water, an element which is highly conspicuous in the high seas. It
can thus be reasonably concluded that negligence occurred while
the container van was in transit, in HEUNG-As possession, control
and custody as the carrier.

A: Yes, sir.34
A charter party has been defined in Planters Products, Inc. v. Court
of Appeals35 as:
[A] contract by which an entire ship, orsome principal part thereof, is
let by the owner to another person for a specified time or use; 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. x x x.36 (Citations omitted)
A charter party has two types. First, it could be a contract of
affreightment whereby the use of shipping space on vessels is
leased in part or as a whole, to carry goods for others. The charterparty provides for the hire of vessel only, either for a determinate
period of time (time charter) or for a single or consecutive voyage
(voyage charter). The shipowner supplies the ships stores, pay for
the wages ofthe master and the crew, and defray the expenses for
the maintenance of the ship.37 The voyage remains under the
responsibility of the carrier and it is answerable for the loss of goods
received for transportation. The charterer is free from liability to
third persons in respect of the ship.38

Although the container van had defects, they were not, however, so
severe as to accommodate heavy saturation of sea water. The holes
were tiny and the rusty portions did not cause gaps or tearing.
Hence, the van was still in a suitable condition to hold the goods and
protect them from natural weather elements or even the normal
flutter of waves in the seas.
The scale of the damage sustained by the cargo inside the van could
have been only caused by large volume of sea water since not a
single package inside was spared. Aside from the defective condition
of the van, some other circumstance or occurrence contributed to
the damages sustained by the shipment. Since the presence of sea
water is highly concentrated in the high seas and considering
HEUNG-As failure to demonstrate how it exercised due diligence in
handling and preserving the container van while in transit, it is liable
for the damages sustained thereby.

Second, charter by demise or bareboat charter under 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.39 The charterer mans the vessel with his own people and
becomes, in effect, the owner for the voyage or service stipulated
and hence liable for damages or loss sustained by the goods
transported.40

As the carrier of the subject shipment, HEUNG-A was bound to

exercise extraordinary diligence in conveying the same and its slot
charter agreement with DONGNAMA did not divest it of such
characterization nor relieve it of any accountability for the shipment.

53

Clearly then, despite its contract of affreightment with DONGNAMA,

HEUNG-A remained responsible as the carrier, hence, answerable for
the damages incurred by the goods received for transportation.
"[C]ommon carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary
diligenceand vigilance with respect to the safety of the goods and
the passengers they transport. Thus, common carriers are required
to render service with the greatest skill and foresight and to use all
reasonable means to ascertain the nature and characteristics of the
goods tendered for shipment, and toexercise due care in the
handling and stowage, including such methods as their nature
requires."41

Under Article 1753 of the Civil Code, the law of the country to which
the goods are to be transported shall govern the liability of the
common carrier for their loss, destruction or deterioration. Since the
subject shipment was being transported from South Korea to the
Philippines, the Civil Code provisions shall apply. In all mattersnot
regulated by the Civil Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special
laws,44 such as the COGSA.

"[C]ommon carriers, as a general rule, are presumed to have been

at fault or negligent if the goods they transported deteriorated or
got lost or destroyed. That is, unless they provethat they exercised
extraordinary diligence in transporting the goods. Inorder to avoid
responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such diligence."42 Further,
under Article 1742 of the Civil Code, even if the loss, destruction, or
deterioration of the goods should be caused by the faulty nature of
the containers, the common carrier must exercise due diligence to
forestall or lessen the loss.

Article 372. The value of the goods which the carrier must pay in
cases if loss or misplacement shall be determined in accordance
with that declared in the bill of lading, the shipper not being allowed
to present proof that among the goods declared therein there were
articles of greater value and money.

While the Civil Code contains provisions making the common carrier
liable for loss/damage to the goods transported, it failed to outline
the manner of determining the amount of suchliability. Article372 of
the Code of Commerce fills in this gap, thus:

Horses, vehicles, vessels, equipment and all other principal and

accessory means of transportation shall be especially bound infavor
of the shipper, although with respect to railroads said liability shall
be subordinated to the provisions of the laws of concession with
respect to the property, and to what this Code established as to the
manner and form of effecting seizures and attachments against said
companies. (Emphasis ours)

Here, HEUNG-A failed to rebut this prima faciepresumption when it

failed to give adequate explanation as to how the shipment inside
the container van was handled, stored and preserved to forestall or
prevent any damage or loss while the same was inits possession,
custody and control.

In case, however, of the shippers failure to declare the value of the

goods in the bill of lading, Section 4, paragraph 5 of the COGSA
provides:

PROTOP is solidarily liable with HEUNG-A for the lost/damaged

shipment in view of the bill of lading the former issued to NOVARTIS.
"A bill of lading is a written acknowledgement of the receipt of
goods and an agreement to transport and to deliver them at a
specified place to a person named or on his or her order. It operates
both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver the same as therein
stipulated."43 PROTOP breached its contract with NOVARTIS when it
failed to deliver the goods in the same quantity, quality and
description as stated in Bill of Lading No. PROTAS 200387.

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 the
bill of lading. This declaration, if embodied in the bill of lading shall
be prima facieevidence, but shall be conclusive on the carrier.
Hence, when there is a loss/damage to goods covered by contracts
of carriage from a foreign port to a Philippine port and in the
absence a shippers declaration of the value of the goods in the bill

The CA did not err in applying the provisions of the COGSA

specifically, the rule on Package Liability Limitation.

54

of lading, as in the present case, the foregoing provisions of the

COGSA shall apply. The CA, therefore, did not err in ruling that
HEUNG-A, WALLEM and PROTOPs liability is limited to $500 per
package or pallet.45

the shipper to bring suit within one year after the delivery of the
goods or the date when the goods should have been delivered.
It was further ruled in Asian Terminals that pursuant to the foregoing
COGSA prov:sion, failure to comply with the notice requirement shall
not affect or prejudice the right of the shipper to bring suit within
one year after delivery of the goods.

The Court likewise affirms the CA in pronouncing HEUNG-A, WALLEM

and PROTOP liable only for the lost/damaged 17 pallets instead of
19 pallets stated in the bill of lading. This is because, per the
"Shippers Load and Count" arrangement, the contents are not
required to be checked and inventoried by the carrier at the port of
loading or before said carrier enters the port of unloading in the
Philippines since it is the shipper who has the sole responsibility for
the quantity, description and condition of the cargoes shipped in
container vans.46 As such, the carrier cannot be held responsible for
any discrepancy if the description in the bill of lading is different
from the actual contents of the container.47

The consignee, NOV ARTIS, received the subject shipment on

January 5, 2001. PHILAM, as the subrogee of NOVARTIS, filed a claim
against PROTOP on June 4, 2001, against WALLEM on October 12,
2001 and against HEUNG-A on December 11, 2001, or all within the
one-year prescriptive period. Verily then, despite NOV AR TIS' failure
to comply with the three-day notice requirement, its subrogee
PHILAM is not barred from seeking reimbursement from PROTOP,
HEUNG-A and WALLEM because the demands for payment were
timely filed.

Consonant with the ruling in the recent Asian Terminals, Inc. v.

Philam Insurance Co., Inc.,48 the prescriptive period for filing an
action for lost/damaged goods governed by contracts of carriage by
sea to and from Philippine ports in foreign trade is governed by
paragraph 6,Section 3 of the COGSA which states:

The amount which PHILAM is entitled to receive shall earn a legal

interest at the rate of six percent (6%) per annum from the date of
finality of this judgment until its full satisfaction pursuant to Nacar v.
Gallery Frames.49
WHEREFORE, all the foregoing considered, the Decision dated
January 30, 2009 of the Court of Appeals in CA-G.R. CV No. 89482 is
hereby AFFlHMED with MODIFICATION in that the interest rate on the
award of US$8,500.00 shall be six percent (6%) per annum from the
date of finality of this judgment until fully paid.

(6) Unless notice of loss or damageand the general nature of such

loss or damage be given in writing to the carrier or his agent at the
port of discharge before or at the time of the removal of the goods
into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facieevidence of
the delivery by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice must be
given within three days of the delivery.

SO ORDERED.

Said notice of loss or damage maybe endorsed upon the receipt for
the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has
at the time of their receipt been the subject of joint survey or
inspection. In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is brought
withinone year after delivery of the goods or the date when the
goods should have been delivered: Provided, That if a notice of loss
or damage, either apparent or concealed, is not given as provided
for in this section, that fact shall not affect or prejudice the right of

55

G.R. No. 145804

February 6, 2003

The LRTA and Roman presented their evidence while Prudent and
Escartin, instead of presenting evidence, filed a demurrer
contending that Navidad had failed to prove that Escartin was
negligent in his assigned task. On 11 August 1998, the trial court
rendered its decision; it adjudged:

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO

ROMAN, petitioners,
vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD &
PRUDENT SECURITY AGENCY, respondents.

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs

and against the defendants Prudent Security and Junelito Escartin
ordering the latter to pay jointly and severally the plaintiffs the
following:

DECISION
VITUG, J.:
The case before the Court is an appeal from the decision and
resolution of the Court of Appeals, promulgated on 27 April 2000
and 10 October 2000, respectively, in CA-G.R. CV No. 60720,
entitled "Marjorie Navidad and Heirs of the Late Nicanor Navidad vs.
Rodolfo Roman, et. al.," which has modified the decision of 11
August 1998 of the Regional Trial Court, Branch 266, Pasig City,
exonerating Prudent Security Agency (Prudent) from liability and
finding Light Rail Transit Authority (LRTA) and Rodolfo Roman liable
for damages on account of the death of Nicanor Navidad.

"a) 1) Actual damages of P44,830.00;

2) Compensatory damages of P443,520.00;
3) Indemnity for the death of Nicanor Navidad in the sum of
P50,000.00;
"b) Moral damages of P50,000.00;
"c) Attorneys fees of P20,000;
"d) Costs of suit.
"The complaint against defendants LRTA and Rodolfo Roman are
dismissed for lack of merit.

On 14 October 1993, about half an hour past seven oclock in the

evening, Nicanor Navidad, then drunk, entered the EDSA LRT station
after purchasing a "token" (representing payment of the fare). While
Navidad was standing on the platform near the LRT tracks, Junelito
Escartin, the security guard assigned to the area approached
Navidad. A misunderstanding or an altercation between the two
apparently ensued that led to a fist fight. No evidence, however, was
adduced to indicate how the fight started or who, between the two,
delivered the first blow or how Navidad later fell on the LRT tracks.
At the exact moment that Navidad fell, an LRT train, operated by
petitioner Rodolfo Roman, was coming in. Navidad was struck by the
moving train, and he was killed instantaneously.

"The compulsory counterclaim of LRTA and Roman are likewise

dismissed."1
Prudent appealed to the Court of Appeals. On 27 August 2000, the
appellate court promulgated its now assailed decision exonerating
Prudent from any liability for the death of Nicanor Navidad and,
instead, holding the LRTA and Roman jointly and severally liable
thusly:
"WHEREFORE, the assailed judgment is hereby MODIFIED, by
exonerating the appellants from any liability for the death of Nicanor
Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail
Transit Authority (LRTA) are held liable for his death and are hereby
directed to pay jointly and severally to the plaintiffs-appellees, the
following amounts:

On 08 December 1994, the widow of Nicanor, herein respondent

Marjorie Navidad, along with her children, filed a complaint for
damages against Junelito Escartin, Rodolfo Roman, the LRTA, the
Metro Transit Organization, Inc. (Metro Transit), and Prudent for the
death of her husband. LRTA and Roman filed a counterclaim against
Navidad and a cross-claim against Escartin and Prudent. Prudent, in
its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.

a) P44,830.00 as actual damages;

b) P50,000.00 as nominal damages;
c) P50,000.00 as moral damages;
d) P50,000.00 as indemnity for the death of the
deceased; and
e) P20,000.00 as and for attorneys fees."2

56

The appellate court ratiocinated that while the deceased might not
have then as yet boarded the train, a contract of carriage
theretofore had already existed when the victim entered the place
where passengers were supposed to be after paying the fare and
getting the corresponding token therefor. In exempting Prudent from
liability, the court stressed that there was nothing to link the
security agency to the death of Navidad. It said that Navidad failed
to show that Escartin inflicted fist blows upon the victim and the
evidence merely established the fact of death of Navidad by reason
of his having been hit by the train owned and managed by the LRTA
and operated at the time by Roman. The appellate court faulted
petitioners for their failure to present expert evidence to establish
the fact that the application of emergency brakes could not have
stopped the train.

basis because Roman himself had testified being an employee of

Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court,
contended that a contract of carriage was deemed created from the
moment Navidad paid the fare at the LRT station and entered the
premises of the latter, entitling Navidad to all the rights and
protection under a contractual relation, and that the appellate court
had correctly held LRTA and Roman liable for the death of Navidad in
failing to exercise extraordinary diligence imposed upon a common
carrier.
Law and jurisprudence dictate that a common carrier, both from the
nature of its business and for reasons of public policy, is burdened
with the duty of exercising utmost diligence in ensuring the safety of
passengers.4 The Civil Code, governing the liability of a common
carrier for death of or injury to its passengers, provides:

The appellate court denied petitioners motion for reconsideration in

its resolution of 10 October 2000.

"Article 1755. A common carrier is bound to carry the passengers

safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all
the circumstances.

In their present recourse, petitioners recite alleged errors on the

part of the appellate court; viz:
"I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY
DISREGARDING THE FINDINGS OF FACTS BY THE TRIAL COURT

"Article 1756. In case of death of or injuries to passengers, common

carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755."

"II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT PETITIONERS ARE LIABLE FOR THE DEATH OF NICANOR
NAVIDAD, JR.

"Article 1759. Common carriers are liable for the death of or injuries
to passengers through the negligence or willful acts of the formers
employees, although such employees may have acted beyond the
scope of their authority or in violation of the orders of the common
carriers.

"III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT RODOLFO ROMAN IS AN EMPLOYEE OF LRTA." 3

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

Petitioners would contend that the appellate court ignored the

evidence and the factual findings of the trial court by holding them
liable on the basis of a sweeping conclusion that the presumption of
negligence on the part of a common carrier was not overcome.
Petitioners would insist that Escartins assault upon Navidad, which
caused the latter to fall on the tracks, was an act of a stranger that
could not have been foreseen or prevented. The LRTA would add
that the appellate courts conclusion on the existence of an
employer-employee relationship between Roman and LRTA lacked

"Article 1763. A common carrier is responsible for injuries suffered

by a passenger on account of the willful acts or negligence of other
passengers or of strangers, if the common carriers employees
through the exercise of the diligence of a good father of a family
could have prevented or stopped the act or omission."
The law requires common carriers to carry passengers safely using
the utmost diligence of very cautious persons with due regard for all

57

circumstances.5 Such duty of a common carrier to provide safety to

its passengers so obligates it not only during the course of the trip
but for so long as the passengers are within its premises and where
they ought to be in pursuance to the contract of carriage.6 The
statutory provisions render a common carrier liable for death of or
injury to passengers (a) through the negligence or wilful acts of its
employees or b) on account of wilful acts or negligence of other
passengers or of strangers if the common carriers employees
through the exercise of due diligence could have prevented or
stopped the act or omission.7 In case of such death or injury, a
carrier is presumed to have been at fault or been negligent, and 8 by
simple proof of injury, the passenger is relieved of the duty to still
establish the fault or negligence of the carrier or of its employees
and the burden shifts upon the carrier to prove that the injury is due
to an unforeseen event or to force majeure.9 In the absence of
satisfactory explanation by the carrier on how the accident occurred,
which petitioners, according to the appellate court, have failed to
show, the presumption would be that it has been at fault,10 an
exception from the general rule that negligence must be proved. 11

ask further, how then must the liability of the common carrier, on
the one hand, and an independent contractor, on the other hand, be
described? It would be solidary. A contractual obligation can be
breached by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 219414 of the Civil Code can well apply.15 In fine, a
liability for tort may arise even under a contract, where tort is that
which breaches the contract.16 Stated differently, when an act which
constitutes a breach of contract would have itself constituted the
source of a quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.17

The foundation of LRTAs liability is the contract of carriage and its

obligation to indemnify the victim arises from the breach of that
contract by reason of its failure to exercise the high diligence
required of the common carrier. In the discharge of its commitment
to ensure the safety of passengers, a carrier may choose to hire its
own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of
carriage.

There being, similarly, no showing that petitioner Rodolfo Roman

himself is guilty of any culpable act or omission, he must also be
absolved from liability. Needless to say, the contractual tie between
the LRT and Navidad is not itself a juridical relation between the
latter and Roman; thus, Roman can be made liable only for his own
fault or negligence.

Regrettably for LRT, as well as perhaps the surviving spouse and

heirs of the late Nicanor Navidad, this Court is concluded by the
factual finding of the Court of Appeals that "there is nothing to link
(Prudent) to the death of Nicanor (Navidad), for the reason that the
negligence of its employee, Escartin, has not been duly proven x x
x." This finding of the appellate court is not without substantial
justification in our own review of the records of the case.

The award of nominal damages in addition to actual damages is

untenable. Nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.18 It is an
established rule that nominal damages cannot co-exist with
compensatory damages.19

Should Prudent be made likewise liable? If at all, that liability could

only be for tort under the provisions of Article 217612 and related
provisions, in conjunction with Article 2180,13 of the Civil Code. The
premise, however, for the employers liability is negligence or fault
on the part of the employee. Once such fault is established, the
employer can then be made liable on the basis of the presumption
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 shown. Absent such a showing, one might

WHEREFORE, the assailed decision of the appellate court is

AFFIRMED with MODIFICATION but only in that (a) the award of
nominal damages is DELETED and (b) petitioner Rodolfo Roman is
absolved from liability. No costs.
SO ORDERED.

58

59

G.R. No. 95582 October 7, 1991

On July 29, 1988, the trial court rendered a decision, effectively in

favor of petitioners, with this decretal portion:

DANGWA TRANSPORTATION CO., INC. and THEODORE

LARDIZABAL y MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA
CUDIAMAT BANDOY, FERNANDO CUDLAMAT, MARRIETA
CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL
CUDIAMAT and LIGAYA CUDIAMAT, all Heirs of the late
Pedrito Cudiamat represented by Inocencia
Cudiamat, respondents.

IN VIEW OF ALL THE FOREGOING, judgment is hereby

pronounced that Pedrito Cudiamat was negligent,
which negligence was the proximate cause of his
death. Nonetheless, defendants in equity, are hereby
ordered to pay the heirs of Pedrito Cudiamat the sum
of P10,000.00 which approximates the amount
defendants initially offered said heirs for the amicable
settlement of the case. No costs.

Francisco S. Reyes Law Office for petitioners.

SO ORDERED. 2

Antonio C. de Guzman for private respondents.

Not satisfied therewith, private respondents appealed to the Court of

Appeals which, in a decision 3 in CA-G.R. CV No. 19504 promulgated
on August 14, 1990, set aside the decision of the lower court, and
ordered petitioners to pay private respondents:

REGALADO, J.:p
On May 13, 1985, private respondents filed a complaint 1 for
damages against petitioners for the death of Pedrito Cudiamat as a
result of a vehicular accident which occurred on March 25, 1985 at
Marivic, Sapid, Mankayan, Benguet. Among others, it was alleged
that on said date, while petitioner Theodore M. Lardizabal was
driving a passenger bus belonging to petitioner corporation in a
reckless and imprudent manner and without due regard to traffic
rules and regulations and safety to persons and property, it ran over
its passenger, Pedrito Cudiamat. However, instead of bringing
Pedrito immediately to the nearest hospital, the said driver, in utter
bad faith and without regard to the welfare of the victim, first
brought his other passengers and cargo to their respective
destinations before banging said victim to the Lepanto Hospital
where he expired.

1. The sum of Thirty Thousand (P30,000.00) Pesos by

way of indemnity for death of the victim Pedrito
Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way
of moral damages;
3. The sum of Two Hundred Eighty Eight Thousand
(P288,000.00) Pesos as actual and compensatory
damages;
4. The costs of this suit. 4
Petitioners' motion for reconsideration was denied by the Court of
Appeals in its resolution dated October 4, 1990,5 hence this petition
with the central issue herein being whether respondent court erred
in reversing the decision of the trial court and in finding petitioners
negligent and liable for the damages claimed.

On the other hand, petitioners alleged that they had observed and
continued to observe the extraordinary diligence required in the
operation of the transportation company and the supervision of the
employees, even as they add that they are not absolute insurers of
the safety of the public at large. Further, it was alleged that it was
the victim's own carelessness and negligence which gave rise to the
subject incident, hence they prayed for the dismissal of the
complaint plus an award of damages in their favor by way of a
counterclaim.

It is an established principle that the factual findings of the Court of

Appeals as a rule are final and may not be reviewed by this Court on
appeal. However, this is subject to settled exceptions, one of which
is when the findings of the appellate court are contrary to those of
the trial court, in which case a reexamination of the facts and
evidence may be undertaken. 6
In the case at bar, the trial court and the Court of Appeal have
discordant positions as to who between the petitioners an the victim
is guilty of negligence. Perforce, we have had to conduct an

60

evaluation of the evidence in this case for the prope calibration of

their conflicting factual findings and legal conclusions.

movement (as) the driver commenced to accelerate

the bus.

The lower court, in declaring that the victim was negligent, made
the following findings:

Evidently, the incident took place due to the gross

negligence of the appellee-driver in prematurely
stepping on the accelerator and in not waiting for the
passenger to first secure his seat especially so when
we take into account that the platform of the bus was
at the time slippery and wet because of a drizzle. The
defendants-appellees utterly failed to observe their
duty and obligation as common carrier to the end that
they should observe extra-ordinary diligence in the
vigilance over the goods and for the safety of the
passengers transported by them according to the
circumstances of each case (Article 1733, New Civil
Code). 8

This Court is satisfied that Pedrito Cudiamat was

negligent in trying to board a moving vehicle,
especially with one of his hands holding an umbrella.
And, without having given the driver or the conductor
any indication that he wishes to board the bus. But
defendants can also be found wanting of the
necessary diligence. In this connection, it is safe to
assume that when the deceased Cudiamat attempted
to board defendants' bus, the vehicle's door was open
instead of being closed. This should be so, for it is
hard to believe that one would even attempt to board
a vehicle (i)n motion if the door of said vehicle is
closed. Here lies the defendant's lack of diligence.
Under such circumstances, equity demands that there
must be something given to the heirs of the victim to
assuage their feelings. This, also considering that
initially, defendant common carrier had made
overtures to amicably settle the case. It did offer a
certain monetary consideration to the victim's heirs. 7

After a careful review of the evidence on record, we find no reason

to disturb the above holding of the Court of Appeals. Its aforesaid
findings are supported by the testimony of petitioners' own
witnesses. One of them, Virginia Abalos, testified on crossexamination as follows:
Q It is not a fact Madam witness, that at
bunkhouse 54, that is before the place
of the incident, there is a crossing?

However, respondent court, in arriving at a different opinion,

declares that:

A The way going to the mines but it is

not being pass(ed) by the bus.

From the testimony of appellees'own witness in the

person of Vitaliano Safarita, it is evident that the
subject bus was at full stop when the victim Pedrito
Cudiamat boarded the same as it was precisely on
this instance where a certain Miss Abenoja alighted
from the bus. Moreover, contrary to the assertion of
the appellees, the victim did indicate his intention to
board the bus as can be seen from the testimony of
the said witness when he declared that Pedrito
Cudiamat was no longer walking and made a sign to
board the bus when the latter was still at a distance
from him. It was at the instance when Pedrito
Cudiamat was closing his umbrella at the platform of
the bus when the latter made a sudden jerk

Q And the incident happened before

bunkhouse 56, is that not correct?
A It happened between 54 and 53
bunkhouses. 9
The bus conductor, Martin Anglog, also declared:
Q When you arrived at Lepanto on
March 25, 1985, will you please inform
this Honorable Court if there was anv
unusual incident that occurred?
A When we delivered a baggage at
Marivic because a person alighted there
between Bunkhouse 53 and 54.

61

Q What happened when you delivered

this passenger at this particular place in
Lepanto?

making a continuous offer to bus riders. Hence, it becomes the duty

of the driver and the conductor, every time the bus stops, to do no
act that would have the effect of increasing the peril to a passenger
while he was attempting to board the same. The premature
acceleration of the bus in this case was a breach of such duty. 11

A When we reached the place, a

passenger alighted and I signalled my
driver. When we stopped we went out
because I saw an umbrella about a split
second and I signalled again the driver,
so the driver stopped and we went
down and we saw Pedrito Cudiamat
asking for help because he was lying
down.

It is the duty of common carriers of passengers, including common

carriers by railroad train, streetcar, or motorbus, to stop their
conveyances a reasonable length of time in order to afford
passengers an opportunity to board and enter, and they are liable
for injuries suffered by boarding passengers resulting from the
sudden starting up or jerking of their conveyances while they are
doing so. 12

Q How far away was this certain person,

Pedrito Cudiamat, when you saw him
lying down from the bus how far was
he?

Further, even assuming that the bus was moving, the act of the
victim in boarding the same cannot be considered negligent under
the circumstances. As clearly explained in the testimony of the
aforestated witness for petitioners, Virginia Abalos, th bus had "just
started" and "was still in slow motion" at the point where the victim
had boarded and was on its platform. 13

A It is about two to three meters.

Q On what direction of the bus was he
found about three meters from the bus,
was it at the front or at the back?

It is not negligence per se, or as a matter of law, for one attempt to

board a train or streetcar which is moving slowly. 14 An ordinarily
prudent person would have made the attempt board the moving
conveyance under the same or similar circumstances. The fact that
passengers board and alight from slowly moving vehicle is a matter
of common experience both the driver and conductor in this case
could not have been unaware of such an ordinary practice.

A At the back, sir. 10 (Emphasis

supplied.)
The foregoing testimonies show that the place of the accident and
the place where one of the passengers alighted were both between
Bunkhouses 53 and 54, hence the finding of the Court of Appeals
that the bus was at full stop when the victim boarded the same is
correct. They further confirm the conclusion that the victim fell from
the platform of the bus when it suddenly accelerated forward and
was run over by the rear right tires of the vehicle, as shown by the
physical evidence on where he was thereafter found in relation to
the bus when it stopped. Under such circumstances, it cannot be
said that the deceased was guilty of negligence.

The victim herein, by stepping and standing on the platform of the

bus, is already considered a passenger and is entitled all the rights
and protection pertaining to such a contractual relation. Hence, it
has been held that the duty which the carrier passengers owes to its
patrons extends to persons boarding cars as well as to those
alighting therefrom. 15
Common carriers, from the nature of their business and reasons of
public policy, are bound to observe extraordina diligence for the
safety of the passengers transported by the according to all the
circumstances of each case. 16 A common carrier is bound to carry
the passengers safely as far as human care and foresight can
provide, using the utmost diligence very cautious persons, with a
due regard for all the circumstances. 17

The contention of petitioners that the driver and the conductor had
no knowledge that the victim would ride on the bus, since the latter
had supposedly not manifested his intention to board the same,
does not merit consideration. When the bus is not in motion there is
no necessity for a person who wants to ride the same to signal his
intention to board. A public utility bus, once it stops, is in effect

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It has also been repeatedly held that in an action based on a

contract of carriage, the court need not make an express finding of
fault or negligence on the part of the carrier in order to hold it
responsible to pay the damages sought by the passenger. By
contract of carriage, the carrier assumes the express obligation to
transport the passenger to his destination safely and observe
extraordinary diligence with a due regard for all the circumstances,
and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier. This is an
exception to the general rule that negligence must be proved, and it
is therefore incumbent upon the carrier to prove that it has
exercised extraordinary diligence as prescribed in Articles 1733 and
1755 of the Civil Code. 18

Q Why, what happened to your

refrigerator at that particular time?
A I asked them to bring it down because
that is the nearest place to our house
and when I went down and asked
somebody to bring down the
refrigerator, I also asked somebody to
call the family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the
family of Mr. Cudiamat?
A Because Mr. Cudiamat met an
accident, so I ask somebody to call for
the family of Mr. Cudiamat.

Moreover, the circumstances under which the driver and the

conductor failed to bring the gravely injured victim immediately to
the hospital for medical treatment is a patent and incontrovertible
proof of their negligence. It defies understanding and can even be
stigmatized as callous indifference. The evidence shows that after
the accident the bus could have forthwith turned at Bunk 56 and
thence to the hospital, but its driver instead opted to first proceed to
Bunk 70 to allow a passenger to alight and to deliver a refrigerator,
despite the serious condition of the victim. The vacuous reason
given by petitioners that it was the wife of the deceased who caused
the delay was tersely and correctly confuted by respondent court:

Q But nobody ask(ed) you to call for the

family of Mr. Cudiamat?
A No sir. 21
With respect to the award of damages, an oversight was, however,
committed by respondent Court of Appeals in computing the actual
damages based on the gross income of the victim. The rule is that
the amount recoverable by the heirs of a victim of a tort is not the
loss of the entire earnings, but rather the loss of that portion of the
earnings which the beneficiary would have received. In other words,
only net earnings, not gross earnings, are to be considered, that is,
the total of the earnings less expenses necessary in the creation of
such earnings or income and minus living and other incidental
expenses. 22

... The pretension of the appellees that the delay was

due to the fact that they had to wait for about twenty
minutes for Inocencia Cudiamat to get dressed
deserves scant consideration. It is rather scandalous
and deplorable for a wife whose husband is at the
verge of dying to have the luxury of dressing herself
up for about twenty minutes before attending to help
her distressed and helpless husband. 19

We are of the opinion that the deductible living and other expense of
the deceased may fairly and reasonably be fixed at P500.00 a
month or P6,000.00 a year. In adjudicating the actual or
compensatory damages, respondent court found that the deceased
was 48 years old, in good health with a remaining productive life
expectancy of 12 years, and then earning P24,000.00 a year. Using
the gross annual income as the basis, and multiplying the same by
12 years, it accordingly awarded P288,000. Applying the aforestated
rule on computation based on the net earnings, said award must be,
as it hereby is, rectified and reduced to P216,000.00. However, in

Further, it cannot be said that the main intention of petitioner

Lardizabal in going to Bunk 70 was to inform the victim's family of
the mishap, since it was not said bus driver nor the conductor but
the companion of the victim who informed his family thereof. 20 In
fact, it was only after the refrigerator was unloaded that one of the
passengers thought of sending somebody to the house of the victim,
as shown by the testimony of Virginia Abalos again, to wit:

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accordance with prevailing jurisprudence, the death indemnity is

hereby increased to P50,000.00. 23
WHEREFORE, subject to the above modifications, the challenged
judgment and resolution of respondent Court of Appeals are hereby
AFFIRMED in all other respects.
SO ORDERED.

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