G.R. No.

74811 September 30, 1988

CHUA YEK HONG, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT, respondents.

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent Appellate Court in AC G.R. No. 01375 entitled
"Chua Yek Hong vs. Mariano Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private respondents
(defendants below) of any liability for damages for loss of cargo.

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private
respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in
coastwise trade from the different ports of Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel
"M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo,
however, did not reach Manila because somewhere between Cape Santiago and Calatagan,
Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against private respondents (Civil
Case No. R-3205).

In their Answer, private respondents averred that even assuming that the alleged cargo was truly
loaded aboard their vessel, their liability had been extinguished by reason of the total loss of said
vessel.

On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows:

WHEREFORE, in view of the foregoing considerations, the court believes and so

holds that the preponderance of evidence militates in favor of the plaintiff and against
the defendants by ordering the latter, jointly and severally, to pay the plaintiff the sum
of P101,227.40 representing the value of the cargo belonging to the plaintiff which
was lost while in the custody of the defendants; P65,550.00 representing
miscellaneous expenses of plaintiff on said lost cargo; attorney's fees in the amount
of P5,000.00, and to pay the costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code
of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private
respondents' liability, as ship owners, for the loss of the cargo is merely co-extensive with their
interest in the vessel such that a total loss thereof results in its extinction. The decretal portion of that
Decision 1 reads:
 IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is
hereby REVERSED, and another one entered dismissing the complaint against
defendants-appellants and absolving them from any and all liabilities arising from the
loss of 1,000 sacks of copra belonging to plaintiff-appellee. Costs against appellee.
(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of
the present recourse.

The basic issue for resolution is whether or not respondent Appellate Court erred in applying the
doctrine of limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs.
Laserna, supra.

Article 587 of the Code of Commerce provides:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all the equipments and the freight it may have earned during the
voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner
(Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both
the ship owner and ship agent are civilly and directly liable for the indemnities in favor of third
persons, which may arise from the conduct of the captain in the care of goods transported, as well
as for the safety of passengers transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc.
vs. Abdulhaman et al., 100 Phil. 32 [1956]).

However, under the same Article, this direct liability is moderated and limited by the ship agent's or
ship owner's right of abandonment of the vessel and earned freight. This expresses the universal
principle of limited liability under maritime law. The most fundamental effect of abandonment is the
cessation of the responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs.
Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has thus been held that by necessary
implication, the ship agent's or ship owner's liability is confined to that which he is entitled as of right
to abandon the vessel with all her equipment and the freight it may have earned during the voyage,"
and "to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship owner's or
agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The
total destruction of the vessel extinguishes maritime liens as there is no longer any res to which it
can attach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).

As this Court held:

If the ship owner or agent may in any way be held civilly liable at all for injury to or
death of passengers arising from the negligence of the captain in cases of collisions
or shipwrecks, his liability is merely co-extensive with his interest in the vessel such
that a total loss thereof results in its extinction. (Yangco vs. Laserna, et al., supra).

The rationale therefor has been explained as follows:

The real and hypothecary nature of the liability of the ship owner or agent embodied
in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in
 the prevailing conditions of the maritime trade and sea voyages during the medieval
ages, attended by innumerable hazards and perils. To offset against these adverse
conditions and to encourage ship building and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a
ship to the vessel, equipment, and freight, or insurance, if any, so that if the ship
owner or agent abandoned the ship, equipment, and freight, his liability was
extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])

—0—

Without the principle of limited liability, a ship owner and investor in maritime
commerce would run the risk of being ruined by the bad faith or negligence of his
captain, and the apprehension of this would be fatal to the interest of navigation."
Yangco vs. Lasema, supra).

—0—

As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2)
the right to retain the cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a personal action
against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability by
abandoning the vessel and freight money, thus avoiding the possibility of risking his
whole fortune in the business, it is also just that his maritime creditor may for any
reason attach the vessel itself to secure his claim without waiting for a settlement of
his rights by a final judgment, even to the prejudice of a third person. (Phil. Shipping
Co. vs. Vergara, 6 Phil. 284 [1906]).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to
a passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship
owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is
insured; and (3) in workmen's compensation claims Abueg vs. San Diego, supra). In this case, there
is nothing in the records to show that the loss of the cargo was due to the fault of the private
respondent as shipowners, or to their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any effect on the
principle of limited liability for ship owners or ship agents. As was expounded by this Court:

In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a
vessel engaged in interisland trade, is a common carrier, and that the relationship
between the petitioner and the passengers who died in the mishap rests on a
contract of carriage. But assuming that petitioner is liable for a breach of contract of
carriage, the exclusively 'real and hypothecary nature of maritime law operates to
limit such liability to the value of the vessel, or to the insurance thereon, if any. In the
instant case it does not appear that the vessel was insured. (Yangco vs. Laserila, et
al., supra).

Moreover, Article 1766 of the Civil Code provides:

 Art. 1766. In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains no provisions
regulating liability of ship owners or agents in the event of total loss or destruction of the vessel, it is
the provisions of the Code of Commerce, more particularly Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-
extensive with his interest in the vessel such that a total loss thereof results in its extinction (Yangco
vs. Laserna, supra), and none of the exceptions to the rule on limited liability being present, the
liability of private respondents for the loss of the cargo of copra must be deemed to have been
extinguished. There is no showing that the vessel was insured in this case.

SECOND DIVISION

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:

I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING
THE COMPLAINT.

II

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.

G.R. No. 124293 January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION

PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the
Court En Banc. The petitioner questions the Resolution which reversed our Decision of November
20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals promulgated on
July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as
follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute ₱330 million for
the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient
features is the grant to the parties of the right of first refusal should either of them decide to sell,
assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same terms the right of first refusal. This provision shall
not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a
KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of
non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT wherein the latter was
named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to
2.59%.

In the interest of the national economy and the government, the COP and the APT deemed it best to
sell the National Government's share in PHILSECO to private entities. After a series of negotiations
between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI)1 would exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of
the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for
the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on December 2,
1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67%
of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with
the rules herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board
of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (₱1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the
APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest
bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such
advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option and
deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent
(5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve
notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's
notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with respect to any and all conditions
concerning the PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure
on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or
omission will be given by APT or COP. . . .

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of Two
Billion and Thirty Million Pesos (₱2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc.
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their "Option to Top the Highest
Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's
bid by 5% as specified in the bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid
on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS],
Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4)
companies were the losing bidders thereby circumventing the law and prejudicing the weak winning
bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI
constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning
the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised
its option to top the highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently,
petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994,
said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question
the constitutionality or legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the
proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of
first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS]
is…estopped from questioning the validity of the award given to [PHILYARDS] after the latter
exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to
the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on
March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil
action of mandamus because the petition was also one of certiorari. It further ruled that a shipyard
like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR)
drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal — not
only because it violates the rules on competitive bidding — but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard. It also held that "although the petitioner
had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped
from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court
voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings,
Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to
APT its bid price of Two Billion Thirty Million Pesos (₱2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6%
of PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One
Million Five Hundred Thousand Pesos (₱2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI
can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3)
Whether the right to top granted to KAWASAKI violates the principles of competitive
bidding.3 (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first
issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public
utility, as by nature, a shipyard is not a public utility4 and that no law declares a shipyard to be a
public utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA)
which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more
than 40% of PHILSECO’s total capitalization.6 On the final issue, we held that the right to top granted
to KAWASAKI in exchange for its right of first refusal did not violate the principles of competitive
bidding.7

On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate This
Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion to
Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation are the following:

1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.

2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant
a reconsideration of this Court’s Resolution of September 24, 2003.

Motion to Elevate this Case to the

Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following grounds:

1. The main issue of the propriety of the bidding process involved in the present case has
been confused with the policy issue of the supposed fate of the shipping industry which has
never been an issue that is determinative of this case.10

2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel question of
law and those where a doctrine or principle laid down by the Court en banc or in division may
be modified or reversed.11

3. There was clear executive interference in the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a
memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report
dated October 17, 2001, which matter was placed in the agenda of the Court and noted by it
in a formal resolution dated November 28, 2001.12

Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s
inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not
an appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme
Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no novel
question of law involved in the present case as the assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the
motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent
power of courts to ‘amend and control its process and orders so as to make them conformable to law
and justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the petitioner’s allegations regarding
the change in ponente and the alleged executive interference as shown by former Secretary of
Finance Jose Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not
justify a referral of the present case to the Court en banc.

In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G.
Summit further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer is
different from its own Motion to Elevate; different grounds are invoked by the two motions; there was
unwarranted "executive interference"; and the change in ponente is merely noted in asserting that
this case should be decided by the Court en banc.15

We find no merit in petitioner’s contention that the propriety of the bidding process involved in the
present case has been confused with the policy issue of the fate of the shipping industry which,
petitioner maintains, has never been an issue that is determinative of this case. The Court’s
Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the bidding
process. In discussing whether the right to top granted to KAWASAKI in exchange for its right of first
refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules
and principles of public bidding and whether they were complied with in the case at bar.16This Court
categorically ruled on the petitioner’s argument that PHILSECO, as a shipyard, is a public utility
which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so,
we recognized the impact of our ruling on the shipbuilding industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the court en banc or in division
may be modified or reversed. The case was resolved based on basic principles of the right of first
refusal in commercial law and estoppel in civil law. Contractual obligations arising from rights of first
refusal are not new in this jurisdiction and have been recognized in numerous cases.18 Estoppel is
too known a civil law concept to require an elongated discussion. Fundamental principles on public
bidding were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans
on the right to top in a public bidding in arguing that the case at bar involves a novel issue. We are
not swayed. The right to top was merely a condition or a reservation made in the bidding rules which
was fully disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H.
Hunermann v. Office of the President, et al., 19 we dealt with this conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28
April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the
bidders to the effect that the bidding shall be subject to the right of the government to reject
any and all bids subject to its discretion. In the case at bar, the government has made its
choice and unless an unfairness or injustice is shown, the losing bidders have no cause to
complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction
and elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide
latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is
a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and
deliberation. This task can best be discharged by the Government agencies concerned, not by the
Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government
has transgressed its constitutional boundaries. But the Courts will not interfere with executive or
legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy
decision-making.

It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of
a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary
and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935,
30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to
act at all in contemplation of law, where the power is exercised in an arbitrary and despotic manner
by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July
1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of the
right of the Government to "reject any or all bids or any part thereof or waive any defects
contained thereon and accept an offer most advantageous to the Government." It is a well-
settled rule that where such reservation is made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an award as a matter of right (C & C Commercial
Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be
rejected or, in the exercise of sound discretion, the award may be made to another than the lowest
bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied) 1awphi 1.nét
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition imposed
on all bidders equally, based on the APT’s exercise of its discretion in deciding on how best
to privatize the government’s shares in PHILSECO. It was not a whimsical or arbitrary condition
plucked from the ether and inserted in the bidding rules but a condition which the APT approved as
the best way the government could comply with its contractual obligations to KAWASAKI under the
JVA and its mandate of getting the most advantageous deal for the government. The right to top had
its history in the mutual right of first refusal in the JVA and was reached by agreement of the
government and KAWASAKI.

Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted"
to acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution
dated September 24, 2003 was decided unanimously by the Special First Division in favor of
the respondents.

Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court20 and
the Court en banc is not an appellate court to which decisions or resolutions of a Division may be
appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair
resolution of the case should be based on contract law, not on policy considerations; the contracts
do not authorize the right to top to be derived from the right of first refusal.22 Second, that neither the
right of first refusal nor the right to top can be legally exercised by the consortium which is not the
proper party granted such right under either the JVA or the Asset Specific Bidding Rules
(ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National Investment
and Development Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not be a public utility to be
bound by the 60%-40% constitutional limitation.24

On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to
show compelling reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS
denies that the Decision is based mainly on policy considerations and points out that it is premised
on principles governing obligations and contracts and corporate law such as the rule requiring
respect for contractual stipulations, upholding rights of first refusal, and recognizing the assignable
nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on established
case law and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKI’s
right of first refusal or even the right to top is not limited to the 40% equity of the latter.27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even
involves a question of fact. Even assuming that this Court can take cognizance of such question of
fact even without the benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the
time of the bidding is irrelevant because what is essential is that ultimately a qualified entity would
eventually hold PHILSECO’s real estate properties.28 Further, given the assignable nature of the
right of first refusal, any applicable nationality restrictions, including landholding limitations, would not
affect the right of first refusal itself, but only the manner of its exercise.29 Also, PHILYARDS argues
that if this Court takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s
landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s landholdings were
sold to another corporation.30 As regards the right of first refusal, private respondent explains that
KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss
of its contractually granted right of first refusal.31 Also, the bidding was valid because PHILYARDS
exercised the right to top and it was of no moment that losing bidders later joined PHILYARDS in
raising the purchase price.32

In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:

1. The conversion of the right of first refusal into a right to top by 5% does not violate any
provision in the JVA between NIDC and KAWASAKI.

2. PHILSECO is not a public utility and therefore not governed by the constitutional
restriction on foreign ownership.

3. The petitioner is legally estopped from assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself to the terms of the ASBR which included the
provision on the right to top.

4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact
that PHILYARDS formed a consortium to raise the required amount to exercise the right to
top the highest bid by 5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does
not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns
real property.

6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only
delay the termination of this case.33

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the
public and private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is contrary to law and the constitution is null and
void for being violative of substantive due process and the abuse of right provision in the
Civil Code.

a. The bidders[’] right to top was actually exercised by losing bidders.

b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.

c. The benefits derived from the right to top were unwarranted.

2. The landholding issue has been a legitimate issue since the start of this case but is
shamelessly ignored by the respondents.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

 c. That PHILSECO owned land at the time that the right of first refusal was agreed
upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to
the right to top.

a. The history behind the birth of the right to top shows fraud and bad faith.

b. The right of first refusal was, indeed, "effectively useless."

4. Petitioner is not legally estopped to challenge the right to top in this case.

a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law

or against public policy.

b. Deception was patent; the right to top was an attractive nuisance.

c. The 10% bid deposit was placed in escrow.

J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not
new and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld
the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents
KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization.35 Likewise, nothing in
the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing
new and of significance in the petitioner’s pleading warrants a reconsideration of our ruling.

Likewise, we already disposed of the argument that neither the right of first refusal nor the right to
top can legally be exercised by the consortium which is not the proper party granted such right under
either the JVA or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the
right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise
the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any
proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise
system. The appellate court is thus correct in holding the petitioner estopped from questioning the
validity of the transfer of the National Government's shares in PHILSECO to respondent.36

Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were
losing bidders. This is a purely commercial decision over which the State should not interfere absent
any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a
corporation which the government sought to privatize. As such, the persons with whom PHILYARDS
desired to enter into business with in order to raise funds to purchase the shares are basically its
business. This is in contrast to a case involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or financier constitutes an important
consideration. In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to satisfactorily
construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to
the constitutional prohibition on landholding by corporations with more than 40% foreign-owned
equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the
right of first refusal was inutile and as such, could not subsequently be converted into the right to
top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits
that it may have previously held land but had already divested such landholdings.39 It contends,
however, that even if PHILSECO owned land, this would not affect the right of first refusal but only
the exercise thereof. If the land is retained, the right of first refusal, being a property right, could be
assigned to a qualified party. In the alternative, the land could be divested before the exercise of the
right of first refusal. In the case at bar, respondents assert that since the right of first refusal was
validly converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS
which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no
violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this
Court were involved in the issue. However, the records show that PHILYARDS admits it had
owned land up until the time of the bidding.41 Hence, the only issue is whether KAWASAKI
had a valid right of first refusal over PHILSECO shares under the JVA considering that
PHILSECO owned land until the time of the bidding and KAWASAKI already held 40% of
PHILSECO’s equity.

We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and
NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI
and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-
shareholder before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations.
As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself,
does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The
transfer could be made either to a nominee or such other party which the holder of the right of first
refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its
landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that if the foreign shareholdings of a
landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership of the
shares which is adversely affected but the capacity of the corporation to own land – that is,
the corporation becomes disqualified to own land. This finds support under the basic corporate law
principle that the corporation and its stockholders are separate juridical entities. In this vein, the right
of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to
the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right
of first refusal. No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies
is the corporation from owning land. This is the clear import of the following provisions in the
Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power, beneficial use may be the measure and limit of the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.42(emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first refusal,
is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that say "an
option to buy land is void in itself," for we ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an

alien the right to buy real property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko vs. Register of Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to
acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue
of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby
the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) —
rights the sum total of which make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all
the rights of which ownership is made up are consolidated in an alien. And yet this is just exactly
what the parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs.
Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership
as the owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner
of the land from selling, donating, mortgaging, or encumbering the property during the 50-year
period of the option to buy. This is not so in the case at bar where the mutual right of first refusal in
favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact,
the case at bar involves a right of first refusal over shares of stock while the Lui She case
involves an option to buy the land itself. As discussed earlier, there is a distinction between the
shareholder’s ownership of shares and the corporation’s ownership of land arising from the separate
juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to
violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold
rights which are real rights.45It cites Article 415 of the Civil Code which includes in the definition of
immovable property, "contracts for public works, and servitudes and other real rights over immovable
property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent financial
statements.47 First, these are questions of fact, the veracity of which would require introduction of
evidence. The Court needs to validate these factual allegations based on competent and reliable
evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its own pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because under
the law, it continues to own real property…

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution
(the JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under Article
415 of the Civil Code.Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the land49 would be limited to
Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.

SO ORDERED.

G.R. No. L-68729 May 29, 1987

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,

vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents.
GUTIERREZ, JR, J.:

This petition seeks the reversal of the decision of the National Telecommunications Commission
(NTC) which ordered petitioner Radio Communications of the Philippines, Incorporated (RCPI) to
desist from operating its radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon.

Petitioner has been operating a radio communications system since 1957 under its legislative
franchise granted by Republic Act No. 2036 which was enacted on June 23, 1957.

In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971, another
radio telegraph service was put up in San Jose, Mindoro followed by another in Catarman, Samar in
1976. The installation of radio telephone services started in 1971 in San Jose, Mindoro; then in
Sorsogon, Sorsogon and Catarman, Samar in 1983.

In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio
Network Incorporated was authorized by the public respondent to operate radio communications
systems in Catarman, Samar and in San Jose, Mindoro.

On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the
petitioner was operating in Catarman, Samar and in San Jose, Mindoro without a certificate of public
covenience and necessity. The petitioner, on the other hand, counter-alleged that its telephone
services in the places subject of the complaint are covered by the legislative franchise recognized by
both the public respondent and its predecessor, the Public Service Commission. In its supplemental
reply, the petitioner further stated that it has been in operation in the questioned places long before
private respondent Kayumanggi filed its application to operate in the same places.

After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to
immediately cease or desist from the operation of its radio telephone services in Catarman Northern
Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating that under Executive Order
No. 546, a certificate of public convenience and necessity is mandatory for the operation of
communication utilities and services including radio communications.

On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an order
dated September 12, 1984.

On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner
RCPI, a grantee of a legislative franchise to operate a radio company, is required to secure a
certificate of public convenience and necessity before it can validly operate its radio stations
including radio telephone services in Catarman, Northern Samar; San Jose, Occidental Mindoro;
and Sorsogon, Sorsogon.

The petitioner's main argument states that the abolition of the Public Service Commission under
Presidential Decree No. 1 and the creation of the National Telecommunications Commission under
Executive Order No. 546 to replace the defunct Public Service Commission did not affect sections
14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).

The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:

Section 13. (a) the Commission shall have jurisdiction, supervision, and control over
all public services and their franchises, equipment and other properties, and in the
 exercise of its authority, it shall have the necessary powers and the aid of public
force: ...

Section 14. The following are exempted from the provisions of the preceding section:

xxx xxx xxx

(d) Radio companies except with respect to the fixing of rates;

xxx xxx xxx

Section 15. With the exception of those enumerated in the preceding section, no
public service shall operate in the Philippines without possessing a valid and
subsisting certificate from the Public Service Commission, known as "certificate of
public convenience," or "certificate of convenience and public necessity," as the case
may be, to the effect that the operation of said service and the authorization to do
business will promote the public interests in a proper and suitable manner. ...

We find no merit in the petitioner's contention.

Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive branch
of the National Government, the Public Service Commission was abolished and its functions were
transferred to three specialized regulatory boards, as follows: the Board of Transportation, the Board
of Communications and the Board of Power and Waterworks. The functions so transferred were still
subject to the limitations provided in sections 14 and 15 of the Public Service Law, as amended.
With the enactment of Executive Order No. 546 on July 23, 1979 implementing P.D. No.1, the Board
of Communications and the Telecommunications Control Bureau were abolished and their functions
were transferred to the National Telecommunications Commission (Sec. 19(d), Executive Order No.
546). Section 15 of said Executive Order spells out the functions of the National
Telecommunications Commission as follows:

Sec. 15. Functions of the Commission.-The Commission shall exercise the following
functions:

a. Issue Certificate of Public Convenience for the operation of communications

utilities and services, radio communications petitions systems, wire or wireless
telephone or telegraph system, radio and television broadcasting system and other
similar public utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of

public service communications; and determine and prescribe charges or rates
pertinent to the operation of such public utility facilities and services except in cases
where charges or rates are established by international bodies or associations of
which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and
radio and television broadcasting systems;
 d. Sub-allocate series of frequencies of bands allocated by the International
Telecommunications Union to the specific services;

e. Establish and prescribe rules, regulations, standards, specifications in all cases

related to the issued Certificate of Public Convenience and administer and enforce
the same;

f. Coordinate and cooperate with government agencies and other entities concerned
with any aspect involving communications with a view to continuously improve the
communications service in the country;

g. Promulgate such rules and regulations, as public safety and interest may require,
to encourage a larger and more effective use of communications, radio and television
broadcasting facilities, and to maintain effective competition among private entities in
these activities whenever the Commission finds it reasonably feasible;

h. Supervise and inspect the operation of radio stations and telecommunications

facilities;

i. Undertake the examination and licensing of radio operators;

j. Undertake, whenever necessary, the registration of radio transmitters and

transceivers; and

k. Perform such other functions as may be prescribed by law.

It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the
jurisdiction of the Public Service Commission and the Board of Communications no longer exists
because of the changes effected by the Reorganization Law and implementing executive orders.
The petitioner's claim that its franchise cannot be affected by Executive Order No. 546 on the ground
that it has long been in operation since 1957 cannot be sustained.

A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the
hands of a subject." This definition was given by Finch, adopted by Blackstone, and accepted by
every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a
franchise, being merely a privilege emanating from the sovereign power of the state and owing its
existence to a grant, is subject to regulation by the state itself by virtue of its police power through its
administrative agencies. We ruled in Pangasinan transportation Co., Inc. v. Public Service
Commission (70 Phil. 221) that:

... statutes enacted for the regulation of public utilities, being a proper exercise by the
State of its police power, are applicable not only to those public utilities coming into
existence after its passage, but likewise to those already established and in
operation ...

Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the
Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be bound by
its provisions. The petitioner cannot install and operate radio telephone services on the basis of its
legislative franchise alone.
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can
operate a radio communications system anywhere within the Philippines is erroneous. Section 1 of
said statute reads:

Section 1. Subject to the provisions of the Constitution, and to the provisions, not
inconsistent herewith, of Act Numbered Three thousand eight hundred and forty-six,
entitled.' An Act providing for the regulation of radio stations and radio
communications in the Philippine Islands, and for other purposes;' Commonwealth
Act Numbered One hundred forty-six, known as the Public Service Act, and their
amendments, and other applicable laws, there is hereby granted to the Radio
Communications of the Philippines, its successors or assigns, the right and privilege
of constructing, installing, establishing and operating in the Philippines, at such
places as the said corporation may select and the Secretary of Public Works and
Communications may approve, radio stations for the reception and transmission of
wireless messages on radiotelegraphy and/or radiotelephone, including both coastal
and marine telecommunications, each station to consist of two radio apparatus
comprising of a receiving and sending radio apparatus. (Emphasis supplied).

Section 4(a) of the same Act further provides that:

Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be
exercised by the grantee until the Secretary of Public works and Communications
shall have allotted to the grantee the frequencies and wave lengths to be used, and
issued to the grantee a license for such case. (Emphasis supplied)

Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in areas where
it desires to operate. It has been repeated time and again that where the statutory norm speaks
unequivocally, there is nothing for the courts to do except to apply it. The law, leaving no doubt as to
the scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA 381).

The records of the case do not show any grant of authority from the then Secretary of Public Works
and Communications before the petitioner installed the questioned radio telephone services in San
Jose, Mindoro in 1971. The same is true as regards the radio telephone services opened in
Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public convenience and
necessity appears to have been secured by the petitioner from the public respondent when such
certificate,was required by the applicable public utility regulations (See executive Order No. 546,
sec. 15, supra.; Philippine Long Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo
Electric Light and Power Corp. v. National Power Corporation, et al., G.R. No. L-24912, promulgated
April 9, 1987.)

It was well within the powers of the public respondent to authorize the installation by the private
respondent network of radio communications systems in Catarman, Samar and San Jose, Mindoro.
Under the circumstances of this case, the mere fact that the petitioner possesses a franchise to put
up and operate a radio communications system in certain areas is not an insuperable obstacle to the
public respondent's issuing the proper certificate to an applicant desiring to extend the same
services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature
nor can a franchise be granted except that it must be subject to amendment, alteration, or even
repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of the 1986
Constitution). There is an express provision in the petitioner's franchise which provides compliance
with the above mandate R.A. 2036, sec. 15).
In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and
conclusions of law insofar as the private respondent was authorized to operate in Catarman, Samar
and San Jose, Mindoro. As a rule, the Commission's findings of fact, if supported by substantial
evidence, are conclusive upon this Court. We may modify or ignore them only when it clearly
appears that there is no evidence to support reasonably such a conclusion. (Halili v. Daplas, 14
SCRA 14). The petitioner has not shown why the private respondent should be denied the authority
to operate its services in Samar and Mindoro. It has not overcome the presumption that when the
public respondent disturbed the petitioner's monopoly in certain areas, it was doing so pursuant to
public interest and the common good.

WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
AFFIRMED. The petition is dismissed for lack of merit.

SO ORDERED.

FIRST DIVISION

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

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF

APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., respondents.

DECISION
YNARES-SANTIAGO, J.:

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

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

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

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

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

Lastly, respondent maintained that the British Pageant was not a

substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a mistake
in missing her flight for Jewels of Europe. Petitioner was allowed to make a
partial payment of only US$300.00 for the second tour because her niece was
then an employee of the travel agency. Consequently, respondent prayed that
petitioner be ordered to pay the balance of P12,901.00 for the British Pageant
package tour.
After due proceedings, the trial court rendered a decision, the dispositive
[4]

part of which reads:

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

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

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

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

4. With costs against the defendant.

SO ORDERED. [5]

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

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

SO ORDERED. [6]

Upon denial of her motion for reconsideration, petitioner filed the instant
[7]

petition under Rule 45 on the following grounds:

I

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

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

II

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

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

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

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

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

carrier is defined under Article 1732 of the Civil Code as persons,

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

however, respondent is not a common carrier but a travel agency. It is thus

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

consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in
doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then
he is guilty of negligence.
[13]

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

if produced and thus considered petitioners uncontradicted testimony to be

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

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

In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging
a fact has the burden of proving it and a mere allegation cannot take the place
of evidence. If the plaintiff, upon whom rests the burden of proving his cause
[17]

of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or
defense. [18]

Contrary to petitioners claim, the evidence on record shows that

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

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

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

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

In the case at bar, the evidence on record shows that respondent

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

SO ORDERED.
G.R. No. 92288 February 9, 1993

BRITISH AIRWAYS, INC., petitioner,

vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST INTERNATIONAL TRADING
AND GENERAL SERVICES, respondents.

Quasha, Asperilla, Ancheta, Peña & Nolasco for petitioner.

Monina P. Lee for private respondent.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision dated November 15,
1989 of the Court of Appeals1 affirming the decision of the trial court2 in ordering petitioner British
Airways, Inc. to pay private respondent First International Trading and General Services actual
damages, moral damages, corrective or exemplary damages, attorney's fees and the costs as well
as the Resolution dated February 15, 19903 denying petitioner's Motion for Reconsideration in the
appealed decision.

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

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

As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the 93
workers, private respondent was immediately informed by petitioner that its principal had forwarded
93 prepaid tickets. Thereafter, private respondent instructed its travel agent, ADB Travel and Tours.
Inc., to book the 93 workers with petitioner but the latter failed to fly said workers, thereby compelling
private respondent to borrow money in the amount of P304,416.00 in order to purchase airline
tickets from the other airlines as evidenced by the cash vouchers (Exhibits "B", "C" and "C-1 to C-7")
for the 93 workers it had recruited who must leave immediately since the visas of said workers are
valid only for 45 days and the Bureau of Employment Services mandates that contract workers must
be sent to the job site within a period of 30 days.

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

On July 6, 1981, private respondent paid the travel tax of the said workers as required by the
petitioner but when the receipt of the tax payments was submitted, the latter informed private
respondent that it can only confirm the seats of the 12 workers on its July 7, 1981 flight. However,
the confirmed seats of said workers were again cancelled without any prior notice either to the
private respondent or said workers. The 12 workers were finally able to leave for Jeddah after
private respondent had bought tickets from the other airlines.
As a result of these incidents, private respondent sent a letter to petitioner demanding compensation
for the damages it had incurred by the latter's repeated failure to transport its contract workers
despite confirmed bookings and payment of the corresponding travel taxes.

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

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

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

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

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

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

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

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

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

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

1. Ordering the defendant to pay the plaintiff actual damages in the sum of
P308,016.00;
 2. Ordering defendant to pay moral damages to the plaintiff in the amount of
P20,000.00;

3. Ordering the defendant to pay the plaintiff P10,000.00 by way of corrective or

exemplary damages;

4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as
attorney's fees; and

5. To pay the costs.7

On March 13, 1986, petitioner appealed said decision to respondent appellate court after the trial
court denied its Motion for Reconsideration on February 28, 1986.

On November 15, 1989, respondent appellate court affirmed the decision of the trial court, the
dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against
the appellant.8

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

Hence, this petition.

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

Petitioner's contention is untenable.

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

In dealing with the contract of common carriage of passengers for purpose of

accuracy, there are two (2) aspects of the same, namely: (a) the contract "to carry (at
some future time)," which contract is consensual and is necessarily perfected by
mere consent (See Article 1356, Civil Code of the Philippines), and (b) the contract
"of carriage" or "of common carriage" itself which should be considered as a real
contract for not until the carrier is actually used can the carrier be said to have
already assumed the obligation of a carrier. (Paras, Civil Code Annotated, Vol. V, p.
429, Eleventh Ed.)

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

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

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

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

contract of carriage imposing reciprocal obligations on both parties.

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

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

Article 2199 of the Civil Code provides that:

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

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

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

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

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

As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record shows
that no claim for said damages was ever made by the petitioner immediately after their alleged
occurrence therefore said counterclaims were mere afterthoughts when private respondent filed the
present case.
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the award
of actual damages be deleted from said decision.

SO ORDERED.

G.R. No. 185891 June 26, 2013

CATHAY PACIFIC AIRWAYS, Petitioner,

vs.
JUANITA REYES, WILFREDO REYES, MICHAEL ROY REYES, SIXTA LAPUZ, and
SAMPAGUITA TRAVEL CORP., Respondents.

DECISION

PEREZ, J.:

Assailed in this petition for review are the Decision1 dated 22 October 2008 in CA-G.R. CV. No.
86156 and the 6 January 2009 Resolution2 in the same case of the Court of Appeals.

This case started as a complaint for damages tiled by respondents against Cathay Pacific Airways
(Cathay Pacific) and Sampaguita Travel Corp. (Sampaguita Travel), now joined as a respondent.
The factual backdrop leading to the filing of the complaint is as follows:

Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his family’s trip to Adelaide, Australia scheduled from 12 April 1997 to 4 May
1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was
issued four (4) Cathay Pacific round-trip airplane tickets for Manila-HongKong-Adelaide-HongKong-
Manila with the following record locators:
1âw phi1

Name of Passenger PNR OR RECORD LOCATOR NOS.3

Reyes, Wilfredo J76TH
Reyes, Juanita HDWC3
Reyes, Michael Roy H9VZF
Lapuz, Sixta HTFMG4

On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes
(Michael) and mother-in-law Sixta Lapuz (Sixta), flew to Adelaide, Australia without a hitch.

One week before they were scheduled to fly back home, Wilfredo reconfirmed his family’s return
flight with the Cathay Pacific office in Adelaide. They were advised that the reservation was "still
okay as scheduled."

On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the airport
on time. When the airport check-in counter opened, Wilfredo was informed by a staff from Cathay
Pacific that the Reyeses did not have confirmed reservations, and only Sixta’s flight booking was
confirmed. Nevertheless, they were allowed to board the flight to HongKong due to adamant pleas
from Wilfredo. When they arrived in HongKong, they were again informed of the same problem.
Unfortunately this time, the Reyeses were not allowed to board because the flight to Manila was fully
booked. Only Sixta was allowed to proceed to Manila from HongKong. On the following day, the
Reyeses were finally allowed to board the next flight bound for Manila.

Upon arriving in the Philippines, Wilfredo went to Sampaguita Travel to report the incident. He was
informed by Sampaguita Travel that it was actually Cathay Pacific which cancelled their bookings.

On 16 June 1997, respondents as passengers, through counsel, sent a letter to Cathay Pacific
advising the latter of the incident and demanding payment of damages.

After a series of exchanges and with no resolution in sight, respondents filed a Complaint for
damages against Cathay Pacific and Sampaguita Travel and prayed for the following relief: a)
₱1,000,000.00 as moral damages; b) ₱300,000.00 as actual damages; c) ₱100,000.00 as
exemplary damages; and d) ₱100,000.00 as attorney’s fees.5

In its Answer, Cathay Pacific alleged that based on its computerized booking system, several and
confusing bookings were purportedly made under the names of respondents through two (2) travel
agencies, namely: Sampaguita Travel and Rajah Travel Corporation. Cathay Pacific explained that
only the following Passenger Name Records (PNRs) appeared on its system: PNR No. H9V15, PNR
No. HTFMG, PNR No. J9R6E, PNR No. J76TH, and PNR No. H9VSE. Cathay Pacific went on to
detail each and every booking, to wit:

1. PNR No. H9V15

Agent: Sampaguita Travel Corp.

Party: Ms. J Reyes, Mr. M R Reyes, Mr. W Reyes

Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR.

The itinerary listed above was confirmed booking. However, the itinerary did not include booking for
the return flights. From information retrieved from ABACUS (the booking system used by agents),
the agent has, on 10 April, added segments CX104/CX905 ADL/HKG/MNL 04 MAY on MK status,
which was not a confirmed booking. MK function is used for synchronizing records or for ticketing
purposes only. It does not purport to be a real booking. As a result, no booking was transmitted into
CPA’s system.

2. PNR No. HTFMG

Agent: Sampaguita Travel Corp.

Party: Mrs. Sixta Lapuz

Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR, CX104/CX907 ADL/HKG/MNL 04/05 MAY.

The above itinerary is the actual itinerary that the passenger has flown. However, for the return
sector, HKG/MNL, the original booking was on CX905 of 04 May. This original booking was
confirmed on 21 Mar. and ticketed on 11 Apr.

This booking was cancelled on 04 May at 9:03 p.m. when CX905 was almost scheduled to leave at
the behest of the passenger and she was re-booked on CX907 of 05 May at the same time.
3. PNR No. J9R6E

Agent: Rajah Travel Corp.

Party: Mrs. Julieta Gaspar, Mrs. Sixta Lapuz, Mrs. Juanita Reyes,

Mr. Michael Roy Reyes, Mr. Wilfredo Reyes.

Itinerary: CX900 & CX902 MNL/HKG 12 APR, CX105 HKG/ADL 12 APR, CX104/CX905
ADL/HKG/MNL 04 MAY & 07 MAY

The party was confirmed initially on CX900/12 Apr, CX105/12 Apr, CX104/CX9095 07 May and on
waiting list for CX902/12 Apr, CX104/CX905 04 May.

However, on 31 Mar., the booking was cancelled by the agent.

4. PNR No. J76TH

Agent: Sampaguita Travel Corp.

Party: Mr. W Reyes

Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.

The booking on the above itinerary was confirmed initially. When the agent was asked for the ticket
number as the flight CX905 04 May was very critical, the agent has inputted the ticket number on 10
Apr. but has removed the record on 11 April. Since the booking was reflected as not ticketed, the
booking was cancelled on 18 Apr. accordingly.

This PNR was split from another PNR record, H9VSE.

5. PNR No. H9VSE

Agent: Sampaguita Travel Corp.

Party: Ms. R Lapuz, Mr. R Lapuz, Mr. A Samson, originally Mr. W Reyes was included in this party
as well

Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.

The booking was confirmed initially but were not ticketed by 11 Apr. and was cancelled accordingly.
However, the PNR of Mr. W Reyes who was originally included in this party was split to a separate
record of J76TH.6

Cathay Pacific asserted that in the case of Wilfredo with PNR No. J76TH, no valid ticket number was
inputted within a prescribed period which means that no ticket was sold. Thus, Cathay Pacific had
the right to cancel the booking. Cathay Pacific found that Sampaguita Travel initially inputted a ticket
number for PNR No. J76TH and had it cancelled the following day, while the PNR Nos. HDWC3 and
HTFMG of Juanita and Michael do not exist.
The Answer also contained a cross-claim against Sampaguita Travel and blamed the same for the
cancellation of respondents’ return flights. Cathay Pacific likewise counterclaimed for payment of
attorney’s fees.

On the other hand, Sampaguita Travel, in its Answer, denied Cathay Pacific’s claim that it was the
cause of the cancellation of the bookings. Sampaguita Travel maintained that it made the necessary
reservation with Cathay Pacific for respondents’ trip to Adelaide. After getting confirmed bookings
with Cathay Pacific, Sampaguita Travel issued the corresponding tickets to respondents. Their
confirmed bookings were covered with the following PNRs:

PASSENGER NAME PNR No.

Lapuz, Sixta H9V15/ J76TH
Reyes, Wilfredo H9V15/HDWC3
Reyes, Michael Roy H9V15/H9VZF
Reyes, Juanita HTFMG7

Sampaguita Travel explained that the Reyeses had two (2) PNRs each because confirmation from
Cathay Pacific was made one flight segment at a time. Sampaguita Travel asserted that it only
issued the tickets after Cathay Pacific confirmed the bookings. Furthermore, Sampaguita Travel
exonerated itself from liability for damages because respondents were claiming for damages arising
from a breach of contract of carriage. Sampaguita Travel likewise filed a cross-claim against Cathay
Pacific and a counterclaim for damages.

During the pre-trial, the parties agreed on the following stipulation of facts:

1. That the plaintiffs did not deal directly with Cathay Pacific Airways;

2. That the plaintiffs did not make their bookings directly with Cathay Pacific Airways;

3. That the plaintiffs did not purchase and did not get their tickets from Cathay Pacific
Airways;

4. That Cathay Pacific Airways has promptly replied to all communications sent by the
plaintiffs through their counsel;

5. That the plane tickets issued to plaintiffs were valid, which is why they were able to depart
from Manila to Adelaide, Australia and that the reason why they were not able to board their
return flight from Adelaide was because of the alleged cancellation of their booking by
Cathay Pacific Airways at Adelaide, save for that of Sixta Lapuz whose booking was
confirmed by Cathay Pacific Airways;

6. That several reservations and bookings for the plaintiffs were done by defendant
Sampaguita Travel Corporation through the computer reservation system and each of such
request was issued a PNR;

7. That, as a travel agent, defendant Sampaguita Travel Corporation merely acts as a

booking/sales/ticketing arm for airline companies and it has nothing to do with the airline
operations;
 8. That in the travel industry, the practice of reconfirmation of return flights by passengers is
coursed or done directly with the airline company and not with the travel agent, which has no
participation, control or authority in making such reconfirmations.

9. That in the travel industry, the practice of cancellation of flights is within the control of the
airline and not of the travel agent, unless the travel agent is requested by the passengers to
make such cancellations; and,

10. That defendant Cathay Pacific Airways has advertised that "there is no need to confirm
your flight when travelling with us", although Cathay Pacific Airways qualifies the same to the
effect that in some cases there is a need for reconfirmations.8

After trial on the merits, the Regional Trial Court (RTC) rendered a Decision,9 the dispositive part of
which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendants and
against the herein plaintiff. Accordingly, plaintiffs’ complaint is hereby ordered DISMISSED for lack
of merit. Defendants’ counterclaims and cross-claims are similarly ordered dismissed for lack of
merit. No pronouncement as to cost.10

The trial court found that respondents were in possession of valid tickets but did not have confirmed
reservations for their return trip to Manila. Additionally, the trial court observed that the several PNRs
opened by Sampaguita Travel created confusion in the bookings. The trial court however did not find
any basis to establish liability on the part of either Cathay Pacific or Sampaguita Travel considering
that the cancellation was not without any justified reason. Finally, the trial court denied the claims for
damages for being unsubstantiated.

Respondents appealed to the Court of Appeals. On 22 October 2008, the Court of Appeals ordered
Cathay Pacific to pay ₱25,000.00 each to respondents as nominal damages.

Upon denial of their motion for reconsideration, Cathay Pacific filed the instant petition for review
assigning the following as errors committed by the Court of Appeals:

A.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND

REVERSIBLE ERROR IN HOLDING THAT CATHAY PACIFIC AIRWAYS IS LIABLE FOR
NOMINAL DAMAGES FOR ITS ALLEGED INITIAL BREACH OF CONTRACT WITH THE
PASSENGERS EVEN THOUGH CATHAY PACIFIC AIRWAYS WAS ABLE TO PROVE
BEYOND REASONABLE DOUBT THAT IT WAS NOT AT FAULT FOR THE
PREDICAMENT OF THE RESPONDENT PASSENGERS.

B.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND

REVERSIBLE ERROR IN RELYING ON MATTERS NOT PROVED DURING THE TRIAL
AND NOT SUPPORTED BY THE EVIDENCE AS BASIS FOR HOLDING CATHAY PACIFIC
AIRWAYS LIABLE FOR NOMINAL DAMAGES.

C.
 WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR IN HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL
DAMAGES TO RESPONDENT SIXTA LAPUZ.

D.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND

REVERSIBLE ERROR IN NOT HOLDING SAMPAGUITA TRAVEL CORP. LIABLE TO
CATHAY PACIFIC AIRWAYS FOR WHATEVER DAMAGES THAT THE AIRLINE
COMPANY WOULD BE ADJUDGED THE RESPONDENT PASSENGERS.

E.

ALTERNATIVELY, WHETHER OR NOT THE COURT OF APPEALS COMMITTED A

CLEAR AND REVERSIBLE ERROR WHEN IT FAILED TO APPLY THE DOCTRINE OF
STARE DECISIS IN FIXING THE AMOUNT OF NOMINAL DAMAGES TO BE AWARDED.11

Cathay Pacific assails the award of nominal damages in favor of respondents on the ground that its
action of cancelling the flight bookings was justifiable. Cathay Pacific reveals that upon investigation,
the respondents had no confirmed bookings for their return flights. Hence, it was not obligated to
transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith in accommodating the
respondents despite holding unconfirmed bookings.

Cathay Pacific also scores the Court of Appeals in basing the award of nominal damages on the
alleged asthmatic condition of passenger Michael and old age of Sixta. Cathay Pacific points out that
the records, including the testimonies of the witnesses, did not make any mention of Michael’s
asthma. And Sixta was in fact holding a confirmed booking but she refused to take her confirmed
seat and instead stayed in HongKong with the other respondents.

Cathay Pacific blames Sampaguita Travel for negligence in not ensuring that respondents had
confirmed bookings for their return trips.

Lastly, assuming arguendo that the award of nominal damages is proper, Cathay Pacific contends
that the amount should be reduced to ₱5,000.00 for each passenger.

At the outset, it bears pointing out that respondent Sixta had no cause of action against Cathay
Pacific or Sampaguita Travel. The elements of a cause of action consist of: (1) a right existing in
favor of the plaintiff, (2) a duty on the part of the defendant to respect the plaintiff’s right, and (3) an
act or omission of the defendant in violation of such right.12 As culled from the records, there has
been no violation of any right or breach of any duty on the part of Cathay Pacific and Sampaguita
Travel. As a holder of a valid booking, Sixta had the right to expect that she would fly on the flight
and on the date specified on her airplane ticket. Cathay Pacific met her expectations and Sixta was
indeed able to complete her flight without any trouble. The absence of any violation to Sixta’s right
as passenger effectively deprived her of any relief against either Cathay Pacific or Sampaguita
Travel.

With respect to the three remaining respondents, we rule as follows:

The determination of whether or not the award of damages is correct depends on the nature of the
respondents’ contractual relations with Cathay Pacific and Sampaguita Travel. It is beyond dispute
that respondents were holders of Cathay Pacific airplane tickets and they made the booking through
Sampaguita Travel.

Respondents’ cause of action against Cathay Pacific stemmed from a breach of contract of carriage.
A contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to another for a fixed price.13 Under
Article 1732 of the Civil Code, this "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" is called a common carrier.

Respondents entered into a contract of carriage with Cathay Pacific. As far as respondents are
concerned, they were holding valid and confirmed airplane tickets. The ticket in itself is a valid
written contract of carriage whereby for a consideration, Cathay Pacific undertook to carry
respondents in its airplane for a round-trip flight from Manila to Adelaide, Australia and then back to
Manila. In fact, Wilfredo called the Cathay Pacific office in Adelaide one week before his return flight
to re-confirm his booking. He was even assured by a staff of Cathay Pacific that he does not need to
reconfirm his booking.

In its defense, Cathay Pacific posits that Wilfredo’s booking was cancelled because a ticket number
was not inputted by Sampaguita Travel, while bookings of Juanita and Michael were not honored for
being fictitious. Cathay Pacific clearly blames Sampaguita Travel for not finalizing the bookings for
the respondents’ return flights. Respondents are not privy to whatever misunderstanding and
confusion that may have transpired in their bookings. On its face, the airplane ticket is a valid written
contract of carriage. This Court has held that when an airline issues a ticket to a passenger
confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger
has every right to expect that he would fly on that flight and on that date. If he does not, then the
carrier opens itself to a suit for breach of contract of carriage.14

As further elucidated by the Court of Appeals:

Now, Article 1370 of the Civil Code mandates that "if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control." Under Section 9, Rule 130 of the Rules of Court, once the terms of an agreement have
been reduced to writing, it is deemed to contain all the terms agreed upon by the parties and no
evidence of such terms other than the contents of the written agreement shall be admissible. The
terms of the agreement of appellants and appellee Cathay Pacific embodied in the tickets issued by
the latter to the former are plain – appellee Cathay Pacific will transport appellants to Adelaide,
Australia from Manila via Hongkong on 12 April 1991 and back to Manila from Adelaide, Australia
also via Hongkong on 4 May 1997. In addition, the tickets reveal that all appellants have confirmed
bookings for their flight to Adelaide, Australia and back to Manila as manifested by the words "Ok"
indicated therein. Arlene Ansay, appellee Cathay Pacific’s Reservation Supervisor, validated this fact
in her testimony saying that the return flights of all appellants to the Philippines on 4 May 1997 were
confirmed as appearing on the tickets. Indubitably, when appellee Cathay Pacific initially refused to
transport appellants to the Philippines on 4 May 1997 due to the latter’s lack of reservation, it has, in
effect, breached their contract of carriage. Appellants, however, were eventually accommodated and
transported by appellee Cathay Pacific to Manila.15

Cathay Pacific breached its contract of carriage with respondents when it disallowed them to board
the plane in Hong Kong going to Manila on the date reflected on their tickets. Thus, Cathay Pacific
opened itself to claims for compensatory, actual, moral and exemplary damages, attorney’s fees and
costs of suit.
In contrast, the contractual relation between Sampaguita Travel and respondents is a contract for
services. The object of the contract is arranging and facilitating the latter’s booking and ticketing. It
was even Sampaguita Travel which issued the tickets.

Since the contract between the parties is an ordinary one for services, the standard of care required
of respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.16

There was indeed failure on the part of Sampaguita Travel to exercise due diligence in performing its
obligations under the contract of services. It was established by Cathay Pacific, through the
generation of the PNRs, that Sampaguita Travel failed to input the correct ticket number for
Wilfredo’s ticket. Cathay Pacific even asserted that Sampaguita Travel made two fictitious bookings
for Juanita and Michael.

The negligence of Sampaguita Travel renders it also liable for damages.

For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a
reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by
the injured party. To justify an award of actual damages, there must be competent proof of the actual
amount of loss. Credence can be given only to claims which are duly supported by receipts.17

We echo the findings of the trial court that respondents failed to show proof of actual damages.
Wilfredo initially testified that he personally incurred losses amounting to ₱300,000.00 which
represents the amount of the contract that he was supposedly scheduled to sign had his return trip
not been cancelled. During the cross-examination however, it appears that the supposed contract-
signing was a mere formality and that an agreement had already been hatched beforehand. Hence,
we cannot fathom how said contract did not materialize because of Wilfredo’s absence, and how
Wilfredo incurred such losses when he himself admitted that he entered into said contract on behalf
of Parsons Engineering Consulting Firm, where he worked as construction manager. Thus, if indeed
there were losses, these were losses suffered by the company and not by Wilfredo. Moreover, he
did not present any documentary evidence, such as the actual contract or affidavits from any of the
parties to said contract, to substantiate his claim of losses. With respect to the remaining
passengers, they likewise failed to present proof of the actual losses they suffered.

Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of
contract, is in order upon a showing that the defendant acted fraudulently or in bad faith.18 What the
law considers as bad faith which may furnish the ground for an award of moral damages would be
bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its
terms, or any other kind of deceit. In the same vein, to warrant the award of exemplary damages,
defendant must have acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.19

In the instant case, it was proven by Cathay Pacific that first, it extended all possible
accommodations to respondents. They were promptly informed of the problem in their bookings
1âwphi1

while they were still at the Adelaide airport. Despite the non-confirmation of their bookings,
respondents were still allowed to board the Adelaide to Hong Kong flight. Upon arriving in Hong
Kong, they were again informed that they could not be accommodated on the next flight because it
was already fully booked. They were however allowed to board the next available flight on the
following day. Second, upon receiving the complaint letter of respondents, Cathay Pacific
immediately addressed the complaint and gave an explanation on the cancellation of their flight
bookings.

The Court of Appeals is correct in stating that "what may be attributed to x x x Cathay Pacific is
negligence concerning the lapses in their process of confirming passenger bookings and
reservations, done through travel agencies. But this negligence is not so gross so as to amount to
bad faith."20 Cathay Pacific was not motivated by malice or bad faith in not allowing respondents to
board on their return flight to Manila. It is evident and was in fact proven by Cathay Pacific that its
refusal to honor the return flight bookings of respondents was due to the cancellation of one booking
and the two other bookings were not reflected on its computerized booking system.

Likewise, Sampaguita Travel cannot be held liable for moral damages. True, Sampaguita Travel was
negligent in the conduct of its booking and ticketing which resulted in the cancellation of flights. But
its actions were not proven to have been tainted with malice or bad faith. Under these
circumstances, respondents are not entitled to moral and exemplary damages. With respect to
1âwphi 1

attorney’s fees, we uphold the appellate court’s finding on lack of factual and legal justification to
award attorney’s fees.

We however sustain the award of nominal damages in the amount of ₱25,000.00 to only three of the
four respondents who were aggrieved by the last-minute cancellation of their flights. Nominal
damages are recoverable where a legal right is technically violated and must be vindicated against
an invasion that has produced no actual present loss of any kind or where there has been a breach
of contract and no substantial injury or actual damages whatsoever have been or can be
shown.21 Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff
whose right has been violated or invaded by the defendant, for the purpose of vindicating or
recognizing that right, not for indemnifying the plaintiff for any loss suffered.

Considering that the three respondents were denied boarding their return flight from HongKong to
Manila and that they had to wait in the airport overnight for their return flight, they are deemed to
have technically suffered injury. Nonetheless, they failed to present proof of actual damages.
Consequently, they should be compensated in the form of nominal damages.

The amount to be awarded as nominal damages shall be equal or at least commensurate to the
injury sustained by respondents considering the concept and purpose of such damages. The amount
of nominal damages to be awarded may also depend on certain special reasons extant in the case.22

The amount of such damages is addressed to the sound discretion of the court and taking into
account the relevant circumstances,23 such as the failure of some respondents to board the flight on
schedule and the slight breach in the legal obligations of the airline company to comply with the
terms of the contract, i.e., the airplane ticket and of the travel agency to make the correct bookings.
We find the award of ₱25,000.00 to the Reyeses correct and proper.

Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the bookings
which led to the erroneous cancellation of respondents’ bookings. Their negligence is the proximate
cause of the technical injury sustained by respondents. Therefore, they have become joint
tortfeasors, whose responsibility for quasi-delict, under Article 2194 of the Civil Code, is solidary.

Based on the foregoing, Cathay Pacific and Sampaguita Travel are jointly and solidarily liable for
nominal damages awarded to respondents Wilfredo, Juanita and Michael Roy.

WHEREFORE, the Petition is DENIED. The 22 October 2008 Decision of the Court of Appeals is
AFFIRMED with MODIFICATION that Sampaguita Travel is held to be solidarily liable with Cathay
Pacific in the payment of nominal damages of ~25,000.00 each for Wilfredo Reyes, Juanita Reyes,
and Michael Rox Reyes. The complaint of respondent Sixta

Lapuz is DISMISSED for lack of cause of action.

SO ORDERED.

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner,

vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Antonio B. Abinoja for petitioner.

Quijano, Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:

The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner for damages based on culpa
contractual. The antecedent facts, as found by the respondent Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul
305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT
"Batman" (Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that
agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the
scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When about half of the
scrap iron was already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of
Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted
the shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and
fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The <äre||anº• 1àw>

gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment
(t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump
the scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28,
1972, p. 31). The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22).
Later on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken
custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972,
p. 10.)

On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion
of which states:

WHEREFORE, the decision appealed from is hereby reversed and set aside and a
new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum
 of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon. 3

In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:

THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE
CONTRACT OF TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM
COMMENCING FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY AND CONTROL
HAVE NO BASIS IN FACT AND IN LAW.

II

THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS
EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY
THE LOCAL GOVERNMENT OFFICIAL WITHOUT HIS PARTICIPATION.

III

THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE
TO A FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES
AS A CONSEQUENCE THEREOF. 4

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his employees,
actually received the scraps is freely admitted. Significantly, there is not the slightest allegation or
showing of any condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the contrary, soon
after the scraps were delivered to, and received by the petitioner-common carrier, loading was
commenced.

By the said act of delivery, the scraps were unconditionally placed in the possession and control of
the common carrier, and upon their receipt by the carrier for transportation, the contract of carriage
was deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the
loss, destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them. 5 The fact that part of the shipment had
not been loaded on board the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.

The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:

(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;

(5) Order or act of competent public authority.

Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of
this presumption, the court is not even required to make an express finding of fault or negligence
before it could hold the petitioner answerable for the breach of the contract of carriage. Still, the
petitioner could have been exempted from any liability had he been able to prove that he observed
extraordinary diligence in the vigilance over the goods in his custody, according to all the
circumstances of the case, or that the loss was due to an unforeseen event or to force majeure. As it
was, there was hardly any attempt on the part of the petitioner to prove that he exercised such
extraordinary diligence.

It is in the second and third assignments of error where the petitioner maintains that he is exempt
from any liability because the loss of the scraps was due mainly to the intervention of the municipal
officials of Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code. 7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that
the loss of the scraps was due to an "order or act of competent public authority," and this contention
was correctly passed upon by the Court of Appeals which ruled that:

... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power
to issue the disputed order, or that it was lawful, or that it was issued under legal
process of authority. The appellee failed to establish this. Indeed, no authority or
power of the acting mayor to issue such an order was given in evidence. Neither has
it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles.
What we have in the record is the stipulation of the parties that the cargo of scrap
iron was accilmillated by the appellant through separate purchases here and there
from private individuals (Record on Appeal, pp. 38-39). The fact remains that the
order given by the acting mayor to dump the scrap iron into the sea was part of the
pressure applied by Mayor Jose Advincula to shakedown the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we
cannot, however, allow. In any case, the intervention of the municipal officials was not In any case,
of a character that would render impossible the fulfillment by the carrier of its obligation. The
petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover,
there is absence of sufficient proof that the issuance of the same order was attended with such force
or intimidation as to completely overpower the will of the petitioner's employees. The mere difficulty
in the fullfilment of the obligation is not considered force majeure. We agree with the private
respondent that the scraps could have been properly unloaded at the shore or at the NASSCO
compound, so that after the dispute with the local officials concerned was settled, the scraps could
then be delivered in accordance with the contract of carriage.

There is no incompatibility between the Civil Code provisions on common carriers and Articles
361 8 and 362 9 of the Code of Commerce which were the basis for this Court's ruling in Government
of the Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For
Art. 1735 of the Civil Code, conversely stated, means that the shipper will suffer the losses and
deterioration arising from the causes enumerated in Art. 1734; and in these instances, the burden of
proving that damages were caused by the fault or negligence of the carrier rests upon him. However,
the carrier must first establish that the loss or deterioration was occasioned by one of the excepted
causes or was due to an unforeseen event or to force majeure. Be that as it may, insofar as Art. 362
appears to require of the carrier only ordinary diligence, the same is .deemed to have been modified
by Art. 1733 of the Civil Code.

Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by
us. Besides, these were not sufficiently controverted by the petitioner.

WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

Yap, C.J., Paras and Padilla, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and destruction of the
scrap iron. The loss of said cargo was due to an excepted cause an 'order or act of competent public
authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act' of
said official and even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three
policemen, who ordered the dumping of the scrap iron into the sea right where the lighter was
docked in three feet of water. Again, could the captain of the lighter and his crew have defied said
order?

Through the "order" or "act" of "competent public authority," therefore, the performance of a
contractual obligation was rendered impossible. The scrap iron that was dumped into the sea was
"destroyed" while the rest of the cargo was "seized." The seizure is evidenced by the receipt issues
by Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.
 Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.

THIRD DIVISION

SPOUSES DANTE CRUZ and G.R. No. 186312

LEONORA CRUZ,
Petitioners, Present:

CARPIO MORALES, J.,

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

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

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court
(RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.

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

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

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

Help came after about 45 minutes when two boats owned by Asia Divers in
Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on
those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight passengers, including petitioners
son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.

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

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

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

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

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

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

Petitioners Motion for Reconsideration having been denied by Order

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

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

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

Petitioners Motion for Reconsideration having been denied by Resolution

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

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

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

The petition is impressed with merit.

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

respondent as a common carrier.
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal

business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (in local idiom,
as a sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general
public, i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from
making such distinctions.

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

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

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

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

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

with its main business as to be properly considered ancillary thereto. The
constancy of respondents ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.

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

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the
safety of the passengers transported by them, according to all the circumstances of
each case.[19] They are bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.[20]
 When a passenger dies or is injured in the discharge of a contract of carriage,
it is presumed that the common carrier is at fault or negligent. In fact, there is even
no need for the court to make an express finding of fault or negligence on the part
of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.[21]

Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September
11, 2000. Respondents position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect
the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising
weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]

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

Respondents insistence that the incident was caused by a fortuitous event

does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that
constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal manner;
and (d) the obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor.[24]
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.[25]

Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence
of squalls was expected under the weather condition of September 11,
2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble
before it capsized and sank.[26] The incident was, therefore, not completely free
from human intervention.

The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the squall.

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

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

As for damages representing unearned income, the formula for its

computation is:

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

reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

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

 The first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 age at death]) adopted in the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental
expenses.[32] The loss is not equivalent to the entire earnings of the deceased, but
only such portion as he would have used to support his dependents or heirs. Hence,
to be deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs.[33]

In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life

expectancy as follows:

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

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

Documentary evidence shows that Ruelito was earning a basic monthly

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

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

reasonable and necessary living expenses).
 = 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers

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

Since respondent failed to prove that it exercised the extraordinary diligence

required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[37]

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

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

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

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals[40] teaches that

when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment
of interest in the concept of actual and compensatory damages, subject to the
following rules, to wit

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

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

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

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

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

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

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

WHEREFORE, the Court of Appeals Decision of August 19,

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

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

SO ORDERED.
G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

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

DECISION

BERSAMIN, J.:

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

The Case

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

Antecedents

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

In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the
Zarates’ residence. Aaron took his place on the left side of the van near the rear door. The van, with
its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student
riders on their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15
a.m., and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow
path underneath the Magallanes Interchange that was then commonly used by Makati-bound
vehicles as a short cut into Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the narrow path had no
railroad warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.

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

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not be served with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

That spouses Zarate were the legitimate parents of Aaron John L. Zarate;(1)

Spouses Zarate engaged the services of spouses Pereña for the adequate and safe
transportation carriage of the former spouses' son from their residence in Parañaque to his
school at the Don Bosco Technical Institute in Makati City;(2)

During the effectivity of the contract of carriage and in the implementation thereof, Aaron,
the minor son of spouses Zarate died in connection with a vehicular/train collision which
occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses Pereña,
then driven and operated by the latter's employee/authorized driver Clemente Alfaro, which
van collided with the train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity
of the Magallanes Interchange in Makati City, Metro Manila, Philippines;(3)

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

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

At the material time, countless number of Makati bound public utility and private vehicles
used on a daily basis the site of the collision as an alternative route and short-cut to
Makati;(6)
 The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;(7)

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

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

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

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

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

B. ISSUES

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

(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro
are liable for any negligence which may be attributed to defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator of the railroad
system is liable for negligence in failing to provide adequate safety warning signs and railings
in the area commonly used by motorists for railroad crossings, constituting the proximate
cause of the vehicular collision which resulted in the death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Pereña are liable for breach of the contract of carriage
with plaintiff-spouses in failing to provide adequate and safe transportation for the latter's
son;

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

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

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

(8) Whether or not defendant PNR was grossly negligent in operating the commuter train
involved in the accident, in allowing or tolerating the motoring public to cross, and its failure
to install safety devices or equipment at the site of the accident for the protection of the
public;
 (9) Whether or not defendant PNR should be made to reimburse defendant spouses for any
and whatever amount the latter may be held answerable or which they may be ordered to
pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts
claimed by the latter in their Complaint by reason of its gross negligence;

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

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

In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had
been issued a driver’s license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña had sometimes
accompanied Alfaro in the van’s trips transporting the students to school.

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

Ruling of the RTC

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

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:

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

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

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

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

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the
cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the death
of Aaron; and that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.
 The CA’s Ruling

Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and severally liable
together with defendant-appellants spouses Teodorico and Nanette Pereña and defendant-
appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and
damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendants-
appellants Philippine National Railways.

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

The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and
exemplary damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the
absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did
not state the factual and legal bases, to wit:6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Parañaque City is AFFIRMED with the modification that the award of Actual Damages is reduced
to ₱ 59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is
Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the Court gave
the heirs of Cariaga a sum representing the loss of the deceased’s earning capacity despite Cariaga
being only a medical student at the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:–

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

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

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

Issues

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

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

II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.

III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.

Ruling

The petition has no merit.

1.
Were the Pereñas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereñas and the PNR,
basing their claim against the Pereñas on breach of contract of carriage and against the PNR on
quasi-delict.

The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
driver’s license and that he had not been involved in any vehicular accident prior to the fatal collision
with the train; that they even had their own son travel to and from school on a daily basis; and that
Teodoro Pereña himself sometimes accompanied Alfaro in transporting the passengers to and from
school. The RTC gave scant consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use, the exact nature of the operation
of a school bus service has not been finally settled. This is the occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire.11 The provisions on ordinary
contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common
carrier is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering such
services to the public.12 Contracts of common carriage are governed by the provisions on common
carriers of the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A
common carrier is required to observe extraordinary diligence, and is presumed to be at fault or to
have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14

In relation to common carriers, the Court defined public use in the following terms in United States v.
Tan Piaco,15viz:

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

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any
distinction between a person or an enterprise offering transportation on a regular or an isolated
basis; and has not distinguished a carrier offering his services to the general public, that is, the
general community or population, from one offering his services only to a narrow segment of the
general population.

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

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

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,18 custom brokers and warehousemen,19 and barge
operators20 even if they had limited clientèle.

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

Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a fee.
Despite catering to a limited clientèle, the Pereñas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee.

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

And, secondly, the Pereñas have not presented any compelling defense or reason by which the
Court might now reverse the CA’s findings on their liability. On the contrary, an examination of the
records shows that the evidence fully supported the findings of the CA.

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger.25 The presumption of
negligence, being a presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent.26 It was the law no less that required them to prove their
observance of extraordinary diligence in seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences of such death.

There is no question that the Pereñas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient. According to Article 1759 of the
Civil Code, their liability as a common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employee. This was the
reason why the RTC treated this defense of the Pereñas as inappropriate in this action for breach of
contract of carriage.

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

The omissions of care on the part of the van driver constituted negligence,30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man would not do,32 or as Judge Cooley
defines it, ‘(t)he failure to observe for the protection of the interests of another person, that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.’"33

The test by which to determine the existence of negligence in a particular case has been aptly stated
in the leading case of Picart v. Smith,34 thuswise:

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

Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when he
traversed the railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware
of the grave harm to be thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court,35 where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers
when its train hit the rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the showing of negligence on
the part of both the Pereñas and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated railroad crossing
when it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at a point not
intended for that purpose.

At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same complaint
as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact and of law were
common as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of
contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school
van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through
the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was
aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily,
the Pereñas and the PNR were joint tortfeasors.

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

We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded. They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
1âwphi1

Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before the shooting, and was at
the time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his
ambition to become a professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.

We reject the Pereñas’ submission.

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

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

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas
Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriaga’s
earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he could have finished the
medical course and would have passed the medical board examinations in due time, and that he
could have possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due time, and that their
jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the
time of their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baños, the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

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

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their suffering for the loss of their
child. At any rate, reducing the amount as excessive might prove to be an injustice, given the
passage of a long time from when their mental anguish was inflicted on them on August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only
to render effective the desired example for the public good. As a common carrier, the Pereñas
needed to be vigorously reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an award of exemplary
damages in that amount would suffice to instill in them and others similarly situated like them the
ever-present need for greater and constant vigilance in the conduct of a business imbued with public
interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on
November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

G.R. No. 119197 May 16, 1997

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW
ZEALAND INSURANCE CO., LTD., petitioners,
vs.
NORTH FRONT SHIPPING SERVICES, INC., and COURT OF APPEALS, respondents.

BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and New Zealand
Insurance Co., Ltd., in this petition for review on certiorari, assail the 22 December 1994 decision of
the Court of Appeals and its Resolution of 16 February 1995 which affirmed the 1 June 1993
decision of the Regional Trial Court dismissing their complaint for damages against North Front
Shipping Services, Inc.
On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were shipped on
board North Front 777, a vessel owned by North Front Shipping Services, Inc. The cargo was
consigned to Republic Flour Mills Corporation in Manila under Bill of Lading No. 001 1 and insured
with the herein mentioned insurance companies. The vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to carry the merchandise. The cargo was covered
with tarpaulins and wooden boards. The hatches were sealed and could only be opened by
representatives of Republic Flour Mills Corporation.

The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16 August 1990.
Republic Flour Mills Corporation was advised of its arrival but it did not immediately commence the
unloading operations. There were days when unloading had to be stopped due to variable weather
conditions and sometimes for no apparent reason at all. When the cargo was eventually unloaded
there was a shortage of 26.333 metric tons. The remaining merchandise was already moldy, rancid
and deteriorating. The unloading operations were completed on 5 September 1990 or twenty (20)
days after the arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City.

Precision Analytical Services, Inc., was hired to examine the corn grains and determine the cause of
deterioration. A Certificate of Analysis was issued indicating that the corn grains had 18.56%
moisture content and the wetting was due to contact with salt water. The mold growth was only
incipient and not sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growth could still be arrested by drying.

Republic Flour Mills Corporation rejected the entire cargo and formally demanded from North Front
Shipping Services, Inc., payment for the damages suffered by it. The demands however were
unheeded. The insurance companies were perforce obliged to pay Republic Flour Mills Corporation
P2,189,433.40.

By virtue of the payment made by the insurance companies they were subrogated to the rights of
Republic Flour Mills Corporation. Thusly, they lodged a complaint for damages against North Front
Shipping Services, Inc., claiming that the loss was exclusively attributable to the fault and negligence
of the carrier. The Marine Cargo Adjusters hired by the insurance companies conducted a survey
and found cracks in the bodega of the barge and heavy concentration of molds on the tarpaulins and
wooden boards. They did not notice any seals in the hatches. The tarpaulins were not brand new as
there were patches on them, contrary to the claim of North Front Shipping Services, Inc., thus
making it possible for water to seep in. They also discovered that the bulkhead of the barge was
rusty.

North Front Shipping Services, Inc., averred in refutation that it could not be made culpable for the
loss and deterioration of the cargo as it was never negligent. Captain Solomon Villanueva, master of
the vessel, reiterated that the barge was inspected prior to the actual loading and was found
adequate and seaworthy. In addition, they were issued a permit to sail by the Coast Guard. The
tarpaulins were doubled and brand new and the hatches were properly sealed. They did not
encounter big waves hence it was not possible for water to seep in. He further averred that the corn
grains were farm wet and not properly dried when loaded.

The court below dismissed the complaint and ruled that the contract entered into between North
Front Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement.
As such, only ordinary diligencein the care of goods was required of North Front Shipping Services,
Inc. The inspection of the barge by the shipper and the representatives of the shipping company
before actual loading, coupled with the Permit to Sail issued by the Coast Guard, sufficed to meet
the degree of diligence required of the carrier.
On the other hand, the Court of Appeals ruled that as a common carrier required to observe a higher
degree of diligence North Front 777 satisfactorily complied with all the requirements hence was
issued a Permit to Sail after proper inspection. Consequently, the complaint was dismissed and the
motion for reconsideration rejected.

The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills
Corporation 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 2 thus —

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; 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 . . . 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. In both cases, the charter-party provides for the hire of the vessel
only, either for a determinate period of time or for a single or consecutive voyage, the
ship owner to supply the ship's store, pay for the wages of the master of 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. 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 . . .

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 shin only, as in the case of a time-charter or voyage-
charter (emphasis supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo
and offers its services indiscriminately to the public. It is without doubt a common carrier. As such it
is required to observe extraordinary diligence in its vigilance over the goods it transports. 3 When
goods placed in its care are lost or damaged, the carrier is presumed to have been at fault or to have
acted negligently. 4 North Front Shipping Services, Inc., therefore has the burden of proving that it
observed extraordinary diligence in order to avoid responsibility for the lost cargo.

North Front Shipping Services, Inc., proved that the vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to take a load of corn grains. They were also
issued Permit to Sail by the Coast Guard. The master of the vessel testified that the corn grains
were farm wet when loaded. However, this testimony was disproved by the clean bill of lading issued
by North Front Shipping Services, Inc., which did not contain a notation that the corn grains were wet
and improperly dried. Having been in the service since 1968, the master of the vessel would have
known at the outset that corn grains that were farm wet and not properly dried would eventually
deteriorate when stored in sealed and hot compartments as in hatches of a ship. Equipped with this
knowledge, the master of the vessel and his crew should have undertaken precautionary measures
to avoid or lessen the cargo's possible deterioration as they were presumed knowledgeable about
the nature of such cargo. But none of such measures was taken.

In Compania Maritima v. Court of Appeals 5 we ruled —

 . . . Mere proof of delivery of the goods in good order to a common carrier, and of
their arrival at the place of destination in bad order, makes out prima facie case
against the common carrier, so that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred, the common carrier must be held
responsible. Otherwise stated, 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" (emphasis
supplied).

In fine, we find that the carrier failed to observe the required extraordinary diligence in the vigilance
over the goods placed in its care. The proofs presented by North Front Shipping Services, Inc., were
insufficient to rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.

It is not denied by the insurance companies that the vessel was indeed inspected before actual
loading and that North Front 777 was issued a Permit to Sail. They proved the fact of shipment and
its consequent loss or damage while in the actual possession of the carrier. Notably, the carrier
failed to volunteer any explanation why there was spoilage and how it occurred. On the other hand, it
was shown during the trial that the vessel had rusty bulkheads and the wooden boards and
tarpaulins bore heavy concentration of molds. The tarpaulins used were not new, contrary to the
claim of North Front Shipping Services, Inc., as there were already several patches on them, hence,
making it highly probable for water to enter.

Laboratory analysis revealed that the corn grains were contaminated with salt water. North Front
Shipping Services, Inc., failed to rebut all these arguments. It did not even endeavor to establish that
the loss, destruction or deterioration of the goods was due to the following: (a) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (b) act of the public enemy in war,
whether international or civil; (c) act or omission of the shipper or owner of the goods; (d) the
character of the goods or defects in the packing or in the containers; (e) order or act of competent
public authority. 6 This is a closed list. If the cause of destruction, loss or deterioration is other than
the enumerated circumstances, then the carrier is rightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of the cargo solely to the carrier.
We find the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was
seasonably notified of the arrival of the barge but did not immediately start the unloading operations.
No explanation was proffered by the consignee as to why there was a delay of six (6) days. Had the
unloading been commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold growth was only
at its incipient stage and could still be arrested by drying. The corn grains were not yet toxic or unfit
for consumption. For its contributory negligence, Republic Flour Mills Corporation should share at
least 40% of the loss. 7

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its Resolution of 16
February 1995 are REVERSED and SET ASIDE. Respondent North Front Shipping Services, Inc., is
ordered to pay petitioners Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and
New Zealand Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount paid by the insurance
companies to Republic Flour Mills Corporation, plus interest at the rate of 12% per annum from the
time this judgment becomes final until full payment.

SO ORDERED.

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, petitioner, vs. PKS SHIPPING
COMPANY, respondent.

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million Three Hundred Seventy-Five Thousand Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods
were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On
the evening of 22 December 1988, about nine oclock, while Limar I was being
towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of
miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down
with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought reimbursement
from PKS Shipping of the sum paid to DUMC but the shipping company
refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
 The RTC dismissed the complaint after finding that the total loss of the
cargo could have been caused either by a fortuitous event, in which case the
ship owner was not liable, or through the negligence of the captain and crew
of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not
being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on
the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such
carrier can be held exempt for the loss of the cargo would be if the loss were
caused by natural disaster or calamity. Petitioner avers that typhoon
"APIANG" has not entered the Philippine area of responsibility and that, even
if it did, respondent would not be exempt from liability because its employees,
particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier and,
in either case, to the other question of whether or not it has observed the
proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
 The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court. The conclusions derived from those factual findings, however, are
[1]

not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be raised as being
appropriate issues in a petition for review before this Court. Thus, an issue
whether a carrier is private or common on the basis of the facts found by a
trial court or the appellate court can be a valid and reviewable question of law.
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.

Complementary to the codal definition is Section 13, paragraph (b), of the

Public Service Act; it defines public service to be

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, 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, 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 communication
systems, wire or wireless broadcasting stations and other similar public services. x x
x. (Underscoring supplied).

The prevailing doctrine on the question is that enunciated in the leading

case of De Guzman vs. Court of Appeals. Applying Article 1732 of the Code,
[2]

in conjunction with Section 13(b) of the Public Service Act, this Court has
held:

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.

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.

Much of 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 an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the
general public or to a limited clientele, although involving the carriage of
goods for a fee, the person or corporation providing such service could very
[3]

well be just a private carrier. A typical case is that of a charter party which
includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages and gets the control of the vessel and
[4]

its crew. Contrary to the conclusion made by the appellate court, its factual
[5]

findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry
such goods for a fee. The regularity of its activities in this area indicates more
than just a casual activity on its part. Neither can the concept of a common
[6]

carrier change merely because individual contracts are executed or entered

into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on
them. The provisions of Article 1733, notwithstanding, common carriers are
[7]

exempt from liability for loss, destruction, or deterioration of the goods due to
any of the following causes:
 (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. [8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong
winds of 1.5 knots resulting in the entry of water into the barges hatches. The
official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the
appellate court.
Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual findings
of the Court of Appeals and the trial court are contradictory; (2)when the
conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4)when there is
a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when
the findings of fact are conclusions without citation of the specific evidence on
which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in
this instance.
All given then, the appellate court did not err in its judgment absolving
PKS Shipping from liability for the loss of the DUMC cargo.
 WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

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

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

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

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

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

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

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

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

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.

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
19671 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 Code3. 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 . . . .

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
complaint6 for tax refund with prayer for writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities
to impose and collect a tax on the gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes
on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid.7

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:

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

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

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act

387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.

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,
. . . 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. 13Petitioner moved for a reconsideration which was granted by this Court
in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.

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.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying

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

2. He must undertake to carry goods of the kind to

which his business is confined;

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 16we
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 . . . 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 andpower petroleum, sewerage system,
wire or wireless communications systems, wire or
wireless broadcasting stations and other similar
public services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
 Art. 86. Pipe line concessionaire as common carrier. — A pipe
line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.

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

that everything relating to the exploration for and exploitation of

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

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

. . . since [petitioner] is a pipeline concessionaire that is

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

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:

Sec. 133. Common Limitations on the Taxing Powers of Local

Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:

xxx xxx xxx

(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." . . .

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. . .
. 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

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

GAUDIOSO EREZO, ET AL., plaintiff-appellee,

vs.
AGUEDO JEPTE, defendant-appellant.

Gesolgon, Matti and Custodio for appellees.

Aguedo Y. Jepte in his own behalf.

LABRADOR, J.:

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

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

The defendant does not deny at the time of the fatal accident the cargo truck driven by
Rodolfo Espino y Garcia was registered in his name. He, however, claims that the vehicle
belonged to the Port Brokerage, of which he was the broker at the time of the accident. He
explained, and his explanation was corroborated by Policarpio Franco, the manager of the
corporation, that the trucks of the corporation were registered in his name as a convenient
arrangement so as to enable the corporation to pay the registration fee with his backpay as a
pre-war government employee. Franco, however, admitted that the arrangement was not
known to the Motor Vehicle Office.

The trial court held that as the defendant-appellant represented himself to be the owner of the truck
and the Motor Vehicle Office, relying on his representation, registered the vehicles in his name, the
Government and all persons affected by the representation had the right to rely on his declaration of
ownership and registration. It, therefore, held that the defendant-appellant is liable because he
cannot be permitted to repudiate his own declaration. (Section 68 [a], Rule 123, and Art. 1431, New
Civil Code.).

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

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

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

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

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

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

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

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

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-
appellant) has a right to be indemnified by the real or actual owner of the amount that he may be
required to pay as damage for the injury caused to the plaintiff-appellant. 1âwphïl .nêt

NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO

and LEANDRO LUIS R. DOMINGO, respondents.

DECISION
CORONA, J.:

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

[1]

G.R. CV No. 52203 affirming in turn the decision of the trial court finding
petitioner liable to respondent for damages. The dispositive portion read:
WHEREFORE, the appealed decision is hereby AFFIRMED except the award of
attorneys fees including appearance fees which is DELETED.

SO ORDERED. [2]

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

follows:

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

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

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

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

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

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

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

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

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

SO ORDERED. [4]

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

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE

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

Yes.

We have consistently ruled that the registered owner of any vehicle is

directly and primarily responsible to the public and third persons while it is
being operated. The rationale behind such doctrine was explained way back
[6]

in 1957 in Erezo vs. Jepte : [7]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from
the garage of defendant Duavit without the consent and authority of the latter. He
testified further that Duavit even filed charges against him for the theft of the jeep but
which Duavit did not push through as his (Sabianos) parents apologized to Duavit on
his behalf.
[12]
 As correctly pointed out by the CA, the Duavit ruling is not applicable to
petitioners case since the circumstance of unauthorized use was not present.
He in fact voluntarily delivered his car to Albert Jaucian as part of the
downpayment for a vehicle he purchased from Jaucian. Thus, he could not
claim that the vehicle was stolen from him since he voluntarily ceded
possession thereof to Jaucian. It was the latter, as the new (actual) owner,
who could have raised the defense of theft to prove that he was not liable for
the acts of his employee Ocfemia. Thus, there is no reason to apply
the Duavit ruling to this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation
vs. CA and more recently in Aguilar, Sr. vs. Commercial Savings
[13]

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

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

FEB LEASING AND FINANCE G.R. No. 181398

CORPORATION (now BPI

LEASING CORPORATION) , Present:

Petitioner,
 CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,*

BRION,

- versus - PEREZ, and

SERENO, JJ.

SPOUSES SERGIO P. BAYLON

and MARITESS VILLENA-BAYLON,

BG HAULER, INC., and Promulgated:

MANUEL Y. ESTILLOSO,

Respondents. June 29, 2011

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

DECISION

CARPIO, J.:

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

The Facts

On 2 September 2000, an Isuzu oil tanker running along Del Monte Avenue in
Quezon City and bearing plate number TDY 712 hit Loretta V. Baylon (Loretta),
daughter of respondent spouses Sergio P. Baylon and Maritess Villena-
Baylon (spouses Baylon). At the time of the accident, the oil tanker was registered5 in
the name of petitioner FEB Leasing and Finance Corporation6 (petitioner). The oil
tanker was leased7 to BG Hauler, Inc. (BG Hauler) and was being driven by the latters
driver, Manuel Y. Estilloso. The oil tanker was insured8 by FGU Insurance Corp.
(FGU Insurance).

The accident took place at around 2:00 p.m. as the oil tanker was coming
from Balintawak and heading towards Manila. Upon reaching the intersection
of Bonifacio Street and Del Monte Avenue, the oil tanker turned left. While the driver
of the oil tanker was executing a left turn side by side with another vehicle towards
Del Monte Avenue, the oil tanker hit Loretta who was then crossing Del Monte
Avenue coming from MayonStreet. Due to the strong impact, Loretta was violently
thrown away about three to five meters from the point of impact. She fell to the
ground unconscious. She was brought for treatment to the Chinese General Hospital
where she remained in a coma until her death two days after.9

The spouses Baylon filed with the RTC (Branch 35) of Gapan City a Complaint10 for
damages against petitioner, BG Hauler, the driver, and FGU Insurance. Petitioner
filed its answer with compulsory counterclaim while FGU Insurance filed its answer
with counterclaim. On the other hand, BG Hauler filed its answer with compulsory
counterclaim and cross-claim against FGU Insurance.
Petitioner claimed that the spouses Baylon had no cause of action against it because
under its lease contract with BG Hauler, petitioner was not liable for any loss,
damage, or injury that the leased oil tanker might cause. Petitioner claimed that no
employer-employee relationship existed between petitioner and the driver.

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

For its part, FGU Insurance averred that the victim was guilty of contributory
negligence. FGU Insurance concluded that the spouses Baylon could not expect to be
paid the full amount of their claims. FGU Insurance pointed out that the insurance
policy covering the oil tanker limited any claim to a maximum of P400,000.00.

During trial, FGU Insurance moved that (1) it be allowed to deposit in court the
amount of P450,000.00 in the joint names of the spouses Baylon, petitioner, and BG
Hauler and (2) it be released from further participating in the proceedings. After the
RTC granted the motion, FGU Insurance deposited in the Branch Clerk of Court a
check in the names of the spouses Baylon, petitioner, and BG Hauler. The RTC then
released FGU Insurance from its contractual obligations under the insurance policy.

The Ruling of the RTC

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

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

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

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

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

following:

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

plaintiffs;

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

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

victim, Loretta V. Baylon;

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

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

f. with costs against the defendants.

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

SO ORDERED.11
Petitioner, BG Hauler, and the driver appealed the RTC Decision to the Court of
Appeals. Petitioner claimed that as financial lessor, it is exempt from liability
resulting from any loss, damage, or injury the oil tanker may cause while being
operated by BG Hauler as financial lessee.

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

The Ruling of the Court of Appeals

The Court of Appeals held that petitioner, BG Hauler, and the driver
are solidarily liable for damages arising from Lorettas death. Petitioners liability arose
from the fact that it was the registered owner of the oil tanker while BG Haulers
liability emanated from a provision in the lease contract providing that the lessee shall
be liable in case of any loss, damage, or injury the leased oil tanker may cause.

Thus, the Court of Appeals affirmed the RTC Decision but with the modification that
the award of attorneys fees be deleted for being speculative. The dispositive part of
the appellate courts Decision reads:

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

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

IT IS SO ORDERED.12
Dissatisfied, petitioner and BG Hauler, joined by the driver, filed two separate
motions for reconsideration. In its 18 January 2008 Resolution, the Court of Appeals
denied both motions for lack of merit.

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

The Issue

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

The Courts Ruling

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

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

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

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

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

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

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

latters contractual obligation under Section 5.1 of the lease contract. In the present
case, petitioner did not file a cross-claim against BG Hauler. Hence, this Court cannot
require BG Hauler to reimburse petitioner for the latters liability to the
spouses Baylon. However, as the registered owner of the oil tanker, petitioner may not
escape its liability to third persons.
Under Section 5 of Republic Act No. 4136,18 as amended, all motor vehicles used or
operated on or upon any highway of the Philippines must be registered with the
Bureau of Land Transportation (now Land Transportation Office) for the current
year.19 Furthermore, any encumbrances of motor vehicles must be recorded with the
Land Transportation Office in order to be valid against third parties.20

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

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

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

chaos that may result if registered owners or operators of vehicles are freed
from such responsibility. Petitioner pays the price for its failure to obey the law
on compulsory registration of motor vehicles for registration is a pre-requisite
for any person to even enjoy the privilege of putting a vehicle on public
roads.22
In the landmark case of Erezo v. Jepte,23 the Court succinctly laid down the public
policy behind the rule, thus:

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

xxx

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

supposed transferee or owner is, it would be easy for him, by collusion with
others or, or otherwise, to escape said responsibility and transfer the same to an
indefinite person, or to one who possesses no property with which to respond
financially for the damage or injury done. A victim of recklessness on the
public highways is usually without means to discover or identify the person
actually causing the injury or damage. He has no means other than by a
recourse to the registration in the Motor Vehicles Office to determine who is
the owner. The protection that the law aims to extend to him would become
illusory were the registered owner given the opportunity to escape liability by
disproving his ownership. If the policy of the law is to be enforced and carried
out, the registered owner should not be allowed to prove the contrary to the
prejudice of the person injured, that is to prove that a third person or another
has become the owner, so that he may be thereby be relieved of the
responsibility to the injured person.24
In this case, petitioner admits that it is the registered owner of the oil tanker that
figured in an accident causing the death of Loretta. As the registered owner, it cannot
escape liability for the loss arising out of negligence in the operation of the oil tanker.
Its liability remains even if at the time of the accident, the oil tanker was leased to BG
Hauler and was being driven by the latters driver, and despite a provision in the lease
contract exonerating the registered owner from liability.

As a final point, we agree with the Court of Appeals that the award of attorneys fees
by the RTC must be deleted for lack of basis. The RTC failed to justify the award
of P50,000 attorneys fees to respondent spouses Baylon. The award of attorneys fees
must have some factual, legal and equitable bases and cannot be left to speculations
and conjectures.25 Consistent with prevailing jurisprudence,26 attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code.27 Thus, the award of attorneys fees is the exception rather than the rule.
Attorneys fees are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate.28

WHEREFORE, we DENY the petition. We AFFIRM the 9 October 2007 Decision

and the 18 January 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
81446 affirming with modification the 30 October 2003 Decision of the Regional
Trial Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner
FEB Leasing and Finance Corporation, BG Hauler, Inc., and driver Manuel
Y. Estilloso to solidarilypay respondent spouses Sergio
P. Baylon and Maritess Villena-Baylon the following amounts:

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

b. P50,000.00 as moral damages;

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

V. Baylon; and
 d. P50,000.00 for death indemnity.

Costs against petitioner.

SO ORDERED.
G.R. No. 125817 January 16, 2002

ABELARDO LIM and ESMADITO GUNNABAN, petitioners,

vs.
COURT OF APPEALS and DONATO H. GONZALES, respondents.

BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience is sold to another who
continues to operate it under the same certificate of public convenience under the so-
called kabit system, and in the course thereof the vehicle meets an accident through the fault of
another vehicle, may the new owner sue for damages against the erring vehicle? Otherwise stated,
does the new owner have any legal personality to bring the action, or is he the real party in interest
in the suit, despite the fact that he is not the registered owner under the certificate of public
convenience?

Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney
from Gomercino Vallarta, holder of a certificate of public convenience for the operation of public
utility vehicles plying the Monumento-Bulacan route. While private respondent Gonzales continued
offering the jeepney for public transport services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a certificate of public convenience for its
operation. Thus Vallarta remained on record as its registered owner and operator. 1âw phi1.nêt

On 22 July 1990, while the jeepney was running northbound along the North Diversion Road
somewhere in Meycauayan, Bulacan, it collided with a ten-wheeler-truck owned by petitioner
Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned responsibility
for the accident, explaining that while he was traveling towards Manila the truck suddenly lost its
brakes. To avoid colliding with another vehicle, he swerved to the left until he reached the center
island. However, as the center island eventually came to an end, he veered farther to the left until he
smashed into a Ferroza automobile, and later, into private respondent's passenger jeepney driven
by one Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the passenger
jeepney and left one (1) passenger dead and many others wounded.

Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the
deceased passenger, and had the Ferroza restored to good condition. He also negotiated with
private respondent and offered to have the passenger jeepney repaired at his shop. Private
respondent however did not accept the offer so Lim offered him ₱20,000.00, the assessment of the
damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected;
instead, private respondent demanded a brand-new jeep or the amount of ₱236,000.00. Lim
increased his bid to ₱40,000.00 but private respondent was unyielding. Under the circumstances,
negotiations had to be abandoned; hence, the filing of the complaint for damages by private
respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due diligence in the selection and
supervision of his employees. He further asserted that as the jeepney was registered in Vallarta’s
name, it was Vallarta and not private respondent who was the real party in interest.1 For his part,
petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control.2

Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private
respondent explained that although he wanted to take his jeepney home he had no capability,
financial or otherwise, to tow the damaged vehicle.3

The main point of contention between the parties related to the amount of damages due private
respondent. Private respondent Gonzales averred that per estimate made by an automobile repair
shop he would have to spend ₱236,000.00 to restore his jeepney to its original condition.4 On the
other hand, petitioners insisted that they could have the vehicle repaired for ₱20,000.00.5

On 1 October 1993 the trial court upheld private respondent's claim and awarded him ₱236,000.00
with legal interest from 22 July 1990 as compensatory damages and ₱30,000.00 as attorney's fees.
In support of its decision, the trial court ratiocinated that as vendee and current owner of the
passenger jeepney private respondent stood for all intents and purposes as the real party in interest.
Even Vallarta himself supported private respondent's assertion of interest over the jeepney for, when
he was called to testify, he dispossessed himself of any claim or pretension on the property.
Gunnaban was found by the trial court to have caused the accident since he panicked in the face of
an emergency which was rather palpable from his act of directing his vehicle to a perilous streak
down the fast lane of the superhighway then across the island and ultimately to the opposite lane
where it collided with the jeepney.

On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of
diligence in supervising his employees. It was admitted during trial that Gunnaban doubled as
mechanic of the ill-fated truck despite the fact that he was neither tutored nor trained to handle such
task.6

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision
of the trial court. In upholding the decision of the court a quo the appeals court concluded that while
an operator under the kabit system could not sue without joining the registered owner of the vehicle
as his principal, equity demanded that the present case be made an exception.7 Hence this petition.

It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court
despite their opposition to the well-established doctrine that an operator of a vehicle continues to be
its operator as long as he remains the operator of record. According to petitioners, to recognize an
operator under the kabit system as the real party in interest and to countenance his claim for
damages is utterly subversive of public policy. Petitioners further contend that inasmuch as the
passenger jeepney was purchased by private respondent for only ₱30,000.00, an award of
₱236,000.00 is inconceivably large and would amount to unjust enrichment.8

Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of
the pernicious kabit system does not persuade. Their labored efforts to demonstrate how the
questioned rulings of the courts a quoare diametrically opposed to the policy of the law requiring
operators of public utility vehicles to secure a certificate of public convenience for their operation is
quite unavailing.

The kabit system is an arrangement whereby a person who has been granted a certificate of public
convenience allows other persons who own motor vehicles to operate them under his license,
sometimes for a fee or percentage of the earnings.9 Although the parties to such an agreement are
not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public
policy and therefore void and inexistent under Art. 1409 of the Civil Code.

In the early case of Dizon v. Octavio10 the Court explained that one of the primary factors considered
in the granting of a certificate of public convenience for the business of public transportation is the
financial capacity of the holder of the license, so that liabilities arising from accidents may be duly
compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by
the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and
operated under his license. If a registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another
who possesses no property with which to respond financially for the damage done. Thus, for the
safety of passengers and the public who may have been wronged and deceived through the
baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person
has become the owner so that he may be thereby relieved of responsibility. Subsequent cases affirm
such basic doctrine.11

It would seem then that the thrust of the law in enjoining the kabit system is not so much as to
penalize the parties but to identify the person upon whom responsibility may be fixed in case of an
accident with the end view of protecting the riding public. The policy therefore loses its force if the
public at large is not deceived, much less involved.

In the present case it is at once apparent that the evil sought to be prevented in enjoining
the kabit system does not exist. First, neither of the parties to the pernicious kabit system is being
held liable for damages. Second, the case arose from the negligence of another vehicle in using the
public road to whom no representation, or misrepresentation, as regards the ownership and
operation of the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the
registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at
the very least by the illegal arrangement. On the contrary, it was private respondent himself who had
been wronged and was seeking compensation for the damage done to him. Certainly, it would be
the height of inequity to deny him his right.

In light of the foregoing, it is evident that private respondent has the right to proceed against
petitioners for the damage caused on his passenger jeepney as well as on his business. Any effort
then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue
should be discouraged, if not repelled.

In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for
adequate compensation by putting the plaintiff in the same financial position he was in prior to the
tort. It is a fundamental principle in the law on damages that a defendant cannot be held liable in
damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no more
than the just and adequate compensation for the injury suffered. His recovery is, in the absence of
circumstances giving rise to an allowance of punitive damages, limited to a fair compensation for the
harm done. The law will not put him in a position better than where he should be in had not the
wrong happened.12

In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only
₱30,000.00 to award damages considerably greater than this amount would be improper and
unjustified. Petitioners are at best reminded that indemnification for damages comprehends not only
the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other
words, indemnification for damages is not limited to damnum emergens or actual loss but extends
to lucrum cessans or the amount of profit lost.13

Had private respondent's jeepney not met an accident it could reasonably be expected that it would
have continued earning from the business in which it was engaged. Private respondent avers that he
derives an average income of ₱300.00 per day from his passenger jeepney and this earning was
included in the award of damages made by the trial court and upheld by the appeals court. The
award therefore of ₱236,000.00 as compensatory damages is not beyond reason nor speculative as
it is based on a reasonable estimate of the total damage suffered by private respondent, i.e. damage
wrought upon his jeepney and the income lost from his transportation business. Petitioners for their
part did not offer any substantive evidence to refute the estimate made by the courts a quo.

However, we are constrained to depart from the conclusion of the lower courts that upon the award
of compensatory damages legal interest should be imposed beginning 22 July 1990, i.e. the date of
the accident. Upon the provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof, interest at the rate of six percent
(6%) per annum should be from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to be reasonably ascertained).14

In this case, the matter was not a liquidated obligation as the assessment of the damage on the
vehicle was heavily debated upon by the parties with private respondent's demand for ₱236,000.00
being refuted by petitioners who argue that they could have the vehicle repaired easily for
₱20,000.00. In fine, the amount due private respondent was not a liquidated account that was
already demandable and payable.

One last word. We have observed that private respondent left his passenger jeepney by the
roadside at the mercy of the elements. Article 2203 of the Civil Code exhorts parties suffering from
loss or injury to exercise the diligence of a good father of a family to minimize the damages resulting
from the act or omission in question. One who is injured then by the wrongful or negligent act of
another should exercise reasonable care and diligence to minimize the resulting damage. Anyway,
he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured
and for injuries incurred in attempting to prevent damage to it.15

However we sadly note that in the present case petitioners failed to offer in evidence the estimated
amount of the damage caused by private respondent's unconcern towards the damaged vehicle. It is
the burden of petitioners to show satisfactorily not only that the injured party could have mitigated his
damages but also the amount thereof; failing in this regard, the amount of damages awarded cannot
be proportionately reduced.

WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales

₱236,000.00 with legal interest from 22 July 1990 as compensatory damages and ₱30,000.00 as
attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum shall be computed
from the time the judgment of the lower court is made until the finality of this Decision. If the
adjudged principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%)
per annum computed from the time judgment becomes final and executory until it is fully satisfied. 1âwphi1.nêt

Costs against petitioners.

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

LITA ENTERPRISES, INC., petitioner,

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

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: ñé+.£ª wph!1

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

The factual background of this case is undisputed.

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

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

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

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

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of

the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and
2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the
plaintiff.

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

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

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

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

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

1. ...

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

annulling or amending the decision of public respondent so that:

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

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

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit
system", whereby a person who has been granted a certificate of convenience allows another
person who owns motors vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government . Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices. In the
words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an
imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as
being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil
Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract,
but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of
both the trial and appellate courts to have accorded the parties relief from their predicament. Article
1412 of the Civil Code denies them such aid. It provides: têñ.£îhqw â£

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

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

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

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

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

SO ORDERED. 1äw phï1.ñët

OSCAR VILLAMARIA, JR. G.R. No. 165881

Petitioner,
Present:

PANGANIBAN, C.J.,
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ.
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
COURT OF APPEALS and Promulgated:
JERRY V. BUSTAMANTE,
Respondents. April 19, 2006

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

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised

Rules of Court assailing the Decision[1] and Resolution[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 78720 which set aside the Resolution[3] of the National
Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn
affirmed the Decision[4] of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole
proprietorship engaged in assembling passenger jeepneys with a public utility
franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped
assembling jeepneys and retained only nine, four of which he operated by
employing drivers on a boundary basis. One of those drivers was respondent
Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante
remitted P450.00 a day to Villamaria as boundary and kept the residue of his daily
earnings as compensation for driving the vehicle. In August 1997, Villamaria
verbally agreed to sell the jeepney to Bustamante under the boundary-
hulog scheme, where Bustamante would remit to Villarama P550.00 a day for a
period of four years; Bustamante would then become the owner of the vehicle and
continue to drive the same under Villamarias franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng

Bilihan ng Sasakyan sa Pamamagitan ng Boundary-Hulog[5] over the passenger
jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No.
SL-26647. The parties agreed that if Bustamante failed to pay the boundary-
hulog for three days, Villamaria Motors would hold on to the vehicle until
Bustamante paid his arrears, including a penalty of P50.00 a day; in case
Bustamante failed to remit the daily boundary-hulog for a period of one week,
the Kasunduan would cease to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle
without prior authority from Villamaria Motors. Thus, Bustamante was authorized
to operate the vehicle to transport passengers only and not for other purposes. He
was also required to display an identification card in front of the windshield of the
vehicle; in case of failure to do so, any fine that may be imposed by government
authorities would be charged against his account. Bustamante further obliged
himself to pay for the cost of replacing any parts of the vehicle that would be lost
or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing
repairs. Bustamante was not allowed to wear slippers, short pants or undershirts
while driving. He was required to be polite and respectful towards the
passengers. He was also obliged to notify Villamaria Motors in case the vehicle
was leased for two or more days and was required to attend any meetings which
may be called from time to time. Aside from the boundary-hulog, Bustamante was
also obliged to pay for the annual registration fees of the vehicle and the premium
for the vehicles comprehensive insurance. Bustamante promised to strictly comply
with the rules and regulations imposed by Villamaria for the upkeep and
maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of
Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of
the purchase price of the vehicle. Bustamante failed to pay for the annual
registration fees of the vehicle, but Villamaria allowed him to continue driving the
jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement
with Villamaria Motors failed to pay their respective boundary-hulog. This
prompted Villamaria to serve a Paalala,[6]reminding them that under
the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean
their respective jeepneys would be returned to him without any complaints. He
warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante
and barred the latter from driving the vehicle.
 On August 15, 2000, Bustamante filed a Complaint [7] for Illegal Dismissal
against Villamaria and his wife Teresita. In his Position Paper,[8] Bustamante
alleged that he was employed by Villamaria in July 1996 under the boundary
system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented
the Kasunduan for his signature, with the assurance that he (Bustamante) would
own the jeepney by March 2001 after paying P550.00 in daily installments and that
he would thereafter continue driving the vehicle along the same route under the
same franchise. He further narrated that in July 2000, he informed the Villamaria
spouses that the surplus engine of the jeepney needed to be replaced, and was
assured that it would be done. However, he was later arrested and his drivers
license was confiscated because apparently, the replacement engine that was
installed was taken from a stolen vehicle. Due to negotiations with the
apprehending authorities, the jeepney was not impounded. The Villamaria spouses
took the jeepney from him on July 24, 2000, and he was no longer allowed to drive
the vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed

that judgment be rendered ordering the respondents, jointly and severally, the
following:

1. Reinstate complainant to his former position without loss of seniority

rights and execute a Deed of Sale in favor of the complainant relative to the PUJ
with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a

day and other benefits computed from July 24, 2000 up to the time of his actual
reinstatement;

3. Ordering respondents to return the amount of P10,000.00

and P180,000.00 for the expenses incurred by the complainant in the repair and
maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred

(P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or a total
of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

 Other just and equitable reliefs under the premises are also being prayed
for.[9]

In their Position Paper,[10] the spouses Villamaria admitted the existence of

the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00
downpayment and the vehicles annual registration fees.They further alleged that
Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a
day, which prompted them to issue the Paalaala. Instead of complying with his
obligations, Bustamante stopped making his remittances despite his daily trips and
even brought the jeepney to the province without permission. Worse, the jeepney
figured in an accident and its license plate was confiscated; Bustamante even
abandoned the vehicle in a gasoline station in Sucat, Paraaque City for two
weeks. When the security guard at the gasoline station requested that the vehicle
be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante
told her: Di kunin ninyo. When the vehicle was finally retrieved, the tires were
worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v.

[11] [12]
NLRC and Canlubang Security Agency Corporation v. NLRC, the spouses
Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the employer-employee
relationship into that of vendor-vendee. Hence, the spouses concluded, there was
no legal basis to hold them liable for illegal dismissal. They prayed that the case be
dismissed for lack of jurisdiction and patent lack of merit.

In his Reply,[13] Bustamante claimed that Villamaria exercised control and

supervision over the conduct of his employment. He maintained that the rulings of
the Court in National Labor Union v. Dinglasan,[14] Magboo v.
Bernardo,[15] and Citizen's League of Free Workers v. Abbas[16] are germane to the
issue as they define the nature of the owner/operator-driver relationship under the
boundary system. He further reiterated that it was the Villamaria spouses who
presented the Kasunduan to him and that he conformed thereto only upon their
representation that he would own the vehicle after four years.Moreover, it appeared
that the Paalala was duly received by him, as he, together with other drivers, was
made to affix his signature on a blank piece of paper purporting to be an attendance
sheet.

On March 15, 2002, the Labor Arbiter rendered judgment[17] in favor of the
spouses Villamaria and ordered the complaint dismissed on the following
ratiocination:
 Respondents presented the contract of Boundary-Hulog, as well as
the PAALALA, to prove their claim that complainant violated the terms of their
contract and afterwards abandoned the vehicle assigned to him. As against the
foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and
attorney's fees.[18]

Bustamante appealed the decision to the NLRC,[19] insisting that

the Kasunduan did not extinguish the employer-employee relationship between
him and Villamaria. While he did not receive fixed wages, he kept only the excess
of the boundary-hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was
engaged to perform activities which were necessary or desirable to Villamarias
trade or business.
The NLRC rendered judgment[20] dismissing the appeal for lack of merit,
thus:

WHEREFORE, premises considered, complainant's appeal is hereby

DISMISSED for reasons not stated in the Labor Arbiter's decision but mainly on a
jurisdictional issue, there being none over the subject matter of the controversy.[21]

The NLRC ruled that under the Kasunduan, the juridical relationship
between Bustamante and Villamaria was that of vendor and vendee, hence, the
Labor Arbiter had no jurisdiction over the complaint.Bustamante filed a Motion for
Reconsideration, which the NLRC resolved to deny on May 30, 2003.[22]

Bustamante elevated the matter to the CA via Petition for Certiorari,

alleging that the NLRC erred
I
IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN
THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL
ISSUE;
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.[23]
Bustamante insisted that despite the Kasunduan, the relationship between him and
Villamaria continued to be that of employer-employee and as such, the Labor
Arbiter had jurisdiction over his complaint. He further alleged that it is common
knowledge that operators of passenger jeepneys (including taxis) pay their drivers
not on a regular monthly basis but on commission or boundary basis, or even the
boundary-hulog system. Bustamante asserted that he was dismissed from
employment without any lawful or just cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of
their employer-employee relationship. He further pointed out that
the Dinglasan case pertains to the boundary system and not the boundary-
hulog system, hence inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and Bustamante was
transformed into a vendor-vendee relationship. Noting that he was engaged in the
manufacture and sale of jeepneys and not in the business of transporting
passengers for consideration, Villamaria contended that the daily fees which
Bustmante paid were actually periodic installments for the the vehicle and were not
the same fees as understood in the boundary system. He added that the boundary-
hulog plan was basically a scheme to help the driver-buyer earn money and
eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit
sold. Villamaria further asserted that the apparently restrictive conditions in
the Kasunduan did not mean that the means and method of driver-buyers conduct
was controlled, but were mere ways to preserve the vehicle for the benefit of both
parties: Villamaria would be able to collect the agreed purchase price, while
Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain
conditions on the buyer should be respected until full ownership of the property is
vested on the latter. Villamaria insisted that the parallel circumstances obtaining
in Singer Sewing Machine Company v. Drilon[24] has analogous application to the
instant issue.

In its Decision[25] dated August 30, 2004, the CA reversed and set aside the
NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned

resolutions of the NLRC must be, as they are hereby are, REVERSED AND
SET ASIDE, and judgment entered in favor of petitioner:
 1. Sentencing private respondent Oscar Villamaria, Jr. to
pay petitioner Jerry Bustamante separation pay computed from the
time of his employment up to the time of termination based on the
prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to

pay petitioner Jerry Bustamante back wages computed from the
time of his dismissal up to March 2001 based on the prevailing
minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.[26]

The appellate court ruled that the Labor Arbiter had jurisdiction over
Bustamantes complaint. Under the Kasunduan, the relationship between him and
Villamaria was dual: that of vendor-vendee and employer-employee. The CA
ratiocinated that Villamarias exercise of control over Bustamantes conduct in
operating the jeepney is inconsistent with the formers claim that he was not
engaged in the transportation business. There was no evidence that petitioner was
allowed to let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in
the Kasunduan, it did not mean that Villamaria could not exercise it. It explained
that the existence of an employment relationship did not depend on how the worker
was paid but on the presence or absence of control over the means and method of
the employees work. In this case, Villamarias directives (to drive carefully, wear
an identification card, don decent attire, park the vehicle in his garage, and to
inform him about provincial trips, etc.) was a means to control the way in which
Bustamante was to go about his work. In view of Villamarias supervision and
control as employer, the fact that the boundary represented installment payments of
the purchase price on the jeepney did not remove the parties employer-employee
relationship.

While the appellate court recognized that a weeks default in paying the
boundary-hulog constituted an additional cause for terminating Bustamantes
employment, it held that the latter was illegally dismissed. According to the CA,
assuming that Bustamante failed to make the required payments as claimed by
Villamaria, the latter nevertheless failed to take steps to recover the unit and waited
for Bustamante to abandon it. It also pointed out that Villamaria neither submitted
any police report to support his claim that the vehicle figured in a mishap nor
presented the affidavit of the gas station guard to substantiate the claim that
Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed,

on September 17, 2004, a motion for reconsideration thereof. The CA denied the
motion in a Resolution[27] dated November 2, 2004, and Villamaria received a copy
thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review
on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed
grave abuse of its discretion amounting to excess or lack of jurisdiction in
reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA
erred in ruling that the juridical relationship between him and respondent under
the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan clearly state that he and
respondent Bustamante had entered into a conditional deed of sale over the
jeepney; as such, their employer-employee relationship had been transformed into
that of vendor-vendee. Petitioner insists that he had the right to reserve his title on
the jeepney until after the purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of
petitioner was an appeal via a petition for review on certiorari under Rule 45 of the
Rules of Court and not a special civil action of certiorari under Rule 65. He argues
that petitioner failed to establish that the CA committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in its decision, as the said
ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by

petitioner which provides for a boundary-hulog scheme was a devious
circumvention of the Labor Code of the Philippines. Respondent insists that his
juridical relationship with petitioner is that of employer-employee because he was
engaged to perform activities which were necessary or desirable in the usual
business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally
construed in his favor; hence, it behooves the Court to resolve the merits of his
petition.

We agree with respondents contention that the remedy of petitioner from the CA
decision was to file a petition for review on certiorari under Rule 45 of the Rules
of Court and not the independent action of certiorari under Rule 65. Petitioner had
15 days from receipt of the CA resolution denying his motion for the
reconsideration within which to file the petition under Rule 45.[28] But instead of
doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004,
which did not, however, suspend the running of the 15-day reglementary period;
consequently, the CA decision became final and executory upon the lapse of the
reglementary period for appeal. Thus, on this procedural lapse, the instant petition
stands to be dismissed.[29]

It must be stressed that the recourse to a special civil action under Rule 65 of the
Rules of Court is proscribed by the remedy of appeal under Rule 45. As the Court
elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals:[30]

We agree that the remedy of the aggrieved party from a decision or final
resolution of the CA is to file a petition for review on certiorari under Rule 45 of
the Rules of Court, as amended, on questions of facts or issues of law within
fifteen days from notice of the said resolution. Otherwise, the decision of the CA
shall become final and executory. The remedy under Rule 45 of the Rules of
Court is a mode of appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A review is not a
matter of right but is a matter of judicial discretion. The aggrieved party may,
however, assail the decision of the CA via a petition for certiorari under Rule 65
of the Rules of Court within sixty days from notice of the decision of the CA or
its resolution denying the motion for reconsideration of the same. This is based on
the premise that in issuing the assailed decision and resolution, the CA acted with
grave abuse of discretion, amounting to excess or lack of jurisdiction and there is
no plain, speedy and adequate remedy in the ordinary course of law. A remedy is
considered plain, speedy and adequate if it will promptly relieve the petitioner
from the injurious effect of the judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is
available, for the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive. The aggrieved party is, likewise, barred from filing a
petition for certiorari if the remedy of appeal is lost through his negligence. A
petition for certiorari is an original action and does not interrupt the course of the
principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further
proceeding. A petition for certiorari must be based on jurisdictional grounds
because, as long as the respondent court acted within its jurisdiction, any error
committed by it will amount to nothing more than an error of judgment which
may be corrected or reviewed only by appeal.[31]

However, we have also ruled that a petition for certiorari under Rule 65 may
be considered as filed under Rule 45, conformably with the principle that rules of
procedure are to be construed liberally, provided that the petition is filed within the
reglementary period under Section 2, Rule 45 of the Rules of Court, and where
valid and compelling circumstances warrant that the petition be resolved on its
merits.[32] In this case, the petition was filed within the reglementary period and
petitioner has raised an issue of substance: whether the existence of a boundary-
hulog agreement negates the employer-employee relationship between the vendor
and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a
complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as
well as, which court or agency of the government has jurisdiction over the same,
are determined by the material allegations of the complaint in relation to the law
involved and the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs. [33] A prayer or demand
for relief is not part of the petition of the cause of action; nor does it enlarge the
cause of action stated or change the legal effect of what is alleged. [34] In
determining which body has jurisdiction over a case, the better policy is to
consider not only the status or relationship of the parties but also the nature of the
action that is the subject of their controversy.[35]

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter
exclusive original jurisdiction only over the following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wage, rates of pay, hours of
work, and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from violation of Article 264 of this
Code, including questions involving the legality of strikes and
lockouts; and
 6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relationship, including those of
persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective

bargaining agreements, and those arising from the interpretation or enforcement
of company personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary arbitration as may be
provided in said agreements.

In the foregoing cases, an employer-employee relationship is an

indispensable jurisdictional requisite.[36] The jurisdiction of Labor Arbiters and the
NLRC under Article 217 of the Labor Code is limited to disputes arising from an
employer-employee relationship which can only be resolved by reference to the
Labor Code, other labor statutes or their collective bargaining agreement.[37] Not
every dispute between an employer and employee involves matters that only the
Labor Arbiter and the NLRC can resolve in the exercise of their adjudicatory or
quasi-judicial powers. Actions between employers and employees where the
employer-employee relationship is merely incidental is within the exclusive
original jurisdiction of the regular courts.[38] When the principal relief is to be
granted under labor legislation or a collective bargaining agreement, the case falls
within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a
claim for damages might be asserted as an incident to such claim.[39]

We agree with the ruling of the CA that, under the boundary-hulog scheme
incorporated in the Kasunduan, a dual juridical relationship was created between
petitioner and respondent: that of employer-employee and vendor-
vendee. The Kasunduan did not extinguish the employer-employee relationship of
the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v.
Dinglasan[40] that the jeepney owner/operator-driver relationship under the
boundary system is that of employer-employee and not lessor-lessee. This doctrine
was affirmed, under similar factual settings, in Magboo v.
[41] [42]
Bernardo and Lantaco, Sr. v. Llamas, and was analogously applied to govern
the relationships between auto-calesa owner/operator and driver,[43] bus
owner/operator and conductor,[44] and taxi owner/operator and driver.[45]

The boundary system is a scheme by an owner/operator engaged in

transporting passengers as a common carrier to primarily govern the compensation
of the driver, that is, the latters daily earnings are remitted to the owner/operator
less the excess of the boundary which represents the drivers compensation. Under
this system, the owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control over the
chattel leased but the lessee is still ultimately responsible for the consequences of
its use. The management of the business is still in the hands of the owner/operator,
who, being the holder of the certificate of public convenience, must see to it that
the driver follows the route prescribed by the franchising and regulatory authority,
and the rules promulgated with regard to the business operations. The fact that the
driver does not receive fixed wages but only the excess of the boundary given to
the owner/operator is not sufficient to change the relationship between
them. Indubitably, the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.[46]

Under the Kasunduan, respondent was required to remit P550.00 daily to

petitioner, an amount which represented the boundary of petitioner as well as
respondents partial payment (hulog) of the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage.
Thus, the daily remittances also had a dual purpose: that of petitioners boundary
and respondents partial payment (hulog) for the vehicle. This dual purpose was
expressly stated in the Kasunduan. The well-settled rule is that an obligation is not
novated by an instrument that expressly recognizes the old one, changes only the
terms of payment, and adds other obligations not incompatible with the old
provisions or where the new contract merely supplements the previous one. [47] The
two obligations of the respondent to remit to petitioner the boundary-hulog can
stand together.

In resolving an issue based on contract, this Court must first examine the
contract itself, keeping in mind that when the terms of the agreement are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of
its stipulations shall prevail.[48] The intention of the contracting parties should be
ascertained by looking at the words used to project their intention, that is, all the
words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.[49] The parts and
clauses must be interpreted in relation to one another to give effect to the
whole. The legal effect of a contract is to be determined from the whole read
together.[50]

Under the Kasunduan, petitioner retained supervision and control over the
conduct of the respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng

boundary hulog ay ang mga sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG

PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG
PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG

IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o pangangalakal
sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG

IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan, kasiraan
o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG

PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang

maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito ay
madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA
MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng]

multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang ID card
sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang

materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang
kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang

hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan.
 9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang
ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG
IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA
MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa

panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas, naka short
pants at nakasando lamang. Dapat ang nagmamaneho ay laging nasa maayos
ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang

driver ay magpapakita ng magandang asal sa mga pasaheros at hindi dapat
magsasalita ng masama kung sakali man may pasaherong pilosopo upang
maiwasan ang anumang kaguluhan na maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang

TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina
ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing
sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang
multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA
MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa

rehistro, comprehensive insurance taon-taon at kahit anong uri ng aksidente
habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo

sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag
ang mga tagapangasiwa nito upang maipaabot ang anumang mungkahi sa
ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng

mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga darating
na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng
Samahan.
 17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging
buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan ang
pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang

kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman ay
sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng

dalawa o higit pang araw sa lalawigan ay dapat lamang na ipagbigay alam
muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang
suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang

pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon

sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating agad
ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang
maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA
MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso

kong sinasang-ayunan at buong sikap na pangangalagaan ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa
paghahanapbuhay at wala nang iba pa.[51]

The parties expressly agreed that petitioner, as vendor, and respondent, as

vendee, entered into a contract to sell the jeepney on a daily installment basis
of P550.00 payable in four years and that petitioner would thereafter become its
owner. A contract is one of conditional sale, oftentimes referred to as contract to
sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to the vendee unless and
until there is full payment of the purchase price and/or upon faithful compliance
with the other terms and conditions that may lawfully be stipulated.[52] Such
payment or satisfaction of other preconditions, as the case may be, is a positive
suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to
convey title from acquiring binding force.[53] Stated differently, the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event so that if the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never
existed.[54] The vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already received, where
such rights are expressly provided for.[55]

Under the boundary-hulog scheme, petitioner retained ownership of the

jeepney although its material possession was vested in respondent as its driver. In
case respondent failed to make his P550.00 daily installment payment for a week,
the agreement would be of no force and effect and respondent would have to return
the jeepney to petitioner; the employer-employee relationship would likewise be
terminated unless petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the termination of their
vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and

respondent was not negated by the foregoing stipulation in the Kasunduan,
considering that petitioner retained control of respondents conduct as driver of the
vehicle. As correctly ruled by the CA:

The exercise of control by private respondent over petitioners conduct in

operating the jeepney he was driving is inconsistent with private respondents
claim that he is, or was, not engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive the unit, it was not shown
that he did so; that the existence of an employment relation is not dependent on
how the worker is paid but on the presence or absence of control over the means
and method of the work; that the amount earned in excess of the
boundary hulog is equivalent to wages; and that the fact that the power of
dismissal was not mentioned in the Kasunduan did not mean that private
respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to

wear an identification card, or to don a decent attire, or to park the vehicle in
Villamaria Motors garage, or to inform Villamaria Motors about the fact that the
unit would be going out to the province for two days of more, or to drive the unit
carefully, etc. necessarily related to control over the means by which the
petitioner was to go about his work; that the ruling applicable here is not Singer
Sewing Machine but National Labor Union since the latter case involved jeepney
owners/operators and jeepney drivers, and that the fact that the boundary here
represented installment payment of the purchase price on the jeepney did not
withdraw the relationship from that of employer-employee, in view of the overt
presence of supervision and control by the employer.[56]

Neither is such juridical relationship negated by petitioners claim that the

terms and conditions in the Kasunduan relative to respondents behavior and
deportment as driver was for his and respondents benefit: to insure that respondent
would be able to pay the requisite daily installment of P550.00, and that the vehicle
would still be in good condition despite the lapse of four years. What is primordial
is that petitioner retained control over the conduct of the respondent as driver of
the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the
franchise, is entitled to exercise supervision and control over the respondent, by
seeing to it that the route provided in his franchise, and the rules and regulations of
the Land Transportation Regulatory Board are duly complied with. Moreover, in a
business establishment, an identification card is usually provided not just as a
security measure but to mainly identify the holder thereof as a bona fide employee
of the firm who issues it.[57]

As respondents employer, it was the burden of petitioner to prove that

respondents termination from employment was for a lawful or just cause, or, at the
very least, that respondent failed to make his daily remittances of P550.00 as
boundary. However, petitioner failed to do so. As correctly ruled by the appellate
court:

It is basic of course that termination of employment must be effected in

accordance with law. The just and authorized causes for termination of
employment are enumerated under Articles 282, 283 and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here,

the default in the remittance of the boundary hulog for one week or longer may be
considered an additional cause for termination of employment. The reason is
because the Kasunduan would be of no force and effect in the event that the
purchaser failed to remit the boundary hulog for one week. The Kasunduan in this
case pertinently stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving
that the dismissal of an employee is for a just cause. The failure of the employer
to discharge this burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the
Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee
of P10,000.00 and the yearly registration of the unit; that petitioner also stopped
remitting the boundary hulog, prompting him (private respondent) to issue
a Paalala, which petitioner however ignored; that petitioner even brought the unit
to his (petitioners) province without informing him (private respondent) about it;
and that petitioner eventually abandoned the vehicle at a gasoline station after
figuring in an accident. But private respondent failed to substantiate these
allegations with solid, sufficient proof. Notably, private respondents allegation
viz, that he retrieved the vehicle from the gas station, where petitioner abandoned
it, contradicted his statement in the Paalala that he would enforce the provision
(in the Kasunduan) to the effect that default in the remittance of the
boundary hulog for one week would result in the forfeiture of the
unit. The Paalala reads as follows:

Sa lahat ng mga kumukuha ng sasakyan

Sa pamamagitan ng BOUNDARY HULOG

Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular

na ang paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng
Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing
sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong

ipatutupad ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat na
tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo

makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na
hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang
hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

Sumasainyo

Attendance: 8/27/99
(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR.

If it were true that petitioner did not remit the boundary hulog for one week or
more, why did private respondent not forthwith take steps to recover the unit, and
why did he have to wait for petitioner to abandon it?

On another point, private respondent did not submit any police report to support
his claim that petitioner really figured in a vehicular mishap. Neither did he
present the affidavit of the guard from the gas station to substantiate his claim that
petitioner abandoned the unit there.[58]
 Petitioners claim that he opted not to terminate the employment of
respondent because of magnanimity is negated by his (petitioners) own evidence
that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The

decision of the Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs
against petitioner.

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

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate court’s Decision1 of August 10, 2000
reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil
Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).

On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000
Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the
consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were placed in 124 cartons and the
Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3 aluminum
container, while the Trinordial tablets were packed in two pallets, each of which contained 30
cartons.3

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk
Note No. 4995 pursuant to Marine Open Policy No. 138.4

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),5 it
was discharged "without exception"6 and delivered to the warehouse of the Philippine Skylanders,
Inc. (PSI) located also at the NAIA for safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco
engaged the services of Sanchez Brokerage which had been its licensed broker since 1984.8 As its
customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees
for the cargo and thereafter delivers it to Wyeth-Suaco.9

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid
PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,10 was
issued. On the receipt, another representative of Sanchez Brokerage, M. Sison,11 acknowledged that
he received the cargoes consisting of three pieces in good condition.12

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which
were thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles
hired by Sanchez Brokerage.15

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine
and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo
City for quality control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992, indicated
that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1 pallet
containing Trinordiol.18

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the
cargoes by affixing his signature on the delivery receipt.19 Upon inspection, however, he, together
with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol
tablets were in bad order.20 He thus placed a note above his signature on the delivery receipt stating
that 44 cartons of oral contraceptives were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good order.

Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report21 dated July 31,
1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic).22

The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an
"Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the broker’s
trucks at the NAIA, they were inspected and found to be in "apparent good condition."24 Also noted
was that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets.25

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that 38 x
700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister
packs of Nordiol tablets were heavily damaged with water and emitted foul smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of Femenal

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

Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the payment
of P191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its
claim under Marine Risk Note Number 4995.

Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the
sealed containers were opened outside the PSI warehouse, it was discovered that some of the loose
cartons were wet,32 prompting its (Sanchez Brokerage’s) representative Morales to inform the Import-
Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the
latter advised to still deliver them to Hizon Laboratories where an adjuster would assess the
damage.33

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of
Makati City against the Sanchez Brokerage.

The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.35

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

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

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The
Decision of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of
the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181,
431.49, with interest thereupon at the rate of 6% per annum, from the date of the
Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00
as and by way of attorney’s fees; and

3. The counterclaims of the Appellee are DISMISSED.38

Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to
this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the context of
Article 1732 of the New Civil Code.

Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner
should have taken was to file a petition for review on certiorari since the sole office of a writ of
certiorari is the correction of errors of jurisdiction including the commission of grave abuse of
discretion amounting to lack or excess of jurisdiction and does not include correction of the appellate
court’s evaluation of the evidence and factual findings thereon.

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.39

The petition fails.

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

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001.
Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate
court’s decision had become final and executory. The filing by petitioner of a petition for certiorari on
March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.

In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not
merely reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.

Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial
court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.

Where the issue or question involves or affects the wisdom or legal soundness of the decision – not
the jurisdiction of the court to render said decision – the same is beyond the province of a petition
for certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in
order to review the judgment of lower courts as to its intrinsic correctness, either upon the law or the
facts of the case.42

Procedural technicalities aside, the petition still fails.

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

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified
that the services the firm offers include the delivery of goods to the warehouse of the consignee or
importer.

ATTY. FLORES:

Q: What are the functions of these license brokers, license customs broker?

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from
customs and finally deliver the goods to the warehouse of the importer.43

Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity.44 The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit.
It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under Article 173345 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.46

The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals:47

The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristics of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."48

In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in
NAIA in good order and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc.,
some of the cargoes were found to be in bad order, as noted in the Delivery Receipt50 issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors51 and the Destruction Report of
Hizon Laboratories, Inc.52

In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they
were damaged due to the fault or negligence of the shipper for failing to properly pack them and to
the inherent characteristics of the goods53 ; and that it should not be faulted for following the
instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed
to the latter that some of the cartons, on examination outside the PSI warehouse, were found to be
wet.54

While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if
the loss or damage is due to the character of the goods or defects in the packing or in the
containers, the rule is that if the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the resulting damage.56

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

Moreover, as observed by the appellate court, if indeed petitioner’s employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone back
to PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.58 Or, petitioner would have presented, as
witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo to
prove that, indeed, part of the cargoes was already damaged when the container was allegedly
opened outside the warehouse.59

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead,
it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI warehouse
but such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon
Laboratories, Inc.

While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992,
he failed to specifically declare what time he received the call. As to whether the call was made at
the PSI warehouse when the shipment was stripped from the airport containers, or when the
cargoes were already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time it received the
cargoes, a part of it was wet, damaged or in bad condition.60

The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives
were damaged by rainwater while in transit to Antipolo City is more likely then. Sanchez himself
testified that in the past, there was a similar instance when the shipment of Wyeth-Suaco was also
found to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at
the NAIA were damaged and claimed by the Wyeth-Suaco without any question?

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco
did not claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:
 A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62

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

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

DELSAN TRANSPORT LINES, INC., G.R. No. 149019

Petitioner,
Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- versus -
CORONA,

AZCUNA, and

GARCIA, JJ.

AMERICAN HOME ASSURANCE

CORPORATION, Promulgated:

Respondent.
August 15, 2006

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

GARCIA, J.:

By this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Delsan Transport Lines, Inc. (Delsan hereafter) assails and seeks to set
aside the Decision,[1] dated July 16, 2001, of the Court of Appeals (CA) in CA-
G.R. CV No. 40951 affirming an earlier decision of the Regional Trial Court
(RTC) of Manila, Branch IX, in two separate complaints for damages docketed as
Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:

Delsan is a domestic corporation which owns and operates the vessel MT

Larusan. On the other hand, respondent American Home Assurance Corporation
(AHAC for brevity) is a foreign insurance company duly licensed to do business in
the Philippines through its agent, the American-International Underwriters, Inc.
(Phils.). It is engaged, among others, in insuring cargoes for transportation within
the Philippines.

On August 5, 1984, Delsan received on board MT Larusan a shipment consisting

of 1,986.627 k/l Automotive Diesel Oil (diesel oil) at the Bataan Refinery
Corporation for transportation and delivery to the bulk depot in Bacolod City of
Caltex Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The shipment
was insured by respondent AHAC against all risks under Inland Floater Policy No.
AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.

On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter,

unloading operations commenced. The discharging of the diesel oil started at
about 1:30 PM of the same day. However, at about 10:30 PM, the discharging had
to be stopped on account of the discovery that the port bow mooring of the vessel
was intentionally cut or stolen by unknown persons. Because there was nothing
holding it, the vessel drifted westward, dragged and stretched the flexible rubber
hose attached to the riser, broke the elbow into pieces, severed completely the
rubber hose connected to the tanker from the main delivery line at sea bed level
and ultimately caused the diesel oil to spill into the sea. To avoid further spillage,
the vessels crew tried water flushing to clear the line of the diesel oil but to no
avail. In the meantime, the shore tender, who was waiting for the completion of the
water flushing, was surprised when the tanker signaled a red light which meant
stop pumping. Unaware of what happened, the shore tender, thinking that the
vessel would, at any time, resume pumping, did not shut the storage tank gate
valve. As all the gate valves remained open, the diesel oil that was earlier
discharged from the vessel into the shore tank backflowed. Due to non-availability
of a pump boat, the vessel could not send somebody ashore to inform the people at
the depot about what happened. After almost an hour, a gauger and an assistant
surveyor from the Caltexs Bulk Depot Office boarded the vessel. It was only then
that they found out what had happened. Thereafter, the duo immediately went
ashore to see to it that the shore tank gate valve was closed. The loss of diesel oil
due to spillage was placed at 113.788 k/l while some 435,081 k/l thereof
backflowed from the shore tank.

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the
loss from Delsan, but the latter refused to pay. As insurer, AHAC paid Caltex the
sum of P479,262.57 for spillage, pursuant to Marine Risk Note No. 34-5093-6,
and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy
No. AH-1F64-1011549P.

On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-
29357 against Delsan before the Manila RTC, Branch 9, for loss caused by the
spillage. It likewise prayed that it be indemnified for damages suffered in the
amount of P652,432.57 plus legal interest thereon.

Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case
No. 85-30559 against Delsan for the loss caused by the backflow. It likewise
prayed that it be awarded the amount of P1,939,575.37 for damages and reasonable
attorneys fees. As counterclaim in both cases, AHAC prayed for attorneys fees in
the amount of P200,000.00 and P500.00 for every court appearance.

Since the cause of action in both cases arose out of the same incident and involved
the same issues, the two were consolidated and assigned to Branch 9 of the court.

On August 31, 1989, the trial court rendered its decision[2] in favor of AHAC
holding Delsan liable for the loss of the cargo for its negligence in its duty as a
common carrier. Dispositively, the decision reads:

WHEREFORE, judgment is hereby rendered:

A). In Civil Case No. 85-30559:

(1) Ordering the defendant (petitioner Delsan) to pay plaintiff

(respondent AHAC) the sum of P1,939,575.37 with interest
thereon at the legal rate from November 21, 1984 until
fully paid and satisfied; and

(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as

and for attorneys fees.

For lack of merit, the counterclaim is hereby dismissed.

 B). In Civil Case No. 85-29357:

(1) Ordering defendant to pay plaintiff the sum of P479,262.57

with interest thereon at the legal rate from February 6,
1985 until fully paid and satisfied;

(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and

for attorneys fees.

For lack of merit, the counterclaim is hereby dismissed.

Costs against the defendant.

SO ORDERED.

In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R.
CV No. 40951.

In the herein challenged decision,[3] the CA affirmed the findings of the trial court.
In so ruling, the CA declared that Delsan failed to exercise the extraordinary
diligence of a good father of a family in the handling of its cargo. Applying Article
1736[4] of the Civil Code, the CA ruled that since the discharging of the diesel oil
into Caltex bulk depot had not been completed at the time the losses occurred,
there was no reason to imply that there was actual delivery of the cargo to Caltex,
the consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial
Court of Manila, Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby
AFFIRMED with a modification that attorneys fees awarded in Civil Case Nos.
85-29357 and 85-30559 are hereby DELETED.

SO ORDERED.

Delsan is now before the Court raising substantially the same issues proffered
before the CA.

Principally, Delsan insists that the CA committed reversible error in ruling that
Article 1734 of the Civil Code cannot exculpate it from liability for the loss of the
subject cargo and in not applying the rule on contributory negligence against
Caltex, the shipper-owner of the cargo, and in not taking into consideration the fact
that the loss due to backflow occurred when the diesel oil was already completely
delivered to Caltex.

We are not persuaded.

In resolving this appeal, the Court reiterates the oft-stated doctrine that
factual findings of the CA, affirmatory of those of the trial court, are binding on the
Court unless there is a clear showing that such findings are tainted with
arbitrariness, capriciousness or palpable error.[5]

Delsan would have the Court absolve it from liability for the loss of its cargo
on two grounds. First, the loss through spillage was partly due to the contributory
negligence of Caltex; and Second, the loss through backflow should not be borne
by Delsan because it was already delivered to Caltexs shore tank.

Common carriers are bound to observe extraordinary diligence in the

vigilance over the goods transported by them. They are presumed to have been at
fault or to have acted negligently if the goods are lost, destroyed or
deteriorated.[6] To overcome the presumption of negligence in case of loss,
destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence.There are, however, exceptions to this
rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:

1) 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;

5) Order or act of competent public authority.

Both the trial court and the CA uniformly ruled that Delsan failed
to prove its claim that there was a contributory negligence on the part of the owner
of the goods Caltex. We see no reason to depart therefrom. As aptly pointed out by
the CA, it had been established that the proximate cause of the spillage and
backflow of the diesel oil was due to the severance of the port bow mooring line of
the vessel and the failure of the shore tender to close the storage tank gate valve
even as a check on the drain cock showed that there was still a product on the
pipeline. To the two courts below, the actuation of the gauger and the escort
surveyor, both personnel from the Caltex Bulk Depot, negates the allegation that
Caltex was remiss in its duties. As we see it, the crew of the vessel should have
promptly informed the shore tender that the port mooring line was cut off.
However, Delsan did not do so on the lame excuse that there was no
available banca. As it is, Delsans personnel signaled a red light which was not a
sufficient warning because such signal only meant that the pumping of diesel oil
had been finished. Neither did the blowing of whistle suffice considering the
distance of more than 2 kilometers between the vessel and the Caltex Bulk Depot,
aside from the fact that it was not the agreed signal. Had the gauger and the escort
surveyor from Caltex Bulk Depot not gone aboard the vessel to make inquiries, the
shore tender would have not known what really happened. The crew of the vessel
should have exerted utmost effort to immediately inform the shore tender that the
port bow mooring line was severed.

To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss
was caused by one of the excepted causes if it were to seek exemption from
responsibility.[7] Unfortunately, it miserably failed to discharge this burden by the
required quantum of proof.
Delsans argument that it should not be held liable for the loss
of diesel oil due to backflow because the same had already been
actually and legally delivered to Caltex at the time it entered the shore tank holds
no water. It had been settled that the subject cargo was still in the custody of
Delsan because the discharging thereof has not yet been finished when the
backflow occurred. Since the discharging of the cargo
into the depot has not yet been completed at the time of the spillage
when the backflow occurred, there is no reason to imply that there was actual
delivery of the cargo to the consignee. Delsan is straining the issue by insisting that
when the diesel oil entered into the tank of Caltex on shore, there was legally, at
that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary
responsibility of common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to
a person who has the right to receive them.[8] The discharging of oil products
to Caltex Bulk Depot has not yet been finished, Delsan still has the duty to guard
and to preserve the cargo.The carrier still has in it the responsibility to guard and
preserve the goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.[9] The mere proof of delivery of goods in good order to
the carrier, and their arrival in the place of destination in bad order, make out
a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the
carrier to prove that the loss was due to accident or some other circumstances
inconsistent with its liability.[10]

All told, Delsan, being a common carrier, should have exercised

extraordinary diligence in the performance of its duties. Consequently,
it is obliged to prove that the damage to its cargo was caused by one
of the excepted causes if it were to seek exemption from responsibility.[11] Having
failed to do so, Delsan must bear the consequences.

WHEREFORE, petition is DENIED and the assailed decision of the CA

is AFFIRMED in toto.

Cost against petitioner.

SO ORDERED.
G.R. No. 108897 October 2, 1997

SARKIES TOURS PHILIPPINES, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL
A. FORTADES and FATIMA MINERVA A. FORTADES, respondents.

ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV
No. 18979 promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying
petitioner's motion for reconsideration for being a mere rehash of the arguments raised in the
appellant's brief.

The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva,
all surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad
faith.

On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on her way to Legazpi
City. Her brother Raul helped her load three pieces of luggage containing all of her optometry review
books, materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her
mother Marisol's U.S. immigration (green) card, among other important documents and personal
belongings. Her belongings were kept in the baggage compartment of the bus, but during a stopover
at Daet, it was discovered that only one bag remained in the open compartment. The others,
including Fatima's things, were missing and might have dropped along the way. Some of the
passengers suggested retracing the route of the bus to try to recover the lost items, but the driver
ignored them and proceeded to Legazpi City.

Fatima immediately reported the loss to her mother who, in turn, went to petitioner's office in Legazpi
City and later at its head office in Manila. Petitioner, however, merely offered her P1,000.00 for each
piece of luggage lost, which she turned down. After returning to Bicol, disappointed but not defeated,
mother and daughter asked assistance from the radio stations and even from Philtranco bus drivers
who plied the same route on August 31st. The effort paid off when one of Fatima's bags was
recovered. Marisol further reported the incident to the National Bureau of Investigation's field office in
Legazpi City and to the local police.

On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their
complaint from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and
said that "(a) team has been sent out to Bicol for the purpose of recovering or at least getting the full
detail"1 of the incident.

After more than nine months of fruitless waiting, respondents decided to file the case below to
recover the value of the remaining lost items, as well as moral and exemplary damages, attorney's
fees and expenses of litigation. They claimed that the loss was due to petitioner's failure to observe
extraordinary diligence in the care of Fatima's luggage and that petitioner dealt with them in bad faith
from the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.

On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of
respondents, viz.:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein

respondents) and against the herein defendant Sarkies Tours Philippines, Inc., ordering the
latter to pay to the former the following sums of money, to wit:

1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff
Fatima Minerva Fortades, etc. less the value of one luggage recovered;

2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;

3. The sum of P10,000.00 by way of exemplary damages;

4. The sum of P5,000.00 as attorney's fees; and

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand
(P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within
30 days from receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial court's judgment, but deleted the award of moral and
exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award for
transportation expenses at P30,000.00 and the deletion of the award for moral and
exemplary damages, the decision appealed from is AFFIRMED, with costs against
defendant-appellant.

SO ORDERED.
Its motion for reconsideration was likewise rejected by the Court of Appeals, so petitioner elevated
its case to this Court for a review.

After a careful scrutiny of the records of this case, we are convinced that the trial and appellate
courts resolved the issues judiciously based on the evidence at hand.

Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none
was declared at the start of the trip. The documentary and testimonial evidence presented at the
trial, however, established that Fatima indeed boarded petitioner's De Luxe Bus No. 5 in the evening
of August 31, 1984, and she brought three pieces of luggage with her, as testified by her brother
Raul,2 who helped her pack her things and load them on said bus. One of the bags was even
recovered by a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its
liability by apologizing to respondents and assuring them that efforts were being made to recover the
lost items.

The records also reveal that respondents went to great lengths just to salvage their loss. The
incident was reported to the police, the NBI, and the regional and head offices of petitioner. Marisol
even sought the assistance of Philtranco bus drivers and the radio stations. To expedite the
replacement of her mother's lost U.S. immigration documents, Fatima also had to execute an
affidavit of loss.3 Clearly, they would not have gone through all that trouble in pursuit of a fancied
loss.

Fatima was not the only one who lost her luggage. Apparently, other passengers had suffered a
similar fate: Dr. Lita Samarista testified that petitioner offered her P1,000.00 for her lost baggage and
she accepted it;4 Carleen Carullo-Magno lost her chemical engineering review materials, while her
brother lost abaca products he was transporting to Bicol.5

Petitioner's receipt of Fatima's personal luggage having been thus established, it must now be
determined if, as a common carrier, it is responsible for their loss. Under the Civil Code, "(c)ommon
carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods . . . transported by them,"6 and this liability
"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 person who has a right to receive them,"7 unless the loss is due to any of the excepted causes
under Article 1734 thereof.8

The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of
the baggage compartment of its bus were securely fastened. As a result of this lack of care, almost
all of the luggage was lost, to the prejudice of the paying passengers. As the Court of Appeals
correctly observed:

. . . . Where the common carrier accepted its passenger's baggage for transportation and
even had it placed in the vehicle by its own employee, its failure to collect the freight charge
is the common carrier's own lookout. It is responsible for the consequent loss of the
baggage. In the instant case, defendant appellant's employee even helped Fatima Minerva
Fortades and her brother load the luggages/baggages in the bus' baggage compartment,
without asking that they be weighed, declared, receipted or paid for (TSN, August 4, 1986,
pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the other
passengers (TSN, August 4, 1986, p. 104; February 5, 1988; p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise
agree with the trial and appellate courts' conclusions. There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered. The other two contained optometry books, materials,
equipment, as well as vital documents and personal belongings. Respondents had to shuttle
between Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and
Marisol had to travel from the United States just to be able to testify. Expenses were also incurred in
reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of
Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses,
but disagrees with the deletion of the award of moral and exemplary damages which, in view of the
foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly
established, should be granted to respondents in the amount of P20,000.00 and P5,000.00,
respectively.

WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its
resolution dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner
is ordered to pay respondents an additional P20,000.00 as moral damages and P5,000.00 as
exemplary damages. Costs against petitioner.

SO ORDERED.

G.R. No. 125524 August 25, 1999

BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES
SHIPPING, INC.,respondents.

BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac
Enterprises, shipped on board the vessel Nen Jiang, owned and operated by respondent China
Ocean Shipping Co., through local agent respondent Wallem Philippines Shipping, Inc. (hereinafter
WALLEM), 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG
99012 and exported through Letter of Credit No. HK 1031/30 issued by National Bank of Pakistan,
Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of
US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No.
HK 1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the following pertinent
provision: "One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods
or delivery order.1 The shipment was bound for Hongkong with PAKISTAN BANK as consignee and
Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.

On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices
were submitted to petitioner's depository bank, Consolidated Banking Corporation (hereinafter
SOLIDBANK), which paid petitioner in advance the total value of the shipment of US$20,223.46. 1âwphi1.nêt

Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not
to PAKISTAN BANK, and without the required bill of lading having been surrendered. Subsequently,
GPC failed to pay PAKISTAN BANK such that the latter, still in possession of the original bills of
lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid
petitioner the value of the shipment, it demanded payment from respondent WALLEM through five
(5) letters but was refused. Petitioner was thus allegedly constrained to return the amount involved
to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or
its equivalent of P546,033.42 from respondents before the Regional Trial Court of Manila, based on
delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee.

Respondents contended that the shipment was delivered to GPC without presentation of the bills of
lading and bank guarantee per request of petitioner himself because the shipment consisted of
perishable goods. The telex dated 5 April 1989 conveying such request read —

AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO

RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L2 and bank guarantee since for
prepaid shipt ofrt charges already fully paid our end . . . .3

Respondents explained that it is a standard maritime practice, when immediate delivery is of the
essence, for the shipper to request or instruct the carrier to deliver the goods to the buyer upon
arrival at the port of destination without requiring presentation of the bill of lading as that usually
takes time. As proof thereof, respondents apprised the trial court that for the duration of their two-
year business relationship with petitioner concerning similar shipments to GPC deliveries were
effected without presentation of the bills of lading.4 Respondents advanced next that the refusal of
PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the latter's failure to submit
a Certificate of Quantity and Quality. Respondents counterclaimed for attorney's fees and costs of
suit.

On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following
amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as
attorney's fees; and, (3) the costs. The counterclaims were dismissed for lack of merit.5 The trial
court opined that respondents breached the provision in the bill of lading requiring that "one of the
Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order,"
when they released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial
court added that the shipment should not have been released to GPC at all since the instruction
contained in the telex was to arrange delivery to the respective consignees and not to any party. The
trial court observed that the only role of GPC in the transaction as notify party was precisely to be
notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.

Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as
established by previous similar transactions between the parties, shipped cargoes were sometimes
actually delivered not to the consignee but to notify party GPC without need of the bills of lading or
bank guarantee.6 Moreover, the bills of lading were viewed by respondent court to have been
properly superseded by the telex instruction and to implement the instruction, the delivery of the
shipment must be to GPC, the real importer/buyer of the goods as shown by the export
invoices,7 and not to PAKISTAN BANK since the latter could very well present the bills of lading in its
possession; likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly
delivered it would no longer be proper to require a bank guarantee. Respondent court noted that
besides, GPC was listed as a consignee in the telex. It observed further that the demand letter of
petitioner to respondents never complained of misdelivery of goods. Lastly, respondent court found
that petitioner's claim of having reimbursed the amount involved to SOLIDBANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial court
and dismissed the complaint together with the counterclaims.8 On 5 July 1996 reconsideration was
denied.9

Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the
bill of lading or to a party designated or named by the consignee constitutes a misdelivery thereof.
Moreover, petitioner argues that from the text of the telex, assuming there was such an instruction,
the delivery of the shipment without the required bill of lading or bank guarantee should be made
only to the designated consignee, referring to PAKISTAN BANK.

We are not persuaded. The submission of petitioner that "the fact that the shipment was not
delivered to the consignee as stated in the Bill of Lading or to a party designated or named by the
consignee constitutes a misdelivery thereof" is a deviation from his cause of action before the trial
court. It is clear from the allegation in his complaint that it does not deal with misdelivery of the
cargoes but of delivery to GPC without the required bills of lading and bank guarantee —

6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the
buyer/notify party, Great Prospect Company and not to the consignee, the National Bank of
Pakistan, Hongkong, without the required bills of lading and bank guarantee for the release
of the shipment issued by the consignee of the goods . . . .10

Even going back to an event that transpired prior to the filing of the present case or when petitioner
wrote respondent WALLEM demanding payment of the value of the cargoes, misdelivery of the
cargoes did not come into the picture —

We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of
Lading No. 99012 and 99013 with a total value of US$20,223.46 were released to Great
Prospect, Hongkong without the necessary bank guarantee. We were further informed that
the consignee of the goods, National Bank of Pakistan, Hongkong, did not release or
endorse the original bills of lading. As a result thereof, neither the consignee, National Bank
of Pakistan, Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our
client for the goods . . . .11

At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion on the
imputed liability of respondents concerning the shipped goods. Article 1736 of the Civil Code
provides —

Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.12

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has a right to receive
them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the
notify party. However, in the export invoices GPC was clearly named as buyer/importer. Petitioner
also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint
before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive
them14 was proper.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without
the bills of lading or bank guarantee.

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to
GPC without the bills of lading and bank guarantee. The telex instructed delivery of various
shipments to the respective consignees without need of presenting the bill of lading and bank
guarantee per the respective shipper's request since "for prepaid shipt ofrt charges already fully
paid." Petitioner was named therein as shipper and GPC as consignee with respect to Bill of Lading
Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims
that this evidence is self-serving.

From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer
for around two (2) or three (3) years already. When mangoes and watermelons are in season, his
shipment to GPC using the facilities of respondents is twice or thrice a week. The goods are
released to GPC. It has been the practice of petitioner to request the shipping lines to immediately
release perishable cargoes such as watermelons and fresh mangoes through telephone calls by
himself or his "people." In transactions covered by a letter of credit, bank guarantee is normally
required by the shipping lines prior to releasing the goods. But for buyers using telegraphic transfers,
petitioner dispenses with the bank guarantee because the goods are already fully paid. In his several
years of business relationship with GPC and respondents, there was not a single instance when the
bill of lading was first presented before the release of the cargoes. He admitted the existence of the
telex of 3 July 1989 containing his request to deliver the shipment to the consignee without
presentation of the bill of lading15 but not the telex of 5 April 1989 because he could not remember
having made such request.

Consider pertinent portions of petitioner's testimony —

Q: Are you aware of any document which would indicate or show that your request to the
defendant Wallem for the immediate release of your fresh fruits, perishable goods, to Great
Prospect without the presentation of the original Bill of Lading?

A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested immediate
release of the cargo because there was immediate payment.

Q: And you are referring, therefore, to this copy Telex release that you mentioned where
your Company's name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of
Lading referring to SKG (sic) 93023 and 93026 with Great Prospect Company.

Atty. Ventura:

Q: Is that the telegraphic transfer?

A: Yes, actually, all the shippers partially request for the immediate release of the goods
when they are perishable. I thought Wallem Shipping Lines is not neophyte in the business.
As far as LC is concerned, Bank guarantee is needed for the immediate release of the goods
. . . .15

Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable goods to
ask the shipping lines to release immediately the shipment. Is that correct?

A: Yes, sir.

Q: Now, it is also the practice of the shipper to allow the shipping lines to release the
perishable goods to the importer of goods without a Bill of Lading or Bank guarantee?
 A: No, it cannot be without the Bank Guarantee.

Atty. Hernandez:

Q: Can you tell us an instance when you will allow the release of the perishable goods by the
shipping lines to the importer without the Bank guarantee and without the Bill of Lading?

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic transfer is?

A: Telegraphic transfer, it means advance payment that I am already fully paid . . . .

Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you
recall that any of your shipment was released to Great Prospect by Wallem through
telegraphic transfer?

A: I could not recall but there were so many instances sir.

Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods
through Wallem, you requested Wallem to release immediately your perishable goods to the
buyer?

A: Yes, that is the request of the shippers of the perishable goods . . . .16

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods
immediately even without the presentation of OBL, how do you course it?

A: Usually, I call up the Shipping Lines, sir . . . .17

Q: You also testified you made this request through phone calls. Who of you talked
whenever you made such phone call?

A: Mostly I let my people to call, sir. (sic)

Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . .18

Against petitioner's claim of "not remembering" having made a request for delivery of subject
cargoes to GPC without presentation of the bills of lading and bank guarantee as reflected in the
telex of 5 April 1989 are damaging disclosures in his testimony. He declared that it was his practice
to ask the shipping lines to immediately release shipment of perishable goods through telephone
calls by himself or his "people." He no longer required presentation of a bill of lading nor of a bank
guarantee as a condition to releasing the goods in case he was already fully paid. Thus, taking into
account that subject shipment consisted of perishable goods and SOLIDBANK pre-paid the full
amount of the value thereof, it is not hard to believe the claim of respondent WALLEM that petitioner
indeed requested the release of the goods to GPC without presentation of the bills of lading and
bank guarantee.

The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective consignees."
And so petitioner argues that, assuming there was such an instruction, the consignee referred to
was PAKISTAN BANK. We find the argument too simplistic. Respondent court analyzed the telex in
its entirety and correctly arrived at the conclusion that the consignee referred to was not PAKISTAN
BANK but GPC —

There is no mistake that the originals of the two (2) subject Bills of Lading are still in the
possession of the Pakistani Bank. The appealed decision affirms this fact. Conformably, to
implement the said telex instruction, the delivery of the shipment must be to GPC, the notify
party or real importer/buyer of the goods and not the Pakistani Bank since the latter can very
well present the original Bills of Lading in its possession. Likewise, if it were the Pakistani
Bank to whom the cargoes were to be strictly delivered, it will no longer be proper to require
a bank guarantee as a substitute for the Bill of Lading. To construe otherwise will render
meaningless the telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to reckon with.
Besides, GPC is listed as one among the several consignees in the telex (Exhibit 5-B) and
the instruction in the telex was to arrange delivery of A/M shipment (not any party) to
respective consignees without presentation of OB/L and bank guarantee . . . .20

Apart from the foregoing obstacles to the success of petitioner's cause, petitioner failed to
substantiate his claim that he returned to SOLIDBANK the full amount of the value of the cargoes. It
is not far-fetched to entertain the notion, as did respondent court, that he merely accommodated
SOLIDBANK in order to recover the cost of the shipped cargoes from respondents. We note that it
was SOLIDBANK which initially demanded payment from respondents through five (5) letters.
SOLIDBANK must have realized the absence of privity of contract between itself and respondents.
That is why petitioner conveniently took the cudgels for the bank.

In view of petitioner's utter failure to establish the liability of respondents over the cargoes, no
reversible error was committed by respondent court in ruling against him.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March
1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of respondents
China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5
July 1996 denying reconsideration, is AFFIRMED. 1âwphi 1.nêt

SO ORDERED.

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,

vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.: ñé+.£ª wph!1

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

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of
destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of
discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods
were to be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus: têñ.£îhqw â£

if goods are to be transshipped at port of discharge, show destination under the

column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents": têñ.£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: têñ.£îhqw â£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqw â£

Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship does
not expect to load or discharge, the carrier or master may, without notice, forward the
whole or any part of the goods before or after loading at the original port of shipment,
... This carrier, in making arrangements for any transshipping or forwarding vessels
or means of transportation not operated by this carrier shall be considered solely the
forwarding agent of the shipper and without any other responsibility whatsoever even
though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat
solely as agent of the shipper and at risk and expense of the goods and the carrier
shall not be liable for detention nor responsible for the acts, neglect, delay or failure
to act of anyone to whom the goods are entrusted or delivered for storage, handling
or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the
goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES
LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: têñ.£îhqw â£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying
said stipulations as the law between the parties in the aforecited case, the Court concluded that: têñ.£îhqwâ£

... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to
Article 1736 thereof, which reads: têñ.£îhqw â£

Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqw â£

Article 1738. The extraordinary liability of the common carrier continues to be

operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved
of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same
by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE
TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the
character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as
the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as
agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency,
was not fully performed. However, appellant had commenced said performance, the completion of
which was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent: têñ.£îhqw â£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby

DISMISSED.

No costs.

SO ORDERED. 1äw phï1.ñët

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

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

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

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

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

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

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

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

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

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

1. that private respondent was not a common carrier;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

and contrary to public policy:

xxx xxx xxx

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 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.

G.R. No. 135645 March 8, 2002

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,

vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.

KAPUNAN, J.:

This petition for review seeks the reversal of the Decision, dated September 23, 1998, of the Court
of Appeals in CA-G.R. CV No. 43915,1 which absolved private respondents MCG Marine Services,
Inc. and Doroteo Gaerlan of any liability regarding the loss of the cargo belonging to San Miguel
Corporation due to the sinking of the M/V Peatheray Patrick-G owned by Gaerlan with MCG Marine
Services, Inc. as agent.

On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate
value of P5,836,222.80 with petitioner Philippine American General Insurance Company.2 The cargo
were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig,
Surigao del Sur.

After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the
port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the
vessel started its voyage.

The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit
Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel
Corporation was lost.

Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.

Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the Manila
Adjusters and Surveyors Co., went to Taganauan Island, Cortes, Surigao del Sur where the vessel
was cast ashore, to investigate the circumstances surrounding the loss of the cargo. In his report,
Mr. Sayo stated that the vessel was structurally sound and that he did not see any damage or crack
thereon. He concluded that the proximate cause of the listing and subsequent sinking of the vessel
was the shifting of ballast water from starboard to portside. The said shifting of ballast water
allegedly affected the stability of the M/V Peatheray Patrick-G.

Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80 pursuant to the
terms of their insurance contract. 1âw phi 1.nêt

On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the Regional Trial
Court (RTC) of Makati City a case for collection against private respondents to recover the amount it
paid to San Miguel Corporation for the loss of the latter's cargo.

Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking of the M/V
Peatheray Patrick-G to determine whether or not the captain and crew of the vessel should be held
responsible for the incident.3 On May 11, 1989, the Board rendered its decision exonerating the
captain and crew of the ill-fated vessel for any administrative liability. It found that the cause of the
sinking of the vessel was the existence of strong winds and enormous waves in Surigao del Sur, a
fortuitous event that could not have been for seen at the time the M/V Peatheray Patrick-G left the
port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate
and only cause of the vessel's sinking.

On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision finding private
respondents solidarily liable for the loss of San Miguel Corporation's cargo and ordering them to pay
petitioner the full amount of the lost cargo plus legal interest, attorney's fees and costs of suit.4

Private respondents appealed the trial court's decision to the Court of Appeals. On September 23,
1998, the appellate court issued the assailed Decision, which reversed the ruling of the RTC. It held
that private respondents could not be held liable for the loss of San Miguel Corporation's cargo
because said loss occurred as a consequence of a fortuitous event, and that such fortuitous event
was the proximate and only cause of the loss.5

Petitioner thus filed the present petition, contending that:

(A)

IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF MAKATI CITY
ON THE BASIS OF THE FINDINGS OF THE BOARD OF MARINE INQUIRY, APPELLATE
COURT DECIDED THE CASE AT BAR NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE COURT;

(B)

IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE COURT GRAVELY

ERRED IN CONTRADICTING AND IN DISTURBING THE FINDINGS OF THE FORMER;

(C)

THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE DECISION OF THE

TRIAL COURT AND IN DISMISSING THE COMPLAINT.6

Common carriers, from the nature of their business and for reasons of public policy, are mandated to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them.7Owing to this high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods transported by them are
lost, destroyed or if the same deteriorated.8

However, this presumption of fault or negligence does not arise in the cases enumerated under
Article 1734 of the Civil Code:

Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

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

(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;

(5) Order or act of competent public authority.

In order that a common carrier may be absolved from liability where the loss, destruction or
deterioration of the goods is due to a natural disaster or calamity, it must further be shown that the
such natural disaster or calamity was the proximate and only cause of the loss;9 there must be "an
entire exclusion of human agency from the cause of the injury of the loss."10

Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a
common carrier is still required to exercise due diligence to prevent or minimize loss before, during
and after the occurrence of the natural disaster, for it to be exempt from liability under the law for the
loss of the goods.11 If a common carrier fails to exercise due diligence--or that ordinary care which
the circumstances of the particular case demand12 -- to preserve and protect the goods carried by it
on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will not
be considered as having been due to a natural disaster under Article 1734 (1).

In the case at bar, the issues may be narrowed down to whether the loss of the cargo was due to the
occurrence of a natural disaster, and if so, whether such natural disaster was the sole and proximate
cause of the loss or whether private respondents were partly to blame for failing to exercise due
diligence to prevent the loss of the cargo.

The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel
encountered strong winds and huge waves ranging from six to ten feet in height. The vessel listed at
the port side and eventually sunk at Cawit Point, Cortes, Surigao del Sur.

The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case
against the vessel's crew (BMI--646-87), found that the loss of the cargo was due solely to the
existence of a fortuitous event, particularly the presence of strong winds and huge waves at Cortes,
Surigao del Sur on March 3, 1987:

xxx

III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?

Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe, Cebu for
Bislig, Surigao del Sur on March 2, 1987 the Captain had observed the fair atmospheric
condition of the area of the pier and confirmed this good weather condition with the Coast
Guard Detachment of Mandawe City. However, on March 3, 1987 at about 10:00 o'clock in
the evening, when the vessel had already passed Surigao Strait. the vessel started to
experience waves as high as 6 to 7 feet and that the Northeasterly wind was blowing at
about five (5) knot velocity. At about 11:00 o'clock P.M. when the vessel was already about
4.5 miles off Cawit Point, Cortes, Surigao del Sur, the vessel was discovered to be listing 15
degrees to port side and that the strength of the wind had increased to 15 knots and the
waves were about ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately thereafter,
emergency measures were taken by the crew. The officers had suspected that a leak or
crack might had developed at the bottom hull particularly below one or two of the empty wing
tanks at port side serving as buoyancy tanks resulting in ingress of sea water in the tanks
was confirmed when the Captain ordered to use the cargo pump. The suction valves to the
said tanks of port side were opened in order to suck or draw out any amount of water that
 entered into the tanks. The suction pressure of the pump had drawn out sea water in large
quantity indicating therefore, that a leak or crack had developed in the hull as the vessel was
continuously batted and pounded by the huge waves. Bailing out of the water through the
pump was done continuously in an effort of the crew to prevent the vessel from sinking. but
then efforts were in vain. The vessel still continued to list even more despite the continuous
pumping and discharging of sea water from the wing tanks indicating that the amount of the
ingress of sea water was greater in volume that that was being discharged by the pump.
Considering therefore, the location of the suspected source of the ingress of sea water which
was a crack or hole at the bottom hull below the buoyancy tank's port side which was not
accessible (sic) for the crew to check or control the flow of sea water into the said tank. The
accumulation of sea water aggravated by the continuous pounding, rolling and pitching of the
vessel against huge waves and strong northeasterly wind, the Captain then had no other
recourse except to order abandonship to save their lives.13

The presence of a crack in the ill-fated vessel through which water seeped in was confirmed by the
Greutzman Divers who were commissioned by the private respondents to conduct an underwater
survey and inspection of the vessel to determine the cause and circumstances of its sinking. In its
report, Greutzman Divers stated that "along the port side platings, a small hole and two separate
cracks were found at about midship."14

The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge
waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3,
1987 was indeed fortuitous. A fortuitous event has been defined as one which could not be foreseen,
or which though foreseen, is inevitable.15 An event is considered fortuitous if the following elements
concur:

xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor
to comply with his obligations, must be independent of human will; (b) it must be impossible
to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor. xxx16

In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of
Mandaue City, the Captain confirmed with the Coast Guard that the weather condition would permit
the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not be expected to have
foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was
the presence of the strong winds and enormous waves which caused the vessel to list, keel over,
and consequently lose the cargo contained therein. The appellate court likewise found that there
was no negligence on the part of the crew of the M/V Peatheray Patrick-G, citing the following
portion of the decision of the Board of Marine Inquiry:

I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE PORT OF
MANDAWE, CEBU AND AT THE TIME OF SINKING?

Evidence clearly shows that the vessel was propelled with three (3) diesel engines of 250
BHP each or a total of 750 BHP. It had three (3) propellers which were operating
satisfactorily from the time the vessel left the port of Mandawe up to the time when the hull
on the double bottom tank was heavily floaded (sic) by uncontrollable entry of sea water
resulting in the stoppage of engines. The vessel was also equipped with operating generator
pumps for emergency cases. This equipment was also operating satisfactorily up to the time
when the engine room was heavily floaded (sic) with sea water. Further, the vessel had
 undergone emergency drydocking and repair before the accident occurred (sic) on
November 9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by the billing for the
Drydocking and Repair and certificate of Inspection No. 2588-86 issued by the Philippine
coast Guard on December 5, 1986 which expired on November 8, 1987.

LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and
experienced licensed Major Patron who had been in command of the vessel for more than
three (3) years from July 1984 up to the time of sinking March 3, 1987. His Chief Mate Mr.
Mariano Alalin also a licensed Major Patron had been the Chief Mate of " LCT Peatheray
Patrick-G" for one year and three months at the time of the accident. Further Chief Mate
Alalin had commanded a tanker vessel named M/T Mercedes of MGM Corporation for
almost two (2) years from 1983-1985 (Alalin TSN-4-13-88 pp. 32-33).

That the vessel was granted SOLAS clearance by the Philippine Coast Guard on March 1,
1987 to depart from Mandawe City for Bislig, Surigao del Sur as evidenced by a certification
issued to D.C. Gaerlan Oil Products by Coast Guard Station Cebu dated December 23,
1987. 1âwphi1.nêt

Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be considered

seaworthy vessel at the time she undertook that fateful voyage on March 2, 1987.

To be seaworthy, a vessel must not only be staunch and fit in the hull for the voyage to be
undertaken but also must be properly equipped and for that purpose there is a duty upon the
owner to provide a competent master and a crew adequate in number and competent for
their duty and equals in disposition and seamanship to the ordinary in that calling. (Ralph
299 F-52, 1924 AMC 942). American President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9
CAL 1924).17

Overloading was also eliminated as a possible cause of the sinking of the vessel, as the evidence
showed that its freeboard clearance was substantially greater than the authorized freeboard
clearance.18

Although the Board of Marine Inquiry ruled only on the administrative liability of the captain and crew
of the M/V Peatheray Patrick-G, it had to conduct a thorough investigation of the circumstances
surrounding the sinking of the vessel and the loss of its cargo in order to determine their
responsibility, if any. The results of its investigation as embodied in its decision on the administrative
case clearly indicate that the loss of the cargo was due solely to the attendance of strong winds and
huge waves which caused the vessel accumulate water, tilt to the port side and to eventually keel
over. There was thus no error on the part of the Court of Appeals in relying on the factual findings of
the Board of Marine Inquiry, for such factual findings, being supported by substantial evidence are
persuasive, considering that said administrative body is an expert in matters concerning marine
casualties.19

Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3,
1987 was shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G
and the loss of the cargo belonging to San Miguel Corporation, private respondents cannot be held
liable for the said loss.

WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED and the petition
is hereby DENIED.

SO ORDERED.