I.

COMMON CARRIERS IN GENERAL

A. Definition; Liability of registered owner; Art. 1732, NCC

a.

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

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

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

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

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

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

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

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.

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

1. that private respondent was not a common carrier;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
 In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)

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

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

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

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

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

and contrary to public policy:

xxx xxx xxx

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

(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and

(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5) hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4

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

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

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

SO ORDERED.
b.

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

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and

THE MANILA INSURANCE CO., INC., respondents.

DECISION
DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside
the following: (a) the 30 January 1997 decision[1] of the Court of Appeals in CA-G.R. CV No.
36401, which affirmed the decision of 4 October 1991[2] of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila
Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the
complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its resolution
of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the
vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along
with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee
made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid
P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation
receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the
sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also
prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to
MIC, said amount to be deducted from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed
that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC
had no cause of action against it, LOADSTAR being the party insured. In any event, PGAI was
later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial
court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single
shipper on that fateful voyage. The court noted that the charter of the vessel was limited to the
ship, but LOADSTAR retained control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied
in determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had
been seaworthy, it could have withstood the natural and inevitable action of the sea on 20
November 1984, when the condition of the sea was moderate. The vessel sank, not because
of force majeure, but because it was not seaworthy. LOADSTARS allegation that the sinking
was probably due to the convergence of the winds, as stated by a PAGASA expert, was not
duly proven at the trial. The limited liability rule, therefore, is not applicable considering that,
in this case, there was an actual finding of negligence on the part of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said
provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper for the
goods insured, it was subrogated to the latters rights as against the carrier, LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached
their destination.LOADSTARs defense of diligence of a good father of a family in the training
and selection of its crew is unavailing because this is not a proper or complete defense in culpa
contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods
are delivered on board a ship in good order and condition, and the shipowner delivers them to
the shipper in bad order and condition, it then devolves upon the shipowner to both allege and
prove that the goods were damaged by reason of some fact which legally exempts him from
liability. Transportation of the merchandise at the risk and venture of the shipper means that
the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force
majeure, or the inherent nature and defects of the goods, but not those caused by the presumed
negligence or fault of the carrier, unless otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it
was not issued a certificate of public convenience, it did not have a regular trip or schedule nor a
fixed route, and there was only one shipper, one consignee for a special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not
timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board
only the cargo of wood products for delivery to one consignee, it was also carrying passengers as
part of its regular business. Moreover, the bills of lading in this case made no mention of any
charter party but only a statement that the vessel was a general cargo carrier. Neither was there
any special arrangement between LOADSTAR and the shipper regarding the shipment of the
cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is
not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be
presumed to have been negligent, and the burden of proving otherwise devolved upon MIC.[8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19
November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly
inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that the
ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and
unquestionably competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessels
seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss
being due to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on
19 November 1984, the weather was fine until the next day when the vessel sank due to strong
waves. MICs witness, Gracelia Tapel, fully established the existence of two typhoons,
WELFRING and YOLING, inside the Philippine area of responsibility. In fact, on 20 November
1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also
testified that the convergence of winds brought about by these two typhoons strengthened wind
velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel to list
and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability,
such as what transpired in this case, is valid. Since the cargo was being shipped at owners risk,
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier,
and not to the insurer of the goods, which conclusion runs counter to the Supreme Courts ruling in
the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc.,[9] and National Union
Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been
instituted beyond the period stated in the bills of lading for instituting the same suits based upon
claims arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty
days from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case
for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of
the cargo was due toforce majeure, because the same concurred with LOADSTARs fault or
negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the
same must be deemed waived.
 Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR
was at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the
voyage notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public character is
not altered by the fact that the carriage of the goods in question was periodic, occasional, episodic
or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc.,[11] where this Court held that a common carrier transporting
special cargo or chartering the vessel to a special person becomes a private carrier that is not
subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the owner
from liability for loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at large is not involved, as
in the case of a ship totally chartered for the use of a single party. LOADSTAR also
cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals[12] and National Steel
Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason
that the factual settings are different. The records do not disclose that the M/V Cherokee, on the
date in question, undertook to carry a special cargo or was chartered to a special person only. There
was no charter party. The bills of lading failed to show any special arrangement, but only a general
provision to the effect that the M/V Cherokee was a general cargo carrier.[14] Further, the bare fact
that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a
common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of
Appeals,[15] the Court juxtaposed the statutory definition of common carriers with the peculiar
circumstances of that case, viz.:

The Civil Code defines common carriers in the following terms:

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

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on 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.

xxx

It appears to the Court that private respondent is properly characterized as a common

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

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

Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy
when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently
manned at the time. For a vessel to be seaworthy, it must be adequately equipped for the voyage
and manned with a sufficient number of competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code.[16]
Neither do we agree with LOADSTARs argument that the limited liability theory should be
applied in this case. The doctrine of limited liability does not apply where there was negligence on
the part of the vessel owner or agent.[17]LOADSTAR was at fault or negligent in not maintaining a
seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching
typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure,
inasmuch as the wind condition in the area where it sank was determined to be moderate. Since it
was remiss in the performance of its duties, LOADSTAR cannot hide behind the limited liability
doctrine to escape responsibility for the loss of the vessel and its cargo.
 LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the
goods, in utter disregard of this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v.
Macondray & Co., Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc.[19] It was
ruled in these two cases that after paying the claim of the insured for damages under the insurance
policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the
amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss
or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the
insurer as subrogee is necessarily subject to the same limitations and restrictions. We do not
agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carriers
liability to an amount fixed in the bill of lading which the parties may enter into, provided that the
same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in
the case at bar effectively reduces the common carriers liability for the loss or destruction of the
goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable
for any loss or damage to shipments made at owners risk. Such stipulation is obviously null and
void for being contrary to public policy.[20] It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of
freight. According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.[21]

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MICs cause of action had not yet prescribed at the time it was concerned. Inasmuch
as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during transit may be applied
suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the
good.[22] In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a
stipulation reducing the one-year period is null and void;[23] it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January
1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
SO ORDERED.
c.

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

VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner, vs. UCPB
GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins.
Co., Inc.) respondent.

DECISION
MENDOZA, J.:

This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2]of the Regional Trial Court, Makati City, Branch 148,
which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with
legal interest, representing the value of damaged cargo handled by petitioner, 25%
thereof as attorneys fees, and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,
Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this
case, petitioner entered into a contract with San Miguel Corporation (SMC) for the
transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board
from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound,
Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23
to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo
from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On
July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that
15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft
liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December
20, 1995, rendered judgment finding petitioner liable to respondent for the damage to
the shipment.
The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report (Exh.
F) with entries appearing therein, classified as TED and TSN, which the claims processor,
Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the
subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh.
H - H-4-A) confirms the fact of the damaged condition of the subject cargoes. The
surveyor[s] report (Exh. H-4-A) in particular, which provides among others that:

. . . we opine that damages sustained by shipment is attributable to improper handling in

transit presumably whilst in the custody of the broker . . . .

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable. Defendant by reason of the nature of [her] business should have devised
ways and means in order to prevent the damage to the cargoes which it is under obligation
to take custody of and to forthwith deliver to the consignee. Defendant did not present any
evidence on what precaution [she] performed to prevent [the] said incident, hence the
presumption is that the moment the defendant accepts the cargo [she] shall perform such
extraordinary diligence because of the nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have
been lost, destroyed or deteriorated, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they have observed the extraordinary
diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the carrier to prove that he has exercised the extraordinary diligence required by
law. Thus, it has been held that the mere proof of delivery of goods in good order to a
carrier, and of their arrival at the place of destination in bad order, makes out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the
carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was
due to accident or some other circumstances inconsistent with its liability. (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence the
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right
to receive the same.[3]

Accordingly, the trial court ordered petitioner to pay the following amounts

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyers fee;

3. Costs of suit.[4]

The decision was affirmed by the Court of Appeals on appeal. Hence this petition
for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE
OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]
It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of Appeals
held otherwise, then she is indeed not liable beyond what ordinary diligence in the
vigilance over the goods transported by her, would require.[6] Consequently, any damage
to the cargo she agrees to transport cannot be presumed to have been due to her fault or
negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs broker
and warehouseman, she does not indiscriminately hold her services out to the public
but only offers the same to select parties with whom she may contract in the conduct of
her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court
dismissed a similar contention and held the party to be a common carrier, thus

The Civil Code defines common carriers in the following terms:

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

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

x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. x x x [8]

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners
contention would be to deprive those with whom she contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary

diligence in the vigilance over goods was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to,
or destruction of the goods entrusted to it for sale, carriage and delivery. It requires
common carriers to render service with the greatest skill and foresight and to use all
reasonable means to ascertain the nature and characteristic of goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires.

In the case at bar, petitioner denies liability for the damage to the cargo. She claims
that the spoilage or wettage took place while the goods were in the custody of either the
carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the
arrastre operator, to whom the goods were unloaded and who allegedly kept them in
open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some
of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine
Survey Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino

testified that he has no personal knowledge on whether the container vans were first
stored in petitioners warehouse prior to their delivery to the consignee.She likewise
claims that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port Area where the cargo came
from. Thus, the damage to the cargo could not have taken place while these were in her
custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioners employees withdrew the cargo from the arrastre operator, they
did so without exception or protest either with regard to the condition of container vans
or their contents. The Survey Report pertinently reads

Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to
dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure
metal vans, covered by clean EIRs. Except for slight dents and paint scratches on side and
roof panels, these containers were deemed to have [been] received in good condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to
the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition
as the same were received by the former without exception, that is, without any report of
damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented,
the defendant-appellant would report it immediately to the consignee or make an
exception on the delivery receipt or note the same in the Warehouse Entry Slip
(WES). None of these took place. To put it simply, the defendant-appellant received the
shipment in good order and condition and delivered the same to the consignee
damaged.We can only conclude that the damages to the cargo occurred while it was in the
possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the
possession of the debtor (or obligor), it shall be presumed that the loss (or damage) was
due to his fault, unless there is proof to the contrary. No proof was proffered to rebut this
legal presumption and the presumption of negligence attached to a common carrier in case
of loss or damage to the goods.[13]

Anent petitioners insistence that the cargo could not have been damaged while in
her custody as she immediately delivered the containers to SMCs compound, suffice it
to say that to prove the exercise of extraordinary diligence, petitioner must do more than
merely show the possibility that some other party could be responsible for the
damage. It must prove that it used all reasonable means to ascertain the nature and
characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]. Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides
Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

....

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

....

For this provision to apply, the rule is that if the improper packing or, in this case,
the defect/s in the container, is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods in
this case or that she is exempt from liability, the presumption of negligence as provided
under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
SO ORDERED.
d.

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

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

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

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

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

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER

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

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

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

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

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

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

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO

BE. — Granting that the said evidence were not self-serving, the same were not sufficient to prove
that the contract was one of lease. It must be understood that a contract is what the law defines it to
be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

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

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

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

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul
the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE,
through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver
400 sacks of soya bean meal worth P156,404.00 from the Manila Port Area to Calamba, Laguna at
the rate of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a consequence of that
failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance with the
contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and
non-delivery or damages to the cargo during transport at market value, . . ." 3

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

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

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

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

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

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

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

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

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

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

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

3. The costs of the suit.

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

SO ORDERED." 6

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

Consequently, petitioner filed this petition where she makes the following assignment of errors; to
wit:
"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL
RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS AND NOT LEASE OF CARGO TRUCK.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

SO ORDERED.
 e.

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

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO

TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.

DECISION
VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994

thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven
by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South
Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan
City. While the truck was traversing the north diversion road along McArthur highway in
Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall
into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion
Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in
turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought
reimbursement of the amount it had paid to the latter from GPS.Since the trucking
company failed to heed the claim, FGU filed a complaint for damages and breach of
contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial
Court, Branch 66, of Makati City.In its answer, respondents asserted that GPS was the
exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so
engaged in business as a common carrier. Respondents further claimed that the cause
of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the
extent of damage to the cargoes and the amount it had paid to the assured. GPS, instead
of submitting its evidence, filed with leave of court a motion to dismiss the complaint by
way of demurrer to evidence on the ground that petitioner had failed to prove that it was
a common carrier.
The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining
thusly:

Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove
his own affirmative allegation, xxx.
In the instant case, plaintiff did not present any single evidence that would prove that
defendant is a common carrier.

xxxxxxxxx

Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss, damage
or deterioration of goods during transport under 1735 of the Civil Code is not availing.

Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff
was subrogated and the owner of the vehicle which transports the cargo are the laws on
obligation and contract of the Civil Code as well as the law on quasi delicts.

Under the law on obligation and contract, negligence or fault is not presumed. The law on
quasi delict provides for some presumption of negligence but only upon the attendance of
some circumstances. Thus, Article 2185 provides:

Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the mishap, he was violating any traffic
regulation.

Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.

Considering that plaintiff failed to adduce evidence that defendant is a common carrier and
defendants driver was the one negligent, defendant cannot be made liable for the damages
of the subject cargoes.[2]

The subsequent motion for reconsideration having been denied, [3] plaintiff interposed
an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding
that the appellee corporation was not a common carrier defined under the law and existing
jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The
appellate court, in its decision of 10 June 1999, [4] discoursed, among other things, that -

"x x x in order for the presumption of negligence provided for under the law governing
common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the
appellee is a common carrier. Should the appellant fail to prove that the appellee is a
common carrier, the presumption would not arise; consequently, the appellant would have
to prove that the carrier was negligent.

"x x x x x x x x x

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

"x x x x x x x x x

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

"x x x x x x x x x

"x x x the lower court correctly ruled that 'the application of the law on common carriers is
not warranted and the presumption of fault or negligence on the part of a common carrier
in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of
the Civil Code is not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of fact of a
trial court are entitled to great weight on appeal and should not be disturbed unless for
strong and valid reasons."[5]

Petitioner's motion for reconsideration was likewise denied;[6] hence, the instant
petition,[7] raising the following issues:
I

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED

UNDER THE LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER,

MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO
TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE
CUSTODY AND POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.

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

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

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT

OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as City
Treasurer of Batangas, respondents.

DECISION
MARTINEZ, J.:

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

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

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

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

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

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

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

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

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

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

1. That the exemption granted under Sec. 133 (j) encompasses only common
carriers so as not to overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special carrier extending
its services and facilities to a single specific or "special customer"
under a "special contract."

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

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

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

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

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

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

and over his established roads; and

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

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

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

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

'every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight
or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant,
canal, irrigation system gas, electric light heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services.' "(Underscoring Supplied)
 Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In fact,
in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

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

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

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

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

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

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

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following :

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

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

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

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

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

Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears
to be one of those being deemed to be exempted from the taxing powers of the local
government units. May we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?

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

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

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

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]

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

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?

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

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK
as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the
charter-party which reads:

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

National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the discharge.7

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

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

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

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

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
 their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).

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

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

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

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

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

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

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

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter
parties are of two types: (a) contract of affreightment which involves the use of shipping space on
vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for
the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage,
the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray
the expenses for the maintenance of the ship.

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

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

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

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

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

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

As a matter of principle, it is difficult to find a valid distinction between cases in which

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs against petitioner.

SO ORDERED.
h.
LOADSTAR SHIPPING CO., G.R. No. 157481
INC.,
Petitioner, Present:

Quisumbing, J.,
(Chairman),
- versus - Carpio,
Carpio Morales, and
Tinga, JJ.

PIONEER ASIA INSURANCE Promulgated:

CORP.,
Respondent. January 24, 2006

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

DECISION

QUISUMBING, J.:

For review on certiorari are (1) the Decision[1] dated October 15, 2002 and (2)
the Resolution[2]dated February 27, 2003, of the Court of Appeals in CA-G.R. CV
No. 40999, which affirmed with modification the Decision [3] dated February 15,
1993 of the Regional Trial Court of Manila, Branch 8 in Civil Case No. 86-37957.

The pertinent facts are as follows:

Petitioner Loadstar Shipping Co., Inc. (Loadstar for brevity) is the registered
owner and operator of the vessel M/V Weasel. It holds office at 1294 Romualdez St.,
Paco, Manila.

On June 6, 1984, Loadstar entered into a voyage-charter with Northern

Mindanao Transport Company, Inc. for the carriage of 65,000 bags of cement
from Iligan City to Manila. The shipper was Iligan Cement Corporation, while the
consignee in Manila was Market Developers, Inc.

On June 24, 1984, 67,500 bags of cement were loaded on board M/V
Weasel and stowed in the cargo holds for delivery to the consignee. The shipment
was covered by petitioners Bill of Lading[4]dated June 23, 1984.

Prior to the voyage, the consignee insured the shipment of cement with
respondent Pioneer Asia Insurance Corporation for P1,400,000, for which
respondent issued Marine Open Policy No. MOP-006 dated September 17, 1980,
covering all shipments made on or after September 30, 1980.[5]

At 12:50 in the afternoon of June 24, 1984, M/V

Weasel left Iligan City for Manila in good weather. However, at 4:31 in the morning
of June 25, 1984, Captain Vicente C. Montera, master of M/V Weasel, ordered the
vessel to be forced aground. Consequently, the entire shipment of cement was good
as gone due to exposure to sea water. Petitioner thus failed to deliver the goods to
the consignee in Manila.

The consignee demanded from petitioner full reimbursement of the cost of the
lost shipment. Petitioner, however, refused to reimburse the consignee despite
repeated demands.

Nonetheless, on March 11, 1985, respondent insurance company paid the

consignee P1,400,000 plus an additional amount of P500,000, the value of the lost
shipment of cement. In return, the consignee executed a Loss and Subrogation
Receipt in favor of respondent concerning the latters subrogation rights against
petitioner.
 Hence, on October 15, 1986, respondent filed a complaint docketed as Civil
Case No. 86-37957, against petitioner with the Regional Trial Court of Manila,
Branch 8. It alleged that: (1) the M/V Weaselwas not seaworthy at the
commencement of the voyage; (2) the weather and sea conditions then prevailing
were usual and expected for that time of the year and as such, was an ordinary peril
of the voyage for which the M/V Weasel should have been normally able to cope
with; and (3) petitioner was negligent in the selection and supervision of its agents
and employees then manning the M/V Weasel.

In its Answer, petitioner alleged that no fault nor negligence could be

attributed to it because it exercised due diligence to make the ship seaworthy, as well
as properly manned and equipped. Petitioner insisted that the failure to deliver the
subject cargo to the consignee was due to force majeure. Petitioner claimed it could
not be held liable for an act or omission not directly attributable to it.

On February 15, 1993, the RTC rendered a Decision in favor of respondent,

to wit:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of plaintiff and against defendant Loadstar Shipping Co.,
Inc. ordering the latter to pay as follows:

1. To pay plaintiff the sum of P1,900,000.00 with legal rate of

interest per annum from date of complaint until fully paid;

2. To pay the sum equal to 25% of the claim as and for attorneys
fees and litigation expenses; and,

3. To pay the costs of suit.

IT IS SO ORDERED.[6]

The RTC reasoned that petitioner, as a common carrier, bears the burden of
proving that it exercised extraordinary diligence in its vigilance over the goods it
transported. The trial court explained that in case of loss or destruction of the goods,
a statutory presumption arises that the common carrier was negligent unless it could
prove that it had observed extraordinary diligence.

Petitioners defense of force majeure was found bereft of factual basis. The
RTC called attention to the PAG-ASA report that at the time of the incident, tropical
storm Asiang had moved away from the Philippines. Further, records showed that
the sea and weather conditions in the area of Hinubaan, Negros Occidental from 8:00
p.m. of June 24, 1984 to 8:00 a.m. the next day were slight and smooth. Thus, the
trial court concluded that the cause of the loss was not tropical storm Asiang or any
other force majeure, but gross negligence of petitioner.

Petitioner appealed to the Court of Appeals.

In its Decision dated October 15, 2002, the Court of Appeals affirmed the
RTC Decision with modification that Loadstar shall only pay the sum of 10% of the
total claim for attorneys fees and litigation expenses. It ruled,
WHEREFORE, premises considered, the Decision dated February
15, 1993, of the Regional Trial Court of Manila, National Capital Judicial
Region, Branch 8, in Civil Case No. 86-37957 is hereby AFFIRMED with
the MODIFICATION that the appellant shall only pay the sum of 10% of
the total claim as and for attorneys fees and litigation expenses. Costs
against the appellant.

SO ORDERED.[7]

Petitioners Motion for Reconsideration was denied.[8]

The instant petition is anchored now on the following assignments of error:

I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT PETITIONER IS A COMMON CARRIER UNDER ARTICLE
1732 OF THE CIVIL CODE.
 II
ASSUMING ARGUENDO THAT PETITIONER IS A COMMON
CARRIER, THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PROXIMATE CAUSE OF THE LOSS OF
CARGO WAS NOT A FORTUITOUS EVENT BUT WAS
ALLEGEDLY DUE TO THE FAILURE OF PETITIONER TO
EXERCISE EXTRAORDINARY DILIGENCE.

III
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING
THE AWARD BY THE TRIAL COURT OF ATTORNEYS FEES AND
LITIGATION EXPENSES IN FAVOR OF HEREIN RESPONDENT.[9]

On the first and second issues, petitioner contends that at the time of the
voyage the carriers voyage-charter with the shipper converted it into a private
carrier. Thus, the presumption of negligence against common carriers could not
apply. Petitioner further avers that the stipulation in the voyage-charter holding it
free from liability is valid and binds the respondent. In any event, petitioner insists
that it had exercised extraordinary diligence and that the proximate cause of the loss
of the cargo was a fortuitous event.

With regard to the third issue, petitioner points out that the award of attorneys
fees and litigation expenses appeared only in the dispositive portion of the RTC
Decision with nary a justification. Petitioner maintains that the Court of Appeals
thus erred in affirming the award.

For its part, respondent dismisses as factual issues the inquiry on (1) whether
the loss of the cargo was due to force majeure or due to petitioners failure to exercise
extraordinary diligence; and (2) whether respondent is entitled to recover attorneys
fees and expenses of litigation.
 Respondent further counters that the Court of Appeals was correct when it
held that petitioner was a common carrier despite the charter of the whole vessel,
since the charter was limited to the ship only.

Prefatorily, we stress that the finding of fact by the trial court, when affirmed
by the Court of Appeals, is not reviewable by this Court in a petition for review on
certiorari. However, the conclusionsderived from such factual finding are not
necessarily pure issues of fact when they are inextricably intertwined with the
determination of a legal issue. In such instances, the conclusions made may be raised
in a petition for review before this Court.[10]

The threshold issues in this case are: (1) Given the circumstances of this case,
is petitioner a common or a private carrier? and (2) In either case, did petitioner
exercise the required diligence i.e., the extraordinary diligence of a common carrier
or the ordinary diligence of a private carrier?

Article 1732 of the Civil Code defines a common carrier as follows:

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.

Petitioner is a corporation engaged in the business of transporting cargo by water

and for compensation, offering its services indiscriminately to the public. Thus,
without doubt, it is a common carrier. However, petitioner entered into a voyage-
charter with the Northern Mindanao Transport Company, Inc. Now, had the voyage-
charter converted petitioner into a private carrier?

We think not. The voyage-charter agreement between petitioner and Northern

Mindanao Transport Company, Inc. did not in any way convert the common carrier
into a private carrier. We have already resolved this issue with finality in Planters
Products, Inc. v. Court of Appeals[11] where we ruled that:
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.[12]

Conformably, petitioner remains a common carrier notwithstanding the

existence of the charter agreement with the Northern Mindanao Transport Company,
Inc. since the said charter is limited to the ship only and does not involve both the
vessel and its crew. As elucidated in Planters Products, its charter is only a voyage-
charter, not a bareboat charter.

As a common carrier, petitioner is required to observe extraordinary diligence

in the vigilance over the goods it transports.[13] When the goods placed in its care are
lost, petitioner is presumed to have been at fault or to have acted negligently.
Petitioner therefore has the burden of proving that it observed extraordinary
diligence in order to avoid responsibility for the lost cargo.[14]

In Compania Maritima v. Court of Appeals,[15] we said:

it is incumbent upon the common carrier to prove that the loss,
deterioration or destruction was due to accident or some other
circumstances inconsistent with its liability.
...

The extraordinary diligence in the vigilance over the goods

tendered for shipment requires the common carrier to know and to follow
the required precaution for avoiding damage to, or destruction of the
goods entrusted to it for safe carriage and delivery. It requires common
 carriers to render service with the greatest skill and foresight and to use
all reasonable means to ascertain the nature and characteristics of goods
tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.[16]

Article 1734 enumerates the instances when a carrier might be exempt from
liability for the loss of the goods. These are:
(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.[17]

Petitioner claims that the loss of the goods was due to a fortuitous event under
paragraph 1. Yet, its claim is not substantiated. On the contrary, we find supported
by evidence on record the conclusion of the trial court and the Court of Appeals that
the loss of the entire shipment of cement was due to the gross negligence of
petitioner.

Records show that in the evening of June 24, 1984, the sea and weather
conditions in the vicinity of Negros Occidental were calm. The records reveal that
petitioner took a shortcut route, instead of the usual route, which exposed the voyage
to unexpected hazard. Petitioner has only itself to blame for its misjudgment.

Petitioner heavily relies on Home Insurance Co. v. American Steamship

Agencies, Inc.[18] and Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals.[19] The said cases involved a private carrier, not a common carrier.
Moreover, the issue in both cases is not the effect of a voyage-charter on a common
carrier, but the validity of a stipulation absolving the private carrier from liability in
case of loss of the cargo attributable to the negligence of the private carrier.

Lastly, on the third issue, we find consistent with law and prevailing
jurisprudence the Court of Appeals award of attorneys fees and expenses of litigation
equivalent to ten percent (10%) of the total claim. The contract between the parties
in this case contained a stipulation that in case of suit, attorneys fees and expenses
of litigation shall be limited to only ten percent (10%) of the total monetary award.
Given the circumstances of this case, we deem the said amount just and equitable.

WHEREFORE, the petition is DENIED. The assailed Decision

dated October 15, 2002 and the Resolution dated February 27, 2003, of the Court of
Appeals in CA-G.R. CV No. 40999, are AFFIRMED.

Costs against petitioner.

SO ORDERED.
i.

G.R. No. 98275 November 13, 1992

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI,
CARLOS OCAMPO, INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M.
AGAPITO and NICOLAS CRUZ, respondents.

MELO, J.:

The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred
involving petitioner's Isuzu ten-wheeler truck then driven by an employee of Lino Castro is the thrust
of the petition for review on certiorari now before Us considering that neither the driver nor Lino
Castro appears to be connected with petitioner.

On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in
this manner:

1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the
plaintiffs as follows:

a) To the plaintiff Carlos Ocampo — P121,650.00;

b) To the plaintiff Moises Ocampo — P298,500.00

c) To the plaintiff Nicolas Cruz — P154,740.00

d) To the plaintiff Inocencio Turla, Sr. — 48,000.00

2. Dismissing the case against Lino Castro

3. Dismissing the third-party complaint against STRONGHOLD

4. Dismissing all the counterclaim of the defendants and third-party defendants.

5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter
is adjudged to pay to the plaintiffs. (p. 46, Rollo)

Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with
Justices De Pano, Jr. and Imperial concurring, on practically the same grounds arrived at by the
court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the adverse were futile (p.
37, Rollo). Hence, the instant petition.

The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck,
was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt
of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to
property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the
Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as
much as the truck was registered in its name during the incident in question, following the doctrine
laid down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102
Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to reimburse
petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as
expressly stipulated in the contract of lease between petitioner and Rock Component Philippines,
Inc. Moreover, the trial court applied Article 2194 of the new Civil Code on solidary accountability of
join tortfeasors insofar as the liability of the driver, herein petitioner and Rock Component Philippines
was concerned (pp. 6-7, Decision; pp. 44-45, Rollo).

To the question of whether petitioner can be held responsible to the victim albeit the truck was
leased to Rock Component Philippines when the incident occurred, the appellate court answered in
the affirmative on the basis of the jurisprudential dogmas which, as aforesaid, were relied upon by
the trial court although respondent court was quick to add the caveat embodied in the lease
covenant between petitioner and Rock Component Philippines relative to the latter's duty to
reimburse any amount which may be adjudged against petitioner (pp. 32-33, Rollo).

Petitioner asseverates that it should not have been haled to court and ordered to respond for the
damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the
complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the
negligent driver who was under the control an supervision of Lino Castro at the time of the accident,
apart from the fact that the Isuzu truck was in the physical possession of Rock Component
Philippines by virtue of the lease agreement.

Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines,
petitioner continue to persist with the idea that the pronouncements of this Court in Duavit vs. Court
of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131 [1939]) dovetail with the
factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the so-
called hiatus on the basis for the award of damages as decreed by the lower and appellate courts,
that Article 2180 of the new Civil Code on vicarious liability will divest petitioner of any responsibility
absent as there is any employer-employee relationship between petitioner and the driver.

Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not
constitute a sufficient foundation for reversal of the impugned judgment of respondent court.
Petitioner is of the impression that the Perez and Erezo cases are inapplicable due to the variance of
the generative facts in said cases as against those obtaining in the controversy at bar. A contrario,
the lesson imparted by Justice Labrador in Erezo is still good law, thus:

. . . In previous decisions, We already have held that the registered owner of a

certificate of public convenience is liable to the public for the injuries or damages
suffered by passengers or third persons caused by the operation of said vehicle,
even though the same had been transferred to a third person. (Montoya vs. Ignacio,
94 Phil., 182 50 Off. Gaz., 108; Roque vs. Malibay Transit, Inc., G.R. No. L-8561,
November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10],
4606.) The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or
presumed that the registered owner is the actual owner thereof, for it would be
difficult with the public to enforce the actions that they may have for injuries caused
to them by the vehicles being negligently operated if the public should be required to
prove who actual the owner is. How would the public or third persons know against
whom to enforce their rights in case of subsequent transfer of the vehicles? We do
not imply by this doctrine, however, that the registered owner may not recover
whatever amount he had paid by virtue of his liability to third persons from the person
to whom he had actually sold, assigned or conveyed the vehicle.

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

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

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

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

One of the principle purposes of motor vehicles legislation is

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

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

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

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

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

If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had
been alienated or sold to another, there certainly can be no serious exception against utilizing the
same rationale to the antecedents of this case where the subject vehicle was merely leased by
petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle.
Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs.
Bayot (supra) is legally unpalatable for the purpose of the present discourse. The vehicles adverted
to in the two cases shared a common thread, so to speak, in that the jeep and the truck were driven
in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the
inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from
the garage of defendant Dauvit without the consent or authority of the latter, Justice Gutierrez, Jr.
in Duavit remarked;

. . . Herein petitioner does not deny ownership of the vehicle involved in the mishap
but completely denies having employed the driver Sabiniano or even having
authorized the latter to drive his jeep. The jeep was virtually stolen from the
petitioner's garage. To hold, therefore, the petitioner liable for the accident caused by
the negligence of Sabiniano who was neither his driver nor employee would be
absurd as it would be like holding liable the owner of a stolen vehicle for an accident
caused by the person who stole such vehicle. In this regard, we cannot ignore the
many cases of vehicles forcibly taken from their owners at gunpoint or stolen from
garages and parking areas and the instances of service station attendants or
mechanics of auto repair shops using, without the owner's consent, vehicles
entrusted to them for servicing or repair.(at p. 496.)

In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for
anything because of circumstances which indicated that the truck was driven without the consent or
knowledge of the owner thereof.

Consequently, there is no need for Us to discuss the matter of imputed negligence because
petitioner merely presumed, erroneously, however, that judgment was rendered against it on the
basis of such doctrine embodied under Article 2180 of the new Civil Code.

WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without
special pronouncement as to costs.

SO ORDERED.
B. Laws, applicable, Art. 1753, 1766, NCC
a.

G.R. No. 92501 March 6, 1992

PHILIPPINE AIR LINES, petitioner,

vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.

GRIÑO-AQUINO, J.:

This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals affirming the
decision of the Regional Trial Court of Pasay City which awarded P72,766.02 as damages and
attorney's fees to private respondent Isidro Co for the loss of his checked-in baggage as a
passenger of petitioner airline.

The findings of the trial court, which were adopted by the appellate court, are:

"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his wife and
son, arrived at the Manila International Airport aboard defendant airline's PAL Flight
No. 107 from San Francisco, California, U.S.A. Soon after his embarking (sic),
plaintiff proceeded to the baggage retrieval area to claim his checks in his
possession. Plaintiff found eight of his luggage, but despite diligent search, he failed
to locate ninth luggage, with claim check number 729113 which is the one in
question in this case.

"Plaintiff then immediately notified defendant company through its employee, Willy
Guevarra, who was then in charge of the PAL claim counter at the airport. Willy
Guevarra, who testified during the trial court on April 11, 1986, filled up the printed
form known as a Property Irregularity Report (Exh. "A"), acknowledging one of the
plaintiff's luggages to be missing (Exh. "A-1"), and signed after asking plaintiff himself
to sign the same document (Exh. "A-2"). In accordance with this procedure in cases
of this nature, Willy Guevarra asked plaintiff to surrender to him the nine claim
checks corresponding to the nine luggages, i.e., including the one that was missing.

The incontestable evidence further shows that plaintiff lost luggage was a Samsonite
suitcase measuring about 62 inches in length, worth about US$200.00 and
containing various personal effects purchased by plaintiff and his wife during their
stay in the United States and similar other items sent by their friends abroad to be
given as presents to relatives in the Philippines. Plaintiff's invoices evidencing their
purchases show their missing personal effects to be worth US$1,243.01, in addition
to the presents entrusted to them by their friends which plaintiffs testified to be worth
about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17"; tsn, p. 4, July 11, 1985;
pp. 5-14, March 7, 1986).

Plaintiff on several occasions unrelentingly called at defendant's office in order to

pursue his complaint about his missing luggage but no avail. Thus, on April 15, 1985,
plaintiff through his lawyer wrote a demand letter to defendant company though
Rebecca V. Santos, its manager, Central Baggage Services (Exhs. "B" & "B-1"). On
 April 17, 1985, Rebecca Santos replied to the demand letter (Exh. "B")
acknowledging "that to date we have been unable to locate your client's (plaintiff's)
baggage despite our careful search" and requesting plaintiff's counsel to "please
extend to him our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however, defendants
never found plaintiff's missing luggage or paid its corresponding value.
Consequently, on May 3, 1985, plaintiff filed his present complaint against said
defendants. (pp. 38-40, Rollo.)

Co sued the airline for damages. The Regional Trial Court of Pasay City found the defendant airline
(now petitioner) liable, and rendered judgment on June 3, 1986, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered sentencing defendant Philippine

Airlines, Inc. to pay plaintiff Isidro Co:

1) P42,766.02 by way of actual damages;

2) P20,000.00 by way of exemplary damages;

3) P10,000.00 as attorney's fees;

all in addition to the costs of the suit.

"Defendants' counterclaim is hereby dismissed for lack of merit."

(p. 40, Rollo.)

On appeal, the Court of Appeals affirmed in toto the trial court's award.

In his petition for review of the Court of Appeal's decision, petitioner alleges that the appellate court
erred:

1. in affirming the conclusion of the trial court that the petitioner's retrieval baggage
report was a fabrication;

2. in not applying the limit of liability under the Warsaw Convention which limits the
liability of an air carrier of loss, delay or damage to checked-in baggage to US$20.00
based on weight; and

3. in awarding private respondent Isidro Co actual and exemplary damages,

attorney's fees, and costs.

The first and third assignments of error raise purely factual issues which are not reviewable by this
Court (Sec. 2, Rule 45, Rules of Court). The Court reviews only questions of law which must be
distinctly set forth in the petition. (Hodges vs. People, 68 Phil. 178.) The probative value of
petitioner's retrieval report was passed upon by the Regional Trial Court of Pasay City, whose
finding was affirmed by the Court of Appeals as follows:

In this respect, it is further argued that appellee should produce his claim tag if he
had not surrendered it because there was no baggage received. It appeared,
 however, that appellee surrendered all the nine claim checks corresponding to the
nine luggages, including the one that was missing, to the PAL officer after
accomplishing the Property, Irregularity Report. Therefore, it could not be possible for
appellee to produce the same in court. It is now for appellant airlines to produce the
veracity of their Baggage Retrieval Report by corroborating evidence other than
testimonies of their employees. Such document is within the control of appellant and
necessarily requires other corroborative evidence. Since there is no compelling
reason to reverse the factual findings of the lower court, this Court resolves not to
disturb the same. (p. 41, Rollo.)

Whether or not the lost luggage was ever retrieved by the passenger, and whether or not the actual
and exemplary damages awarded by the court to him are reasonable, are factual issues which we
may not pass upon in the absence of special circumstances requiring a review of the evidence.

In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC 164 SCRA
268), the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of
baggage without any improper conduct on the part of the officials or employees of the airline, or
other special injury sustained by the passengers. The petitioner therein did not declare a higher
value for his luggage, much less did he pay an additional transportation charge.

Petitioner contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00
based on weight as private respondent Co did not declare the contents of his baggage nor pay
traditional charges before the flight (p. 3, tsn, July 18, 1985).

We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132
SCRA 529), this Court ruled:

The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the
New Civil Code. In all matters not regulated by said Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by Special
Laws.

The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which
provide:

Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Art. 1735. In all cases other than those mentioned in Nos. 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.

Art. 1753. 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 passenger's destination in this case was the Philippines, Philippine law governs the liability
of the carrier for the loss of the passenger's luggage.
In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the
private respondent's evidence, proving that the carrier's negligence was the proximate cause of the
loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail itself
out of having to pay Co's claim.

The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw
Convention.

The award of exemplary damages and attorney's fees to the private respondent was justified. In the
cases of Imperial Insurance, Inc. vs. Simon, 122 Phil. 189 and Bert Osmeña and Associates vs.
CA, 120 SCRA 396, the appellant was awarded attorney's fees because of appellee's failure to
satisfy the former's just and valid demandable claim which forced the appellant to litigate. Likewise,
in the case of Phil. Surety Ins. Co., Inc. vs. Royal Oil Products, 102 Phil. 326, this Court justified the
grant of exemplary damages and attorney's fees to the petitioner's failure, even refusal, to pay the
private respondent's valid claim.

WHEREFORE, the petition for review is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.
b.

G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents-appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents- appellees.

Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development Insurance and
Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants,"
affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National

Development Company and Maritime Company of the Philippines, to pay jointly and
severally, to the plaintiff Development Insurance and Surety Corp., the sum of
THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN
PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon
from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN
THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the

defendant National Development Company, judgment is hereby rendered, ordering
the National Development Company to pay the cross-claimant Maritime Company of
the Philippines the total amount that the Maritime Company of the Philippines may
voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the
judgment rendered in this case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement

entered into between defendants NDC and MCP on September 13, 1962, defendant
NDC as the first preferred mortgagee of three ocean going vessels including one with
the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate
 said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964
the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at
San Francisco, California, a total of 1,200 bales of American raw cotton consigned to
the order of Manila Banking Corporation, Manila and the People's Bank and Trust
Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who
represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also
loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui,
Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En
route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15,
1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of
which 550 bales of aforesaid cargo of American raw cotton were lost and/or
destroyed, of which 535 bales as damaged were landed and sold on the authority of
the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of
the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A,
K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of
Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation,
Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff
as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1
and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to
the consignees or their successors-in-interest, for the said lost or damaged cargoes.
Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC
and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo,
L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of
First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of
P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action
has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC
filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal,
pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after
the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with
counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-
24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40).
However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record
for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated
August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it
executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on
Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965,
but the trial court denied it in its order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court
rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the
sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on
April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial
court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970
after its motion to set aside the decision was denied by the trial court in its order dated February
13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision
of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On
August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for
decision on February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE
AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE
CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF
CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE
YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR

REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING
THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF
ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF
ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES
IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.

III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE
COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT
OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE
FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA
MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA
NATI

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP
AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE
WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE
COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR

DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE
CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE
AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O
OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO
GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD
OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS
COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE
COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability
as well as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should
apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of
said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or
default of the master, mariner, pilot or the servants of the carrier in the navigation or in the
management of the ship." Thus, NDC insists that based on the findings of the trial court which were
adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC
would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of
the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the
insurance company for the amount the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50
SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to
which the goods are to be transported governs the liability of the common carrier in case of their
loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down
that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code).
Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.

In the case at bar, it has been established that the goods in question are transported from San
Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision
which was found to have been caused by the negligence or fault of both captains of the colliding
vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is
immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them according to all circumstances of each
case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article
1734 thereof, the common carrier shall be presumed to have been at fault or to have acted
negigently, unless it proves that it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so
that no reversible error can be found in respondent courses application to the case at bar of Articles
826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to
the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages
incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same
Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own
damages and both shall be solidarily responsible for the losses and damages suffered by their
cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of
the universally accepted doctrine that the shipmaster or captain is merely the representative of the
owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng
Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only
to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act
(Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain
terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall
be construed as repealing any existing provision of the Code of Commerce which is now in force, or
as limiting its application." By such incorporation, it is obvious that said law not only recognizes the
existence of the Code of Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and
Surety Corporation, has no cause of action against it because the latter did not prove that its alleged
subrogers have either the ownership or special property right or beneficial interest in the cargo in
question; neither was it proved that the bills of lading were transferred or assigned to the alleged
subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee
in this case. (Brief for the Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the
duly endorsed bills of lading covering the shipments in question and an examination of the invoices
in particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said
consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a
cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No.
46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the manager
and operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to
MCP, it can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September
13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to
include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers
of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA
G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape
liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in
case of collision, both the owner and the agent are civilly responsible for the acts of the captain
(Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of
Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is
true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in
Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of
jurisprudence under the Civil Code but more specially as regards contractual obligations in Article
586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero)
should be declared jointly and severally liable, since the obligation which is the subject of the action
had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v.
Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the
vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages
occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to
the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking
et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP
argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading
and corroborated no less by invoices offered as evidence ' during the trial. Besides, common
carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927])
"cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own
negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and
the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the
Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of
Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be
discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the
factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at
fault for not changing their excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow
trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on
April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might
not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo,
resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was
supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13
and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on
the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22,
1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should
have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea
Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.
c.

G.R. No. 94149 May 5, 1992

AMERICAN HOME ASSURANCE, COMPANY, petitioner,

vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL
MARINE CORPORATION (Manila), respondents.

PARAS, J.:

This is a petition for review on certiorari which seeks to annul and set aside the (a) decision 1 dated
May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled "American Home
Assurance Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila, Branch
41 and National Marine Corporation and/or National Marine Corporation (Manila)", dismissing
petitioner's petition for certiorari, and (b) resolution 2 dated June 29, 1990 of the Court of Appeals
denying petitioner's motion for reconsideration.

The undisputed facts of the case are follows:

Both petitioner American Home Assurance Co. and the respondent National Marine Corporation are
foreign corporations licensed to do business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter through its branch. The
National Marine Corporation (Manila) (Rollo, p. 20, Annex L, p.1).

That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of
bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by
herein respondent National Marine Corporation with Registration No. PID-224. The said shipment
was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner
American Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.

On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the Marina
Port Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the
shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The
loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41.

Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).

As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper, Inc.
sought recovery from the former. Upon demand and submission of proper documentation, American
Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the recovery
of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by filing a
complaint for recovery of sum of money (Petition, p. 4).
Respondent, National Marine Corporation, filed a motion to dismiss dated August 7, 1989 stating
that American Home Assurance Company had no cause of action based on Article 848 of the Code
of Commerce which provides "that claims for averages shall not be admitted if they do not exceed
5% of the interest which the claimant may have in the vessel or in the cargo if it be gross average
and 1% of the goods damaged if particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary." It contended that based on the allegations
of the complaint, the loss sustained in the case was P35,506.75 which is only .18% of
P17,420,000.00, the total value of the cargo.

On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and
that a particular average presupposes that the loss or damages is due to an inherent defect of the
goods, an accident of the sea, or a force majeure or the negligence of the crew of the carrier, while
claims for damages due to the negligence of the common carrier are governed by the Civil Code
provisions on Common Carriers.

In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:

Before the Court for resolution is a motion for reconsideration filed by defendant
through counsel dated October 6, 1989.

The record shows that last August 8, 1989, defendant through counsel filed a motion
to dismiss plaintiff's complaint.

Resolving the said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now under
consideration, defendant prays for the reconsideration of the order of September 18,
1989 and in lieu thereof, another order be entered dismissing plaintiff's complaint.

There appears to be good reasons for the court to take a second look at the issues
raised by the defendant.

xxx xxx xxx

It is not disputed defendants that the loss suffered by the shipment is only .18% or
less that 1% of the interest of the consignee on the cargo Invoking the provision of
the Article 848 of the Code of Commerce which reads:

Claims for average shall not be admitted if they do not exceed five
percent of the interest which the claimant may have in the vessels or
cargo if it is gross average, and one percent of the goods damaged if
particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary. (Emphasis
supplied)

defendant claims that plaintiff is barred from suing for recovery.

Decisive in this case in whether the loss suffered by the cargo in question is a
"particular average."
 Particular average, is a loss happening to the ship, freight, or cargo
which is not be (sic) shared by contributing among all those
interested, but must be borne by the owner of the subject to which it
occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172, citing
Bargett v. Insurance Co. 3 Bosw. [N.Y.] 395).

as distinguished from general average which

is a contribution by the several interests engaged in the maritime

venture to make good the loss of one of them for the voluntary
sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary
expenses necessarily incurred for the common benefit and safety of
all (Ibid., citing California Canneries Co. v. Canton Ins. Office 25 Cal.
App. 303, 143 p. 549-553).

From the foregoing definition, it is clear that the damage on the cargo in question, is
in the nature of the "particular average." Since the loss is less than 1% to the value of
the cargo and there appears to be no allegations as to any agreement defendants
and the consignee of the goods to the contrary, by express provision of the law,
plaintiff is barred from suing for recovery.

WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action.

(Rollo, p. 27; Annex A, pp. 3-4).

The petitioner then filed a motion for reconsideration of the order of dismissal but same was denied
by the court in its order dated January 26, 1990 (supra).

Instead of filing an appeal from the order of the court a quo dismissing the complaint for recovery of
a sum of money, American Home Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders or respondent judge in said court (Rollo, p. 25).

But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as constituting
plain errors of law and not grave abuse of discretion correctible by certiorari (a Special Civil Action).
If at all, respondent court ruled that there are errors of judgment subject to correction by certiorari as
a mode of appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary Act of
1948 as amended by Republic Act No. 5440. Otherwise stated, respondent Court opined that the
proper remedy is a petition for review on certiorari with the Supreme Court on pure questions of law
(Rollo, p. 30).

Hence, this petition.

In a resolution dated December 10, 1990, this Court gave due course to the petition and required
both parties to file their respective memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari was the proper remedy in the case
before the Court of Appeals.

The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of
Rule 41, Section 2 of the Rules of Court, subject petition raised questions which if at all, constituting
grave abuse of discretion correctible by certiorari.

Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as ruled by this
Court, an order of dismissal whether right or wrong is a final order, hence, a proper subject of
appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact remains
that respondent Court of Appeals obviously in the broader interests of justice, nevertheless
proceeded to decide the petition for certiorari and ruled on specific points raised therein in a manner
akin to what would have been done on assignments of error in a regular appeal, the petition therein
was therefore disposed of on the merits and not on a dismissal due to erroneous choice of remedies
or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence, a review of the decision of the Court
of Appeals on the merits against the petitioner in this case is in order.

On the main controversy, the pivotal issue to be resolved is the application of the law on averages
(Articles 806, 809 and 848 of the Code of Commerce).

Petitioner avers that respondent court failed to consider that respondent National Marine Corporation
being a common carrier, in conducting its business is regulated by the Civil Code primarily and
suppletorily by the Code of Commerce; and that respondent court refused to consider the Bill of
Lading as the law governing the parties.

Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws
as provided for in Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of
Commerce should be applied suppletorily as they provide for the extent of the common carriers'
liability.

This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593
[1988]; citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held
that "the law of the country to which the goods are to be transported persons the liability of the
common carrier in case of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus,
for cargoes transported to the Philippines as in the case at bar, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil
Code).

Corollary thereto, the Court held further that under Article 1733 of the Civil Code, common carriers
from the nature of their business and for reasons of public policy are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of passengers transported by them
according to all circumstances of each case. Thus, under Article 1735 of the same Code, in all cases
other than those mentioned in Article 1734 thereof, the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
diligence required by law (Ibid., p. 595).

But more importantly, the Court ruled that common carriers cannot limit their liability for injury or loss
of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where there is
negligence (Ibid., p. 606).

Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is but
reasonable to conclude that the issue of negligence must first be addressed before the proper
provisions of the Code of Commerce on the extent of liability may be applied.

The records show that upon delivery of the shipment in question of Mayleen's warehouse in Manila,
122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called
"percentage method" at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68). Instead of
presenting proof of the exercise of extraordinary diligence as required by law, National Marine
Corporation (NMC) filed its Motion to Dismiss dated August 7, 1989, hypothetically admitting the
truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was
due to the negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the filing of a motion to
dismiss on the ground of lack of cause of action carries with it the admission of the material facts
pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such
being the case, it is evident that the Code of Commerce provisions on averages cannot apply.

On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for
loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein.
It is obvious that the case at bar does not fall under any of the exceptions. Thus, American Home
Assurance Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.

Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the findings and
conclusions of the court a quo are not supported by law and jurisprudence.

PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional Trial
Court of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent National
Marine Corporation is hereby ordered to reimburse the subrogee, petitioner American Home
Assurance Company, the amount of P31,506.75.

SO ORDERED.
C. State Regulations of Common Carriers

[G.R. No. 119528. March 26, 1997]

PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS

BOARD and GRAND INTERNATIONAL AIRWAYS,
INC., respondents.

DECISION
TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the
Rules of Court seeks to prohibit respondent Civil Aeronautics Board from
exercising jurisdiction over private respondent's Application for the issuance of
a Certificate of Public Convenience and Necessity, and to annul and set aside
a temporary operating permit issued by the Civil Aeronautics Board in favor of
Grand International Airways (GrandAir, for brevity) allowing the same to engage
in scheduled domestic air transportation services, particularly the Manila-Cebu,
Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative
franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the
issuance of a Certificate of Public Convenience or Necessity by the respondent
Board, as mandated under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise
is no longer a requirement for the issuance of a Certificate of Public
Convenience and Necessity or a Temporary Operating Permit, following the
Court's pronouncements in the case of Albano vs. Reyes, as restated by the
[1]

Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board and
[2]

Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil
Aeronautics Board. [3]

On November 24, 1994, private respondent GrandAir applied for a

Certificate of Public Convenience and Necessity with the Board, which
application was docketed as CAB Case No. EP-12711. Accordingly, the Chief
[4]

Hearing Officer of the CAB issued a Notice of Hearing setting the application
for initial hearing on December 16, 1994, and directing GrandAir to serve a copy
of the application and corresponding notice to all scheduled Philippine Domestic
operators. On December 14, 1994, GrandAir filed its Compliance, and
requested for the issuance of a Temporary Operating Permit. Petitioner, itself
the holder of a legislative franchise to operate air transport services, filed an
Opposition to the application for a Certificate of Public Convenience and
Necessity on December 16, 1995 on the following grounds:

"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first
obtained a franchise to operate from Congress.

B. The petitioner's application is deficient in form and substance in that:

1. The application does not indicate a route structure including a computation of trunkline,
secondary and rural available seat kilometers (ASK) which shall always be maintained at a
monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of
operations for rural and secondary, respectively.

2. It does not contain a project/feasibility study, projected profit and loss statements,
projected balance sheet, insurance coverage, list of personnel, list of spare parts inventory,
tariff structure, documents supportive of financial capacity, route flight schedule, contracts
on facilities (hangars, maintenance, lot) etc.

C. Approval of petitioner's application would violate the equal protection clause of the
constitution.

D. There is no urgent need and demand for the services applied for.

E. To grant petitioner's application would only result in ruinous competition contrary to

Section 4(d) of R.A. 776."[5]

At the initial hearing for the application, petitioner raised the issue of lack of
jurisdiction of the Board to hear the application because GrandAir did not
possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order
denying petitioner's Opposition. Pertinent portions of the Order read:

"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the
latter has first obtained a franchise to operate from Congress.

The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia
Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A.
776, the Board possesses this specific power and duty.

In view thereof, the opposition of PAL on this ground is hereby denied.

SO ORDERED."

Meantime, on December 22, 1994, petitioner this time, opposed private

respondent's application for a temporary permit maintaining that:

"1. The applicant does not possess the required fitness and capability of operating the
services applied for under RA 776; and,

2. Applicant has failed to prove that there is clear and urgent public need for the services
applied for."[6]

On December 23, 1994, the Board promulgated Resolution No. 119(92)

approving the issuance of a Temporary Operating Permit in favor of Grand
Air for a period of three months, i.e., from December 22, 1994 to March 22,
[7]

1994. Petitioner moved for the reconsideration of the issuance of the Temporary
Operating Permit on January 11, 1995, but the same was denied in CAB
Resolution No. 02 (95) on February 2, 1995. In the said Resolution, the Board
[8]

justified its assumption of jurisdiction over GrandAir's application.

"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No.
776 as follows:

'(c) The Board shall have the following specific powers and duties:

(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise,
alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or
upon its own initiative, any temporary operating permit or Certificate of Public
Convenience and Necessity; Provided, however; that in the case of foreign air carriers, the
permit shall be issued with the approval of the President of the Republic of the
Philippines."

WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the
Supreme Court held that the CAB can even on its own initiative, grant a TOP even before
the presentation of evidence;

WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on
October 30, 1991, held that in accordance with its mandate, the CAB can issue not only a
TOP but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified
applicant therefor in the absence of a legislative franchise, citing therein as basis the
decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:

a) Franchises by Congress are not required before each and every public utility may
operate when the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility does not
necessarily imply that only Congress has the power to grant such authorization since our
statute books are replete with laws granting specified agencies in the Executive Branch the
power to issue such authorization for certain classes of public utilities.

WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in
Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged
and that routes/links presently serviced by only one (1) operator shall be open for entry to
additional operators.

RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines
on January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to
Grand International Airways, Inc. alleging among others that the CAB has no such
jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing and
considering that the grounds relied upon by the movant are not indubitable."

On March 21, 1995, upon motion by private respondent, the temporary

permit was extended for a period of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of GrandAirs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since GrandAir has not been granted and
does not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage
in air transport services, and a franchise may only be granted by Congress. This
is the meaning given by the petitioner upon a reading of Section 11, Article
XII, and Section 1, Article VI, of the Constitution.
[9] [10]

To support its theory, PAL submits Opinion No. 163, S. 1989 of the
Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:

This has reference to your request for opinion on the necessity of a legislative franchise
before the Civil Aeronautics Board (CAB) may issue a Certificate of Public Convenience and
Necessity and/or permit to engage in air commerce or air transportation to an individual
or entity.
You state that during the hearing on the application of Cebu Air for a congressional
franchise, the House Committee on Corporations and Franchises contended that under the
present Constitution, the CAB may not issue the abovestated certificate or permit, unless
the individual or entity concerned possesses a legislative franchise. You believe otherwise,
however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly
empowered to issue operating permits or certificates of public convenience and necessity
and that this statutory provision is not inconsistent with the current charter.

We concur with the view expressed by the House Committee on Corporations and
Franchises. In an opinion rendered in favor of your predecessor-in-office, this
Department observed that,-

xxx it is useful to note the distinction between the franchise to operate

and a permit to commence operation. The former is sovereign and
legislative in nature; it can be conferred only by the lawmaking
authority (17 W and P, pp. 691-697). The latter is administrative and
regulatory in character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an administrative agency,
such as the Public Service Commission [now Board of Transportation], in
the case of land transportation, and the Civil Aeronautics Board, in case of
air services. While a legislative franchise is a pre-requisite to a grant of a
certificate of public convenience and necessity to an airline company,
such franchise alone cannot constitute the authority to commence
operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates,
schedules and routes, and which matters are resolved in the process of
issuance of permit by the administrative. (Secretary of Justice opn No. 45,
s. 1981)

Indeed, authorities are agreed that a certificate of public convenience and necessity is an
authorization issued by the appropriate governmental agency for the operation of public
services for which a franchise is required by law (Almario, Transportation and Public
Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp.
380-381).

Based on the foregoing, it is clear that a franchise is the legislative authorization to engage
in a business activity or enterprise of a public nature, whereas a certificate of public
convenience and necessity is a regulatory measure which constitutes the franchises
authority to commence operations. It is thus logical that the grant of the former should
precedethe latter.

Please be guided accordingly.

(SGD.) SEDFREY A. ORDOEZ

Secretary of Justice"
 Respondent GrandAir, on the other hand, relies on its interpretation of the
provisions of Republic Act 776, which follows the pronouncements of the Court
of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and
Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics
Board can issue the Certificate of Public Convenience and Necessity or
Temporary Operating Permit to a prospective domestic air transport operator
who does not possess a legislative franchise to operate as such. Relying on the
Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals
upheld the authority of the Board to issue such authority, even in the absence
of a legislative franchise, which authority is derived from Section 10 of Republic
Act 776, as amended by P.D. 1462. [11]

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for
a Temporary Operating Permit. This rule has been established in the case of
Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13,
1968. The Board is expressly authorized by Republic Act 776 to issue a
[12]

temporary operating permit or Certificate of Public Convenience and Necessity,

and nothing contained in the said law negates the power to issue said permit
before the completion of the applicant's evidence and that of the oppositor
thereto on the main petition. Indeed, the CAB's authority to grant a temporary
permit "upon its own initiative" strongly suggests the power to exercise said
authority, even before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the issuance
of a permit, the absence of the same does not affect the jurisdiction of the Board
to hear the application, but tolls only upon the ultimate issuance of the
requested permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.

"The franchise is a legislative grant, whether made directly by the legislature itself, or by
any one of its properly constituted instrumentalities. The grant, when made, binds the
public, and is, directly or indirectly, the act of the state."[13]

The issue in this petition is whether or not Congress, in enacting Republic

Act 776, has delegated the authority to authorize the operation of domestic air
transport services to the respondent Board, such that Congressional mandate
for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws,
there is a constantly growing tendency towards the delegation of greater powers
by the legislature, and towards the approval of the practice by the courts. It is
[14]

generally recognized that a franchise may be derived indirectly from the state
through a duly designated agency, and to this extent, the power to grant
franchises has frequently been delegated, even to agencies other than those of
a legislative nature. In pursuance of this, it has been held that privileges
[15]

conferred by grant by local authorities as agents for the state constitute as much
a legislative franchise as though the grant had been made by an act of the
Legislature. [16]

The trend of modern legislation is to vest the Public Service Commissioner

with the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not interfere
with the exercise of that discretion when it is just and reasonable and founded
upon a legal right. [17]

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus,
a reading of the pertinent issuances governing the Philippine Ports
Authority, proves that the PPA is empowered to undertake by itself the
[18]

operation and management of the Manila International Container Terminal, or

to authorize its operation and management by another by contract or other
means, at its option. The latter power having been delegated to the PPA, a
franchise from Congress to authorize an entity other than the PPA to operate
and manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has
the authority to issue a Certificate of Public Convenience and Necessity, or
Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements
prescribed by the law. Such requirements were enumerated in Section 21 of
R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to operate as
a domestic air transport operator. Although Section 11 of Article XII recognizes
Congress' control over any franchise, certificate or authority to operate a public
utility, it does not mean Congress has exclusive authority to issue the same.
Franchises issued by Congress are not required before each and every public
utility may operate. In many instances, Congress has seen it fit to delegate
[19]

this function to government agencies, specialized particularly in their respective

areas of public service.
 A reading of Section 10 of the same reveals the clear intent of Congress to
delegate the authority to regulate the issuance of a license to operate domestic
air transport services:

SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the
Board shall have the power to regulate the economic aspect of air transportation, and shall
have general supervision and regulation of, the jurisdiction and control over air carriers,
general sales agents, cargo sales agents, and air freight forwarders as well as their property
rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of
carrying out the provision of this Act.

In support of the Board's authority as stated above, it is given the following

specific powers and duties:

(C) The Board shall have the following specific powers and duties:

(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend,
revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or
complaint or upon its own initiative any Temporary Operating Permit or Certificate of
Public Convenience and Necessity: Provided however, That in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of the
Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue
"Certificates of Public Convenience and Necessity", this, according to petitioner,
means that a legislative franchise is an absolute requirement. It cites a number
of authorities supporting the view that a Certificate of Public Convenience and
Necessity is issued to a public service for which a franchise is required by law,
as distinguished from a "Certificate of Public Convenience" which is an
authorization issued for the operation of public services for which no franchise,
either municipal or legislative, is required by law. [20]

This submission relies on the premise that the authority to issue a certificate
of public convenience and necessity is a regulatory measure separate and
distinct from the authority to grant a franchise for the operation of the public
utility subject of this particular case, which is exclusively lodged by petitioner in
Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience
which courts and legal writers have drafted. Some statutes use the terms
"convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together. Both
words modify each other and must be construed together. The word 'necessity'
is so connected, not as an additional requirement but to modify and qualify what
might otherwise be taken as the strict significance of the word necessity. Public
convenience and necessity exists when the proposed facility will meet a
reasonable want of the public and supply a need which the existing facilities do
not adequately afford. It does not mean or require an actual physical necessity
or an indispensable thing. [21]

"The terms 'convenience' and 'necessity' are to be construed together, although they are
not synonymous, and effect must be given both. The convenience of the public must not be
circumscribed by according to the word 'necessity' its strict meaning or an essential
requisites."[22]

The use of the word "necessity", in conjunction with "public convenience" in

a certificate of authorization to a public service entity to operate, does not in any
way modify the nature of such certification, or the requirements for the issuance
of the same. It is the law which determines the requisites for the issuance of
such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for
the operation of domestic transport services, has delegated to the said body the
authority to determine the capability and competence of a prospective domestic
air transport operator to engage in such venture. This is not an instance of
transforming the respondent Board into a mini-legislative body, with unbridled
authority to choose who should be given authority to operate domestic air
transport services.

"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a
"roving commission" that will give the delegate unlimited legislative authority. It must not
be a delegation "running riot" and "not canalized with banks that keep it from overflowing."
Otherwise, the delegation is in legal effect an abdication of legislative authority, a total
surrender by the legislature of its prerogatives in favor of the delegate."[23]

Congress, in this instance, has set specific limitations on how such authority
should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following
guidelines or policies:

"SECTION 4. Declaration of policies. In the exercise and performance of its powers and
duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator
shall consider the following, among other things, as being in the public interest, and in
accordance with the public convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;

(b) The encouragement and development of an air transportation system properly adapted
to the present and future of foreign and domestic commerce of the Philippines, of the Postal
Service and of the National Defense;

(c) The regulation of air transportation in such manner as to recognize and preserve the
inherent advantages of, assure the highest degree of safety in, and foster sound economic
condition in, such transportation, and to improve the relations between, and coordinate
transportation by, air carriers;

(d) The promotion of adequate, economical and efficient service by air carriers at
reasonable charges, without unjust discriminations, undue preferences or advantages, or
unfair or destructive competitive practices;

(e) Competition between air carriers to the extent necessary to assure the sound
development of an air transportation system properly adapted to the need of the foreign
and domestic commerce of the Philippines, of the Postal Service, and of the National
Defense;

(f) To promote safety of flight in air commerce in the Philippines; and,

(g) The encouragement and development of civil aeronautics.

More importantly, the said law has enumerated the requirements to

determine the competency of a prospective operator to engage in the public
service of air transportation.

SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution

and existing treaty or treaties, a permit authorizing a person to engage in domestic air
commerce and/or air transportation shall be issued only to citizens of the Philippines.[24]

SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or
any part of the service covered by the application, if it finds: (1) that the applicant is fit,
willing and able to perform such service properly in conformity with the provisions of this
Act and the rules, regulations, and requirements issued thereunder; and (2) that such
service is required by the public convenience and necessity; otherwise the application shall
be denied.

Furthermore, the procedure for the processing of the application of a

Certificate of Public Convenience and Necessity had been established to
ensure the weeding out of those entities that are not deserving of public
service. [25]
 In sum, respondent Board should now be allowed to continue hearing the
application of GrandAir for the issuance of a Certificate of Public Convenience
and Necessity, there being no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court
RESOLVED to DISMISS the instant petition for lack of merit. The respondent
Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance of
a Certificate of Public Convenience and Necessity.
SO ORDERED.
D. Natural and Basis of liability, Article 1733, NCC
[G.R. No. L-46558 : July 31, 1981.]
PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT OF APPEALS and JESUS V.
SAMSON, Respondents.

DECISION

GUERRERO, J.:

This is a petition for review on Certiorari of the decision of the Court of Appeals 1 dated April
18, 1977, affirming with modification the decision of the Court of First Instance of Albay in
Civil Case No. 1279, entitled “Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc.,
defendant,” for damages.
The dispositive portion of the trial court’s decision reads:
“WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of
the plaintiff and against the defendant ordering the defendant to pay the plaintiff, the
following sums: P1988,000.00 as unearned income or damages; P50,000.00 for moral
damages; P20,000.00 as attorney’s fees and P5,000.00 as expenses of litigation, or a total of
P273,000.00. Costs against the defendant.”
The appellate court modified the above decision, to wit:
“However, Plaintiff-Appellee, who has been deprived of his job since 1954, is entitled
to the legal rate of interest on the P198,000.00 unearned income from the filing of the
complaint (Sec. 8, Rule 51, Rules of Court).
cranad

WHEREFORE, with the modification indicated above, the judgment appealed from is
affirmed, with costs against defendant-appellant.”
The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein,
averred that on January 8, 1951, he flew as co-pilot on a regular flight from Manila to Legaspi
with stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin Bustamante
as commanding pilot of a C-47 plane belonging to defendant Philippine Air Lines, Inc., now
the herein petitioner; that on attempting to land the plane at Daet airport, Captain Delfin
Bustamante due to his very slow reaction and poor judgment overshot the airfield and as a
result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert an accident, the
airplane crashlanded beyond the runway; that the jolt caused the head of the plaintiff to hit
and break through the thick front windshield of the airplane causing him severe brain
concussion, wounds and abrasions on the forehead with intense pain and suffering (par. 6, crana d

complaint). :onad

The complaint further alleged that instead of giving plaintiff expert and proper medical
treatment called for by the nature and severity of his injuries, defendant simply referred him
to a company physician, a general medical practitioner, who limited the treatment to the
exterior injuries without examining the severe brain concussion of plaintiff (par. 7, cranad

complaint); that several days after the accident, defendant Philippine Air Lines called back
the plaintiff to active duty as co-pilot, and inspite of the latter’s repeated request for expert
medical assistance, defendant had not given him any (par. 8, complaint); that as a
crana d

consequence of the brain injury sustained by plaintiff from the crash, he had been having
periodic dizzy spells and had been suffering from general debility and nervousness (par. 9, cra nad
complaint); that defendant airline company instead of submitting the plaintiff to expert
medical treatment, discharged the latter from its employ on December 21, 1953 on grounds
of physical disability, thereby causing plaintiff not only to lose his job but to become physically
unfit to continue as aviator due to defendant’s negligence in not giving him the proper medical
attention (pars. 10-11, complaint). Plaintiff prayed for damages in the amount of
cranad

P180,000.00 representing his unearned income, P50,000.00 as moral damages, P20,000.00

as attorney’s fees and P5,000.00 as expenses, or a total of P255,000.00.
In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the
complaint, alleging among others, that the accident was due solely and exclusively to
inevitable unforeseen circumstances whereby plaintiff sustained only superficial wounds and
minor injuries which were promptly treated by defendant’s medical personnel (par. 5, cra nad

answer); that plaintiff did not sustain brain injury or cerebral concussion from the accident
since he passed the annual physical and medical examination given thereafter on April 24,
1951; that the headaches and dizziness experienced by plaintiff were due to emotional
disturbance over his inability to pass the required up-grading or promotional course given by
defendant company (par. 6, answer), and that, as confirmed by an expert neuro-surgeon,
c ranad

plaintiff was suffering-from neurosis and in view of this unfitness and disqualification from
continuing as a pilot, defendant had to terminate plaintiff’s employment (pars. 7, 9, answer).
cranad

Further, defendant alleged that by the very nature of its business as a common carrier, it is
bound to employ only pilots who are proficient and in good mental, emotional and physical
condition; that the pilot, Captain Delfin Bustamante, was a competent and proficient pilot,
and although he was already afflicted with a tumor of the nasopharynx even before the
accident of January 8, 1951, the Civil Aeronautics Administration, in passing upon the fitness
of pilots, gave Capt. Bustamante a waiver of physical standards to enable him to retain his
first class airman certificate since the affliction had not in the least affected his
proficiency (pars. 16-17, answer). By way of counterclaim, defendant prayed for P10,000.00
c ranad

as expenses for the litigation.

On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is
essentially a Workmen’s Compensation claim, stating a cause of action not cognizable within
the general jurisdiction of the court. The Motion to Dismiss was denied in the order of April
14, 1958. After the reception of evidence, the trial court rendered on January 15, 1973 the
decision, the dispositive portion of which has been earlier cited.
The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as being
contrary to law and unsupported by the evidence. It raised as errors of the trial court (a) the c ranad

holding that the damages allegedly suffered by plaintiff are attributable to the accident of
January 8, 1951 which was due to the negligence of defendant in having allowed Capt. Delfin
Bustamante to continue flying despite his alleged slow reaction and poor judgment; (b) the c ranad

finding that defendant was negligent in not having given plaintiff proper and adequate expert
medical treatment and assistance for the injuries allegedly sustained in the accident of
January 8, 1951; and (c) in ordering defendant to pay actual or compensatory damages,
cra nad

moral damages and attorney’s fees to the plaintiff.

On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the
lower court but modified the award of damages by imposing legal rate of interest on the
P198,000.00 unearned income from the filing of the complaint, citing Sec. 8, Rule 51 of the
Rules of Court.
Its motion for reconsideration of the above judgment having been denied, Philippine Air Lines,
Inc. filed this instant petition for Certiorari on the ground that the decision is not in accord
with law or with the applicable jurisprudence, aside from its being replete with findings in the
nature of speculation, surmises and conjectures not borne out by the evidence on record
thereby resulting to misapprehension of facts and amounting to a grave abuse of
discretion (p. 7, Petition).
crana d

Petitioner raises the fundamental question in the case at bar as follows: Is there a causal
connection between the injuries suffered by private respondent during the accident on 8
January 1951 and the subsequent “periodic dizzy spells, headache and general debility” of
which private respondent complained every now and then, on the one hand, and such
“periodic dizzy spells, headache and general debility” allegedly caused by the accident and
private respondent’s eventual discharge from employment, on the other? PAL submits that
respondent court’s award of damages to private respondent is anchored on findings in the
nature of speculations, surmises and conjectures and not borne out by the evidence on record,
thereby resulting in a misapprehension of facts and amounting to a grave abuse of discretion.
Petitioner’s submission is without merit.
As found by the respondent court, the following are the essential facts of the case:
“It appears that plaintiff, a licensee aviator, was employed by defendant a few years
prior to January 8, 1951 as a regular co-pilot on a guaranteed basic salary of P750.00
a month. He was assigned to and/or paired with pilot Delfin Bustamante.
Sometime in December 1950, he complained to defendant through its authorized
official about the slow reaction and poor judgment of pilot Delfin Bustamante.
Notwithstanding said complaint, defendant allowed the pilot to continue flying.
On January 8, 1951, the two manned the regular afternoon flight of defendant’s plane
from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili, Camarines Sur.
Upon making a landing at Daet, the pilot, with his slow reaction and poor judgment,
overshot the airfield and, as a result of and notwithstanding diligent efforts of plaintiff
to avert an accident, the airplane crash-landed beyond the runway into a mangrove.
The jolt and impact caused plaintiff to hit his head upon the front windshield of the
plane thereby causing his brain concussions and wounds on the forehead, with
concomittant intense pain.
Plaintiff was not given proper medical attention and treatment demanded by the nature
and severity of his injuries. Defendant merely referred him to its clinic attended by
general practitioners on his external injuries. His brain injury was never examined,
much less treated. On top of that negligence, defendant recalled plaintiff to active duty
as a co-pilot, completely ignoring his plea for expert medical assistance.
Suffering periodic dizzy spells, headache and general debility, plaintiff every now and
then complained to defendant. To make matters worst for plaintiff, defendant
discharged him from his employment on December 21, 1953. In consequence, plaintiff
has been beset with additional worries, basically financial. He is now a liability instead
of a provider, of his family.
On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to
dismiss the complaint after filing an answer. Then, the judgment and this appeal.”
Continuing, the respondent Court of Appeals further held:
“There is no question about the employment of plaintiff by defendant, his age and
salary, the overshooting by pilot Bustamante of the airfield and crashlanding in a
mangrove, his hitting his head on the front windshield of the plane, his intermittent
dizzy spells, headache and general debility for which he was discharged from his
employment on December 21, 1953. As the lower court aptly stated:
‘From the evidence adduced by the parties, the Court finds the following facts
to be uncontroverted: That the plaintiff Jesus V. Samson, on January 8, 1951
 and a few years prior thereto, December 21, 1953, was a duly licensed pilot
employed as a regular co-pilot of the defendant with assignment in its domestic
air service in the Philippines; that on January 8, 1951, the defendant’s airplane
met an accident in crashlanding at the Daet Airport, Camarines Norte by
overshooting the runway and reaching the mangroves at the edge of the
landing strip; that the jolt caused plaintiff’s head to hit the front windshield of
the airplane causing him to suffer wounds and abrasion on the forehead; that
the defendant, instead of giving the plaintiff expert and proper medical
treatment called for by the nature and severity of the injuries of the plaintiff,
simply referred him to the clinic of the defendant’s physicians who are only
general medical practitioners and not brain specialists; that the defendant’s
physicians limited their treatment to the exterior injuries on the forehead of the
plaintiff and made no examination of the severe concussion of the brain of the
plaintiff; that the Medical Director and Flight Surgeon of the defendant were
not able to definitely determine the cause of the complaint of the plaintiff as to
the periodic attack of dizziness, spells and headache; that due to this laxity of
the defendant’s physician and the continuous suffering of the ailment of the
plaintiff complained of, he demanded for expert medical assistance for his brain
injury and to send him to the United States, which demand was turned down
and in effect denied by the defendant; that instead the defendant referred the
plaintiff to a neurologist, Dr. Victor Reyes; that from the time that said accident
occurred on January 21, 1953, he was ordered grounded on several occasions
because of his complaint of dizzy spells and headache; that instead of
submitting the plaintiff to expert medical treatment as demanded by him and
denied by the defendant, he was discharged from its employment on December
21, 1953 on the ground of physical disability, and that the plaintiff, at the time
when the defendant’s plane met the accident, up to the time he was discharged,
was regularly employed as a co-pilot and receiving a basic salary of P750.00 a
month plus extra pay for flying time, and bonuses amounting to P300.00 a
month.’
Even defendant-appellant itself admits as not controverted the following facts which
generally admit what have been stated above as not controverted.
“In the case at bar, the following facts are not the subject of controversy:
‘(1) First, that from July 1950 to 21 December 1953, plaintiff was employed
with defendant company as a first officer or co-pilot and served in that capacity
in defendant’s domestic services.
(2) Second, that on January 1951, plaintiff did fly on defendant’s PI-C 94, as
first officer or co-pilot, with the late Capt. Delfin Bustamante in command as
pilot; that while making a landing at the Daet airport on that date, PI-C 94 did
meet an accident as stated above.
(3) Third, that at or about the time of the discharge from defendant company,
plaintiff had complained of “spells of dizziness,” “headaches” and
“nervousness”, by reason of which he was grounded from flight duty. In short,
that at that time, or approximately from November 1953 up to the date of his
discharge on 21 December 1953, plaintiff was actually physically unfit to
discharge his duties as pilot.
(4) Fourth, that plaintiff’s unfitness for flight duty was properly established after
a thorough medical examination by competent medical experts.’ (pp. 11-12,
cra lawc ranad

appellant’s brief)
 hence, there can hardly be an issue, factual, legal or medical.”
Taking exception from “the rest of the essential facts of the case as found by the respondent
court” PAL claims said facts are not fully borne out by the evidence on record and insists that
the injuries suffered by private respondent during the accident on January 8, 1951 were
superficial in nature; that the “periodic spells, headache, and general debility” complaint of
every now and then by private respondent subsequent to the Jan. 8, 1951 incident were due
to emotional disturbances and that no negligence can be attributed to Capt. Delfin Bustamante
much less to PAL for the occurrence on January 8, 1951, hence PAL cannot be held liable for
damages.
Petitioner claims absence of any causal connection between private respondent’s superficial
injuries and his alleged subsequent “periodic spells, headache and general debility,” pointing
out that these subsequent ailments were found by competent physician, including an expert
neuro-surgeon, to be due to emotional disturbances insights the conclusions of Dr. Trajano
V. Bernardo that respondent’s complaints were “psychosomatic symptoms” on the basis of
declarations made by respondent himself, which conclusions are supported by similar
diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that respondent Samson was
suffering from neurosis as well as the report of Dr. Victor Reyes, a neurological specialist,
indicating that the symptoms were probably, most probably due to psychogenic factors and
have no organic basis.
In claiming that there is no factual basis for the finding of the respondent court that the crash-
landing caused respondent’s “brain concussion . ., with concomittant intense pain, for on the
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contrary, testimonial evidence establish the superficiality of the injuries sustained by

respondent during the accident of January 8, 1951,” petitioner quotes portions of the
testimony of Dr. Manuel S. Sayas, who declared that he removed the band-aid on the forehead
of respondent and that he found out after removal that the latter had two contussed superficial
wounds over the supra orbiter regions or just above the eyes measuring one centimeter long
and one millimeter deep. He examined and found his blood pressure normal, no discharges
from the nose and ears. Dr. Trajano V. Bernardo also testified that when he examined
respondent Samson three days after the accident, the wound was already healed and found
nothing wrong with his ears, nose and throat so that he was declared fit for duty after the
sixth day.
Petitioner goes further. It contends that there is no causal connection between respondent’s
superficial injuries sustained during the accident on January 8, 1951 and plaintiff’s discharge
from employment with PAL on December 21, 1953. According to PAL, it was the repeated
recurrence of respondent’s neurasthenic symptoms (dizzy spells, headache, nervousness)
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which prompted PAL’s Flight Surgeon, Dr. Bernardo, to recommend that plaintiff be grounded
permanently as respondent was “psychologically unfit to resume his duties as pilot.” PAL
concludes that respondent’s eventual discharge from employment with PAL was effected for
absolutely valid reasons, and only after he was thoroughly examined and found unfit to carry
out his responsibilities and duties as a pilot.
:onad

We agree with the respondent court in finding that the dizzy spells, headache and general
debility of private respondent Samson was an after-effect of the crash-landing and We find
that such holding is supported by substantial evidence, which We quote from the court’s
decision, to wit:
“Defendant would imply that plaintiff suffered only superficial wounds which were
treated and not brain injury. It would, by the opinion of its company doctors, Dr.
Bernardo and Dr. Reyes, attribute the dizzy spells and headache to organic or as
phychosomatic, neurasthenic or psychogenic, which we find outlandishly exaggerated.
 That plaintiff’s condition as psychosomatic rather than organic in nature is allegedly
confirmed by the fact that on six (6) separate occasions after the accident he passed
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the required CAA physical examination for airman’s certificate. (Exhs. 78, 79, 80, 81,
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83 and 92). We noticed, however, that there were other similar physical examinations
conducted by the CAA on the person of plaintiff the report on which were not presented
in evidence. Obviously, only those which suited defendants cause were hand-picked
and offered in evidence.
We hesitate to accept the opinion of the defendant’s two physicians, considering that
Dr. Bernardo admittedly referred to Dr. Reyes because he could not determine the
cause of the dizzy spells and headache and the latter admitted that ‘it is extremely
hard to be certain of the cause of his dizzy spells,’ and suggested a possibility that it
‘was due to postraumatic syndrome, evidently due to the injuries suffered by the
plaintiff in hitting the forehead against the windshield of the plane during the accident.’
Judgment are not based on possibilities.
The admitted difficulty of defendant’s doctors in determining the cause of the dizzy
spells and headache cannot be a sound basis for finding against the plaintiff and in
favor of defendant. Whatever it might be, the fact is that such dizzy spells, headache
and general debility was an after-effect of the crash-landing. Be it brain injury or
psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it
was caused by the crash-landing. As an effect of the cause, not fabricated or
concocted, plaintiff has to be indemnified. The fact is that such effect caused his
discharge.
We are prone to believe the testimony of the plaintiff’s doctors.
Dr. Morales, a surgeon, found that blood was coming from plaintiff’s ears and nose.
He testified that plaintiff was suffering from cerebral concussion as a result of traumatic
injury to the brain caused by his head hitting on the windshield of the plane during the
crash-landing (Exhibit “G”).
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Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals
abroad, found abnormality reflected by the electroencephalogram examination in the
frontal area on both sides of plaintiff’s head (Exhibits “K”, “K-1”).
c ranad

The opinion of these two specialist renders unnecessary that of plaintiff’s wife who is
a physician in her own right and because of her relation to the plaintiff, her testimony
and opinion may not be discussed here, although her testimony is crystallized by the
opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr.
Sandico.
Even the doctors presented by defendant admit vital facts about plaintiff’s brain injury.
Dr. Bernardo admits that due to the incident, the plaintiff continuously complained of
his fainting spells, dizziness and headache everytime he flew as a co-pilot and
everytime he went to defendant’s clinic no less than 25 times (Exhibits “15” to “36”),
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that he complained of the same to Dr. Reyes; that he promised to help send plaintiff
to the United States for expert medical assistance provided that whatever finding
thereat should not be attributed to the crash-landing incident to which plaintiff did not
agree and that plaintiff was completely ignored by the defendant in his plea for expert
medical assistance. They admitted that they could not determine definitely the cause
of the fainting spells, dizziness and headache, which justifies the demand for expert
medical assistance.”
We also find the imputation of gross negligence by respondent court to PAL for having allowed
Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8, 1951 to be
correct, and We affirm the same, duly supported as it is by substantial evidence, clearly
established and cited in the decision of said court which states as follows:
“The pilot was sick. He admittedly had tumor of the nasopharynx (nose). He is now
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in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the spot
will affect the sinus, the breathing, the eyes which are very near it. No one will certify
the fitness to fly a plane of one suffering from the disease.
“. . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for
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which reason he was grounded since November 1947 is admitted in the letter (Exh. cra nad

69-A) of Dr. Bernardo to the Medical Director of the CAA requesting waiver of physical
standards. The request for waiver of physical standards is itself a positive proof that
the physical condition of Capt. Bustamante is short of the standard set by the CAA.
The Deputy Administrator of the CAA granted the request relying on the representation
and recommendation made by Dr. Bernardo (See Exh. 69). We noted, however, that
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the request (Exh. 69-A) says that ‘it is believed that his continuing to fly as a co-pilot
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does not involve any hazard.’ (Italics supplied). Flying as a First Officer entails a very
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different responsibility than flying as a mere co-pilot. Defendant requested the CAA to
allow Capt. Bustamante to fly merely as a co-pilot and it is safe to conclude that the
CAA approved the request thus allowing Bustamante to fly only as a co-pilot. For
having allowed Bustamante to fly as a First Officer on January 8, 1951, defendant is
guilty of gross negligence and therefore should be made liable for the resulting
accident.
As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He used
to complain of pain in the face more particularly in the nose which caused him to have
sleepless nights. Plaintiff’s observation of the pilot was reported to the Chief Pilot who did
nothing about it. Captain Carbonel of the defendant corroborated plaintiff of this matter. The
complaint against the slow reaction of the pilot at least proved the observation. The
observation could be disregarded. The fact that the complaint was not in writing does not
detract anything from the seriousness thereof, considering that a miscalculation would not
only cause the death of the crew but also of the passengers.
One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff
warned him that they were not in the vicinity of Daet but above the town of Ligao. The plane
hit outside the airstrip. In another instance, the pilot would hit the Mayon Volcano had not
plaintiff warned him. These more than prove what plaintiff had complained of. Disregard
thereof by defendant is condemnable.
To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness which
hampered his flying ability, appellant contends that for at least one or more years following
the accident of January 8, 1951, Capt. Bustamante continued to fly for defendant company
as a pilot, and did so with great skill and proficiency, and without any further accident or
mishap, citing tsn. pp. 756-765, January 20, 1965. We have painstakingly perused the
records, particularly the transcript of stenographic notes cited, but found nothing therein to
substantiate appellant’s contention. Instead, We discovered that the citation covers the
testimony of Dr. Bernardo on the physical condition of Bustamante and nothing about his
skills or proficiency to fly nor on the mishaps or accidents, matters which are beyond Dr.
Bernardo’s competence anyway.
Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the
plane, the evidence shows that the overshooting of the runway and crash-landing at the
mangrove was caused by the pilot for which acts the defendant must answer for damages
caused thereby. And for this negligence of defendant’s employee, it is liable (Joaquin vs.
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Aniceto, 12 SCRA 308). At least, the law presumes the employer negligent imposing upon it
the burden of proving that it exercised the diligence of a good father of a family in the
supervision of its employees.
Defendant would want to tie plaintiff to the report he signed about the crash-landing. The
report was prepared by his pilot and because the latter pleaded that he had a family too and
would have nowhere to go if he lost his job, plaintiff’s compassion would not upturn the truth
about the crash-landing. We are for the truth not logic of any argumentation.
At any rate, it is incorrect to say that the Accident Report (Exh. 12 & 12-A), signed by plaintiff,
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exculpated Capt. Bustamante from any fault. We observed that the Report does not
categorically state that Capt. Bustamante was not at fault. It merely relates in chronological
sequence what Capt. Bustamante and plaintiff did from the take-off from Manila to the landing
in Daet which resulted in an accident. On the contrary, we may infer the negligence of
Bustamante from the following portion of the Report, to wit:
“. . I felt his brakes strong but as we neared the intersection of the NE-SW runway,
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the brakes were not as strong and I glanced at the system pressure which indicated
900 lbs. per sq. m.”
It was during the above precise instance that Capt. Bustamante lost his bearing and
disposition. Had he maintained the pressure on the brakes the plane would not have overshot
the runway. Verily, Bustamante displayed slow reaction and poor judgment. (CA decision,
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pp. 8-12).
This Court is not impressed by, much less can We accept petitioner’s invocation to calibrate
once again the evidence testified to in detail and plucked from the voluminous transcript to
support petitioner’s own conclusion. It is not the task of this Court to discharge the functions
of a trier of facts much less to enter into a calibration of the evidence, notwithstanding
petitioner’s wail that the judgment of the respondent court is based entirely on speculations,
surmises and conjectures. We are convinced that respondent court’s judgment is supported
by strong, clear and substantial evidence. :onad

Petitioner is a common carrier 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,
as defined in Art. 1732, New Civil Code. The law is clear in requiring a common carrier to
exercise the highest degree of care in the discharge of its duty and business of carriage and
transportation under Arts. 1733, 1755 and 1756 of the New Civil Code. These Articles provide:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles
1734, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the passenger safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard
for all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.
The duty to exercise the utmost diligence on the part of common carriers is for the safety of
passengers as well as for the members of the crew or the complement operating the carrier,
the airplane in the case at bar. And this must be so for any omission, lapse or neglect thereof
will certainly result to the damage, prejudice, nay injuries and even death to all aboard the
plane, passengers and crew members alike.
Now to the damages. The Court of Appeals affirmed the award of damages made by the trial
court, stating that “the damages awarded plaintiff by the lower court are in accordance with
the facts, law and jurisprudence.” The court further observed that “defendant-appellant is still
fortunate, considering that the unearned income was reckoned with only up to 1968 and not
up to the present as plaintiff-appellee is still living. Whatever mathematical error defendant-
appellant could show by abstract argumentation, the same must be compensated by such
deficiency of the damages awarded to plaintiff-appellee.”
As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned
income or compensatory damages; P50,000.00 for moral damages, P20,000.00 as attorney’s
fees and P5,000.00 as expenses of litigation, or a total of P273,000.00.
The trial court arrived at the sum of P198,000.00 as unearned income or damages by
considering that respondent Samson “could have continued to work as airline pilot for fifteen
more years, he being only 38 years at the time the services were terminated by the
defendant (PAL) and he would have earned P120,000.00 from 1954 to 1963 or a period of
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ten (10) years at the rate of one thousand per month (P750.00 basic salary plus P300.00
cra nad cra nad

extra pay for extra flying time and bonuses; and considering further that in 1964 the basic
pay of defendant’s pilot was increased to P12,000.00 annually, the plaintiff could have earned
from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another P18,000.00 as
bonuses and extra pay for extra flying time at the same rate of P300 a month, or a grand
total of P198,000.00 for the entire period. This claim of the plaintiff for loss or impairment of
earning capacity is based on the provision of Article 2205 of the New Civil Code of the
Philippines which provides that “damages may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury.” This provision of law has been
construed and interpreted in the case of Aureliano Ropato, et al. vs. La Mallorca General
Partnership, 56 O.G., 7812, which rules that law allows the recovery of damages for loss or
impairment of earning capacity in cases of temporary or permanent personal
injury.” (Decision, CFI, pp. 98-99, Record on Appeal)
cha nrob lesvi rtua lawlib rary

The respondent appellate court modified the above award by ordering payment of legal
interest on the P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule
51 of the Rules of Court.
Petitioner assails the award of the total sum of P198,000.00 as unearned income up to 1968
as being tenuous because firstly, the trial court’s finding affirmed by the respondent court is
allegedly based on pure speculation and conjecture and secondly, the award of P300.00 a
month as extra pay for extra flying time from 1954 to 1968 is likewise speculative. PAL
likewise rejects the award of moral damages in the amount of P50,000.00 on the ground that
private respondent’s action before the trial court does not fall under any of the cases
enumerated in the law (Art. 2219 of the New Civil Code) for which moral damages are
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recoverable and that although private respondent’s action gives the appearance that it is
covered under quasi-delict as provided in Art. 21 of the New Civil Code, the definition of quasi-
delict in Art. 2176 of the New Civil Code expressly excludes cases where there is a pre-existing
contractual relation between the parties, as in the case under consideration, where an
employer-employee relationship existed between PAL and private respondent. It is further
argued that private respondent’s action cannot be deemed to be covered by Art. 21, inasmuch
as there is no evidence on record to show that PAL “wilfully cause(d) loss or injury to (private cra nad

respondent) in a manner that is contrary to morals, good customs or public policy . .” Nor can cra

private respondent’s action be considered “analogous” to either of the foregoing, for the
reasons are obvious that it is not.” (Memorandum of petitioner, pp. 418-421, Records)
cha nrob lesvi rtua lawlib rary
Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the
plane to Daet on January 8, 1951 whose slow reaction and poor judgment was the cause of
the crash-landing of the plane which resulted in private respondent Samson hitting his head
against the windshield and causing him injuries for which reason PAL terminated his services
and employment as pilot after refusing to provide him with the necessary medical treatment
of respondent’s periodic spells, headache and general debility produced from said injuries, We
must necessarily affirm likewise the award of damages or compensation under the provisions
of Art. 1711 and Art. 1712 of the New Civil Code which provide:
Art. 1711. Owners of enterprises and other employers are obliged to pay compensation for
the death or injuries to their laborers, workmen, mechanics or other employees, even though
the event may have been purely accidental or entirely due to a fortuitous cause, if the death
or personal injury arose out of and in the course of the employment. The employer is also
liable for compensation if the employee contracts any illness or disease caused by such
employment or as the result of the nature of the employment. If the mishap was due to the
employee’s own notorious negligence, or voluntary act, or drunkenness, the employer shall
not be liable for compensation. When the employee’s lack of due care contributed to his death
or injury, the compensation shall be equitably reduced.
Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. If a fellow-worker’s intentional or
malicious act is the only cause of the death or injury, the employer shall not be answerable,
unless it should be shown that the latter did not exercise due diligence in the selection or
supervision of the plaintiffs fellow-worker.
The grant of compensatory damages to the private respondent made by the trial court and
affirmed by the appellate court by computing his basic salary per annum at P750.00 a month
as basic salary and P300.00 a month for extra pay for extra flying time including bonus given
in December every year is justified. The correct computation however should be P750 plus
P300 x 12 months = P12,600 per annum x 10 years = P126,000.00 (not P120,000.00 ascrana d

computed by the court a quo). The further grant of increase in the basic pay of the pilots to
P12,000 annually for 1964 to 1968 totalling P60,000.00 and another P18,000.00 as bonuses
and extra pay for extra flying time at the same rate of P300.00 a month totals P78,000.00.
Adding P126,000.00 (1964 to 1968 compensation) makes a grand total of P204,000.00 (not
c ranad crana d

P198,000.00 as originally computed).

As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We
have noted and considered the holding of the appellate court in the matter of bad faith on the
part of PAL, stated hereunder, this wise:
“None of the essential facts material to the determination of the case have been
seriously assailed: the overshooting of runway and crash-landing into the mangroves;
the hitting of plaintiff’s head to the front windshield of the plane; the oozing of blood
out of his ears, nose and mouth; the intermittent dizzy spells, headaches and general
debility thereafter for which he was discharged from his employment; the condition of
not to attribute the cause of the ailment to the crash-landing imposed in bad faith for
a demanded special medical service abroad; and the resultant brain injury which
defendant’s doctors could not understand nor diagnose.”
xxx
“The act of defendant-appellant in unjustly refusing plaintiff-appellee’s demand for
special medical service abroad for the reason that plaintiff-appellee’s deteriorating
physical condition was not due to the accident violates the provisions of Article 19 of
the Civil Code on human relations “to act with justice, give everyone his due, and
observe honesty and good faith.” (CA Resolution, pp. 151-152, Records)
chan roble svirtualawl ibra ry
We reject the theory of petitioner that private respondent is not entitled to moral damages.
Under the facts found by the trial court and affirmed by the appellate court and under the law
and jurisprudence cited and applied, the grant of moral damages in the amount of P50,000.00
is proper and justified.
The fact that private respondent suffered physical injuries in the head when the plane crash-
landed due to the negligence of Capt. Bustamante is undeniable. The negligence of the latter
is clearly a quasi-delict and therefore Article 2219, (2) New Civil Code is applicable, justifying
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the recovery of moral damages.

Even from the standpoint of the petitioner that there is an employer-employee relationship
between it and private respondent arising from the contract of employment, private
respondent is still entitled to moral damages in view of the finding of bad faith or malice by
the appellate court, which finding We hereby affirm, applying the provisions of Art. 2220, New
Civil Code which provides that willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
The justification in the award of moral damages under Art. 19 of the New Civil Code on Human
Relations which requires that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith, as applied by respondent court is also well-taken and We hereby give Our
affirmance thereto.
With respect to the award of attorney’s fees in the sum of P20,000.00 the same is likewise
correct. As pointed out in the decision of the Court of Appeals, “the plaintiff is entitled to
attorney’s fees because he was forced to litigate in order to enforce his valid claim (Ganaban
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vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22 SCRA 33; and many others); defendant
acted in bad faith in refusing plaintiff’s valid claim (Filipino Pipe Foundry Corporation vs.
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Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was forced to go to court to
vindicate his right (Nadura vs. Benguet Consolidated, Inc., 5 SCRA 879).”
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We also agree with the modification made by the appellate court in ordering payment of legal
interest from the date judicial demand was made by Pilot Samson against PAL with the filing
of the complaint in the lower court. We affirm the ruling of the respondent court which reads:
“Lastly, the defendant-appellant claims that the legal rate of interest on the unearned
compensation should be computed from the date of the judgment in the lower court,
not from the filing of the complaint, citing a case where the issue raised in the Supreme
Court was limited to when the judgment was rendered in the lower court or in the
appellate court, which does not mean that it should not be computed from the filing of
the complaint.
Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be
computed. Thereunder interest begins to accrue upon demand, extrajudicial or judicial.
A complaint is a judicial demand (Cabarroguis vs. Vicente, 107 Phil. 340). Under
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Article 2212 of the Civil Code, interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point.” (CA chan roble svirtualawl ibra ry

Resolution, pp. 153-154, Records).

The correct amount of compensatory damages upon which legal interest shall accrue from
the filing of the complaint is P204,000.00 as herein computed and not P198,000.00.
WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby
affirmed with slight modification in that the correct amount of compensatory damages is
P204,000.00. With costs against petitioner. SO ORDERED.