LAW ON TRANSPORTATION

(FULL CASES)
CONTRACTUAL EFFECTS
VIGILANCE OVER GOODS
EXTRAORDINARY DILIGENCE REQUIRED OF COMMON
CARRIERS (ART 1733 NCC)
REGISTERED-OWNER RULE
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30212 September 30, 1987
BIENVENIDO GELISAN, petitioner,
vs.
BENITO ALDAY, respondent.
PADILLA, J.:
Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11
October 1968, as amended by its resolution, dated 11 February 1969, in CA-G.R.
No. 32670-R, entitled: "Benito Alday, plaintiff-appellant, vs. Roberto Espiritu and
Bienvenido Gelisan, defendants-appellees," which ordered the herein petitioner
Bienvenido Gelisan to pay, jointly and severally, with Roberto Espiritu, the
respondent Benito Alday the amount of P5,397.30, with. legal interest thereon from
the filing of the complaint, and the costs of suit; and for the said Roberto Espiritu to
pay or refund the petitioner Bienvenido Gelisan whatever amount the latter may have
paid to the respondent Benito Alday by virtue of the judgment.
The uncontroverted facts of the case are, as follows:
Defendant Bienvenido Gelisan is the owner of a freight truck bearing
plate No. TH-2377. On January 31, 1962, defendant Bienvenido
Gelisan and Roberto Espiritu entered into a contract marked Exhibit 3Gelisan under which Espiritu hired the same freight truck of Gelisan for
the purpose of hauling rice, sugar, flour and fertilizer at an agreed price
of P18.00 per trip within the limits of the City of Manila provided the
loads shall not exceed 200 sacks. It is also agreed that Espiritu shall
bear and pay all losses and damages attending the carriage of the
goods to be hauled by him. The truck was taken by a driver of Roberto
Espiritu on February 1, 1962. Plaintiff Benito Alday, a trucking operator,
and who owns about 15 freight trucks, had known the defendant
Roberto Espiritu since 1948 as a truck operator. Plaintiff had a contract
to haul the fertilizers of the Atlas Fertilizer Corporation from Pier 4,
North Harbor, to its Warehouse in Mandaluyong. Alday met Espiritu at
the gate of Pier 4 and the latter offered the use of his truck with the
driver and helper at 9 centavos per bag of fertilizer. The offer was
accepted by plaintiff Alday and he instructed his checker Celso Henson
to let Roberto Espiritu haul the fertilizer. Espiritu made two hauls of 200

bags of fertilizer per trip. The fertilizer was delivered to the driver and
helper of Espiritu with the necessary way bill receipts, Exhibits A and B.
Espiritu, however, did not deliver the fertilizer to the Atlas Fertolizer
bodega at Mandaluyong. The signatures appearing in the way bill
receipts Exhibits A and B of the Alday Transportation admittedly not the
signature of any representative or employee of the Atlas Fertilizer
Corporation. Roberto Espiritu could not be found, and plaintiff reported
the loss to the Manila Police Department. Roberto Espiritu was later
arrested and booked for theft. ...
Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St.
and he notified the Manila Police Department, and it was impounded by
the police. It was claimed by Bienvenido Gelisan from the Police
Department after he had been notified by his employees that the truck
had been impounded by the police; but as he could not produce at the
time the registration papers, the police would not release the truck to
Gelisan. As a result of the impounding of the truck according to
Gelisan, ... and that for the release of the truck he paid the premium of
P300 to the surety company. 1
Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the
amount of P5,397.33, to Atlas Fertilizer Corporation so that, on 12 February 1962, he
(Alday) filed a complaint against Roberto Espiritu and Bienvenido Gelisan with the
Court of First Instance of Manila, docketed therein as Civil Case No. 49603, for the
recovery of damages suffered by him thru the criminal acts committed by the
defendants.
The defendant, Roberto Espiritu failed to file an answer and was, accordingly,
declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility.
He claimed that he had no contractual relations with the plaintiff Benito Alday as
regards the hauling and/or delivery of the 400 bags of fertilizer mentioned in the
complaint; that the alleged misappropriation or nondelivery by defendant Roberto
Espiritu of plaintiff's 400 bags of fertilizer, was entirely beyond his (Gelisan's) control
and knowledge, and which fact became known to him, for the first time, on 8
February 1962 when his freight truck, with plate No. TH-2377, was impounded by the
Manila Police Department, at the instance of the plaintiff; and that in his written
contract of hire with Roberto Espiritu, it was expressly provided that the latter will
bear and pay all loss and damages attending the carriage of goods to be hauled by
said Roberto Espiritu.
After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was
liable to Benito Alday, since Bienvenido Gelisan was not privy to the contract
between Espiritu and Alday. The dispositive portion of the decision reads, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Roberto Espiritu for the sum of P6,000 with
interest at the legal rate from the time of the filing of the complaint, and
the costs of the suit. Plantiff's complaint is dismissed with respect to
defendant Bienvenido Gelisan, and judgment is rendered in favor of
defendant Bienvenido Gelisan and against the plaintiff for the sum of
P350. 2
On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3
found that Bienvenido Gelisan is likewise liable for being the registered owner of the

truck; and that the lease contract, executed by and between Bienvenido Gelisan and
Roberto Espiritu, is not binding upon Benito Alday for not having been previously
approved by the Public Service Commission. Accordingly, it sentenced Bienvenido
Gelisan to pay, jointly and severally with Roberto Espiritu, Benito Alday the amount
of P5,397.30, with legal interest thereon from the filing of the complaint; and to pay
the costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan
whatever amount the latter may have paid to Benito Alday by virtue of the judgment.
4

Hence, the present recourse by Bienvenido Gelisan.

The petition is without merit. The judgment rendered by the Court of Appeals, which
is sought to be reviewed, is in accord with the facts and the law on the case and we
find no cogent reason to disturb the same. The Court has invariably held in several
decisions that the registered owner of a public service vehicle is responsible for
damages that may arise from consequences incident to its operation or that may be
caused to any of the passengers therein. 5 The claim of the petitioner that he is not
hable in view of the lease contract executed by and between him and Roberto
Espiritu which exempts him from liability to third persons, cannot be sustained
because it appears that the lease contract, adverted to, had not been approved by
the Public Service Commission. It is settled in our jurisprudence that if the property
covered by a franchise is transferred or leased to another without obtaining the
requisite approval, the transfer is not binding upon the public and third persons. 6
We also find no merit in the petitioner's argument that the rule requiring the previous
approval by the Public Service Commission, of the transfer or lease of the motor
vehicle, may be applied only in cases where there is no positive Identification of the
owner or driver, or where there are very scant means of Identification, but not in
those instances where the person responsible for damages has been fixed or
determined beforehand, as in the case at bar. The reason for the rule we reiterate in
the present case, was explained by the Court in Montoya vs. Ignacio, 7 thus:
There is merit in this contention. The law really requires the approval of
the Public Service Commission in order that a franchise, or any
privilege pertaining thereto, may be sold or leased without infringing the
certificate issued to the grantee. The reason is obvious. Since a
franchise is personal in nature any transfer or lease thereof should be
notified to the Public Service Commission so that the latter mav take
proper safeguards to protect the interest of the public. In fact, the law
requires that, before the approval is granted, there should be a public
hearing, with notice to all interested parties, in order that the
Commission may determine if there are good and reasonable grounds
justifying the transfer or lease of the property covered by the franchise,
or if the sale or lease is detrimental to public interest. Such being the
reason and philosophy behind this requirement, it follows that if the
property covered by the franchise is transferred, or leased to another
without obtaining the requisite approval, the transfer is not binding
against the Public Service Commission and in contemplation of law the
grantee continues to be responsible under the franchise in relation to
the Commission and to the Public. Since the lease of the jeepney in
question was made without such approval the only conclusion that can
be drawn is that Marcelino Ignacio still continues to be its operator in
contemplation of law, and as such is responsible for the consequences

incident to its operation, one of them being the collision under

consideration.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a
right to be indemnified by Roberto Espiritu for the amount titat he may be required to
pay as damages for the injury caused to Benito Alday, since the lease contract in
question, although not effective against the public for not having been approved by
the Public Service Commission, is valid and binding between the contracting parties.
8

We also find no merit in the petitioner's contention that his liability is only subsidiary.
The Court has consistently considered the registered owner/operator of a public
service vehicle to be jointly and severally liable with the driver for damages incurred
by passengers or third persons as a consequence of injuries sustained in the
operation of said vehicles. Thus, in the case of Vargas vs. Langcay, 9 the Court said:
We hold that the Court of Appeals erred in considering appellantpetitioner Diwata Vargas only subsidiarily liable under Article 103 of the
Revised Penal Code. This court, in previous decisions, has always
considered the registered owner/operator of a passenger vehicle,
jointly and severally liable with the driver, for damages incurred by
passengers or third persons as a consequence of injuries (or death)
sustained in the operation of said vehicles. (Montoya vs. Ignacio, 94
Phil., 182; Timbol vs. Osias, G.R. No. L-7547, April 30, 1955; Vda. de
Medina vs. Cresencia, 99 Phil., 506; Necesito vs. Paras, 104 Phil., 75;
Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquino and Rayos vs
Tamayo, 105 Phil., 949; 56 Off. Gaz. [36] 5617.) In the case of Erezo
vs. Jepte, Supra, We held:
* * * In synthesis, we hold that the registered owner, the defendantappellant herein, is primarily responsible for the damage caused * * *
(Emphasis supplied)
In the case of Tamayo vs. Aquino, supra, We said:
* * * As Tamayo is the registered owner of the truck, his responsibffity to
the public or to any passenger riding in the vehicle or truck must be
direct * * * (Emphasis supplied)
WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70876 July 19, 1990
MA. LUISA BENEDICTO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD
INDUSTRIES COMPANY, INC. respondents.
Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner.
Abelardo V. Viray for private respondent.
FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then Intermediate
Appellate Court dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed
in toto the decision of the Regional Trial Court ("RTC") of Dagupan City in Civil Case
No. 5206. There, the RTC held petitioner Ma. Luisa Benedicto liable to pay private
respondent Greenhills Wood Industries Company, Inc. ("Greenhills") the amounts of
P16,016.00 and P2,000.00 representing the cost of Greenhills' lost sawn lumber and
attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at
Dagupan City, operates sawmill in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue
Star Mahogany, Inc., ("Blue Star") a company with business operations in
Valenzuela, Bulacan 100,000 board feet of sawn lumber with the understanding that
an initial delivery would be made on 15 May 1980. 1 To effect its first delivery, private
respondent's resident manager in Maddela, Dominador Cruz, contracted Virgilio
Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its
sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck
was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of
Macoven Trucking, a business enterprise engaged in hauling freight, with main office
in B.F. Homes, Paraaque.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden,
supervised the loading of 7,690 board feet of sawn lumber with invoice value of
P16,918.00 aboard the cargo truck. Before the cargo truck left Maddela for
Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices Nos. 3259 and 3260
both of which were initialed by the latter at the bottom left corner. 2 The first invoice
was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn
lumber, while the other set out the amount of P5,095.20 as the value of 2,316 board
feet. Cruz instructed Licuden to give the original copies of the two (2) invoices to the
consignee upon arrival in Valenzuela, Bulacan 3 and to retain the duplicate copies in
order that he could afterwards claim the freightage from private respondent's Manila
office. 4
On 16 May 1980, the Manager of Blue Star called up by long distance telephone
Greenhills' president, Henry Lee Chuy, informing him that the sawn lumber on board

the subject cargo truck had not yet arrived in Valenzuela, Bulacan. The latter in turn
informed Greenhills' resident manager in its Maddela saw-mill of what had
happened. In a letter 5 dated 18 May 1980, Blue Star's administrative and personnel
manager, Manuel R. Bautista, formally informed Greenhills' president and general
manager that Blue Star still had not received the sawn lumber which was supposed
to arrive on 15 May 1980 and because of this delay, "they were constrained to look
for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to
persuade it to continue with their contract, private respondent Greenhill's filed
Criminal Case No. 668 against driver Licuden for estafa. Greenhills also filed against
petitioner Benedicto Civil Case No. D-5206 for recovery of the value of the lost sawn
lumber plus damages before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete
stranger to the contract of carriage, the subject truck having been earlier sold by her
to Benjamin Tee, on 28 February 1980 as evidenced by a deed of sale. 7 She
claimed that the truck had remained registered in her name notwithstanding its
earlier sale to Tee because the latter had paid her only P50,000.00 out of the total
agreed price of P68,000.00 However, she averred that Tee had been operating the
said truck in Central Luzon from that date (28 February 1980) onwards, and that,
therefore, Licuden was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the
registered owner of the subject truck, and holding that Licuden was her employee,
the trial court adjudged as follows:
WHEREFORE, in the light of the foregoing considerations, this Court
hereby renders judgment against defendant Maria Luisa Benedicto,
ordering her to pay the Greenhills Wood Industries Co. Inc., thru its
President and General Manager, the amount of P16,016 cost of the
sawn lumber loaded on the cargo truck, with legal rate of interest from
the filing of the complaint to pay attorney's fees in the amount of
P2,000.00; and to pay the costs of this suit.
SO ORDERED. 8
On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court
affirmed 9 the decision of the trial court in toto. Like the trial court, the appellate court
held that since petitioner was the registered owner of the subject vehicle, Licuden
the driver of the truck, was her employee, and that accordingly petitioner should be
responsible for the negligence of said driver and bear the loss of the sawn lumber
plus damages. Petitioner moved for reconsideration, without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the
facts and applicable law, the appellate court was correct in finding that petitioner,
being the registered owner of the carrier, should be held liable for the value of the
undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo,
because the doctrine which makes the registered owner of a common carrier vehicle
answerable to the public for the negligence of the driver despite the sale of the
vehicle to another person, applies only to cases involving death of or injury to
passengers. What applies in the present case, according to petitioner, is the rule that
a contract of carriage requires proper delivery of the goods to and acceptance by the
carrier. Thus, petitioner contends that the delivery to a person falsely representing

himself to be an agent of the carrier prevents liability from attaching to the registered
owner.
The Court considers that petitioner has failed to show that appellate court committed
reversible error in affirming the trial court's holding that petitioner was liable for the
cost of the sawn lumber plus damages.
There is no dispute that petitioner Benedicto has been holding herself out to the
public as engaged in the business of hauling or transporting goods for hire or
compensation. Petitioner Benedicto is, in brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for
consequences flowing from the operations of the carrier, even though the specific
vehicle involved may already have been transferred to another person. This doctrine
rests upon the principle that in dealing with vehicles registered under the Public
Service Law, the public has the right to assume that the registered owner is the
actual or lawful owner thereof It would be very difficult and often impossible as a
practical matter, for members of the general public to enforce the rights of action that
they may have for injuries inflicted by the vehicles being negligently operated if they
should be required to prove who the actual owner is. 11 The registered owner is not
allowed to deny liability by proving the identity of the alleged transferee. Thus,
contrary to petitioner's claim, private respondent is not required to go beyond the
vehicle's certificate of registration to ascertain the owner of the carrier. In this regard,
the letter presented by petitioner allegedly written by Benjamin Tee admitting that
Licuden was his driver, had no evidentiary value not only because Benjamin Tee was
not presented in court to testify on this matter but also because of the
aforementioned doctrine. To permit the ostensible or registered owner to prove who
the actual owner is, would be to set at naught the purpose or public policy which
infuses that doctrine.
In fact, private respondent had no reason at all to doubt the authority of Licuden to
enter into a contract of carriage on behalf of the registered owner. It appears that,
earlier, in the first week of May 1980, private respondent Greenhills had contracted
Licuden who was then driving the same cargo truck to transport and carry a load of
sawn lumber from the Maddela sawmill to Dagupan City. 12 No one came forward to
question that contract or the authority of Licuden to represent the owner of the carrier
truck.
Moreover, assuming the truth of her story, petitioner Benedicto retained registered
ownership of the freight truck for her own benefit and convenience, that is, to secure
the payment of the balance of the selling price of the truck. She may have been
unaware of the legal security device of chattel mortgage; or she, or her buyer, may
have been unwilling to absorb the expenses of registering a chattel mortgage over
the truck. In either case, considerations both of public policy and of equity require
that she bear the consequences flowing from registered ownership of the subject
vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to
cases involving negligence and resulting injury to or death of passengers, and not to
cases involving merely carriage of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of
public policy, is burdened by the law with the duty of exercising extraordinary
diligence not only in ensuring the safety of passengers but also in caring for goods
transported by it. 13 The loss or destruction or deterioration of goods turned over to
the common carrier for conveyance to a designated destination, raises instantly a

presumption of fault or negligence on the part of the carrier, save only where such
loss, destruction or damage arises from extreme circumstances such as a natural
disaster or calamity or act of the public enemy in time of war, or from an act or
omission of the shipper himself or from the character of the goods or their packaging
or container. 14
This presumption may be overcome only by proof of extraordinary diligence on the
part of the carrier. 15 Clearly, to permit a common carrier to escape its responsibility
for the passengers or goods transported by it by proving a prior sale of the vehicle or
means of transportation to an alleged vendee would be to attenuate drastically the
carrier's duty of extraordinary diligence. It would also open wide the door to collusion
between the carrier and the supposed vendee and to shifting liability from the carrier
to one without financial capability to respond for the resulting damages. In other
words, the thrust of the public policy here involved is as sharp and real in the case of
carriage of goods as it is in the transporting of human beings. Thus, to sustain
petitioner Benedicto's contention, that is, to require the shipper to go behind a
certificate of registration of a public utility vehicle, would be utterly subversive of the
purpose of the law and doctrine.
Petitioner further insists that there was no perfected contract of carriage for the
reason that there was no proof that her consent or that of Tee had been obtained; no
proof that the driver, Licuden was authorized to bind the registered owner; and no
proof that the parties had agreed on the freightage to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a
transparent attempt to evade statutory responsibilities. Driver Licuden was entrusted
with possession and control of the freight truck by the registered owner (and by the
alleged secret owner, for that matter).itc-asl Driver Licuden, under the
circumstances, was clothed with at least implied authority to contract to carry goods
and to accept delivery of such goods for carriage to a specified destination. That the
freight to be paid may-not have been fixed before loading and carriage, did not
prevent the contract of carriage from arising, since the freight was at least
determinable if not fixed by the tariff schedules in petitioner's main business office.
Put in somewhat different terms, driver Licuden is in law regarded as the employee
and agent of the petitioner, for whose acts petitioner must respond. A contract of
carriage of goods was shown; the sawn lumber was loaded on board the freight
truck; loss or non-delivery of the lumber at Blue Star's premises in Valenzuela,
Bulacan was also proven; and petitioner has not proven either that she had
exercised extraordinary diligence to prevent such loss or non-delivery or that the loss
or non-delivery was due to some casualty or force majeure inconsistent with her
liability. 16 Petitioner's liability to private respondent Greenhills was thus fixed and
complete, without prejudice to petitioner's right to proceed against her putative
transferee Benjamin Tee and driver Licuden for reimbursement or contribution. 17
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision
of the former Intermediate Appellate Court dated 30 January 1985 is hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concur.
Bidin, J., took no part.

THIRD DIVISION
[G.R. No. 120553. June 17, 1997]
PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG,
petitioner, vs. COURT OF APPEALS and HEIRS OF THE LATE RAMON
ACUESTA, respondents.
DECISION
DAVIDE, JR., J.:
The petitioners interposed this appeal by way of a petition for review under Rule 45
of the Rules of Court from the 31 January 1995 Decision of the Court of Appeals in
CA-G.R. CV No. 41140i[1] affirming the 22 January 1993ii[2] Decision of Branch 31 of
the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the
petitioners to pay the private respondents damages as a result of a vehicular
accident.
Civil Case No. 373 was an action against herein petitioners for damages instituted by
the heirs of Ramon A. Acuesta, namely, Gregorio O. Acuesta; Julio O. Acuesta;
Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O. Acuesta; Maximo O. Acuesta;
Neri O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O.
Acuesta. Atty. Julio O. Acuesta also appeared as counsel for the plaintiffs (herein
private respondents).iii[3] The private respondents alleged that the petitioners were
guilty of gross negligence, recklessness, violation of traffic rules and regulations,
abandonment of victim, and attempt to escape from a crime.
To support their allegations, the private respondents presented eight witnesses. On
10 February 1992, after the cross-examination of the last witness, the private
respondents counsel made a reservation to present a ninth witness. The case was
then set for continuation of the trial on 30 and 31 March 1992. Because of the nonappearance of the petitioners counsel, the 30 March 1992 hearing was cancelled.
The next day, private respondents counsel manifested that he would no longer
present the ninth witness. He thereafter made an oral offer of evidence and rested
the case. The trial court summarized private respondents evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A.
Acuesta was riding in his easy rider bicycle (Exhibit O), along the Gomez Street of
Calbayog City. The Gomez Street is along the side of Nijaga Park. On the
Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises,
Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-725 driven by defendant
Rogasiones Manilhig y Dolira was being pushed by some persons in order to start its
engine. The Magsaysay Blvd. runs perpendicular to Gomez St. and the said

Philtranco bus 4025 was heading in the general direction of the said Gomez Street.
Some of the persons who were pushing the bus were on its back, while the others
were on the sides. As the bus was pushed, its engine started thereby the bus
continued on its running motion and it occurred at the time when Ramon A. Acuesta
who was still riding on his bicycle was directly in front of the said bus. As the engine
of the Philtranco bus started abruptly and suddenly, its running motion was also
enhanced by the said functioning engine, thereby the subject bus bumped on the
victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over
by the said bus. The bus did not stop although it had already bumped and ran [sic]
over the victim; instead, it proceeded running towards the direction of the Rosales
Bridge which is located at one side of the Nijaga Park and towards one end of the
Gomez St., to which direction the victim was then heading when he was riding on his
bicycle. P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading
and meeting the victim Ramon A. Acuesta as the latter was riding on his bicycle, saw
when the Philtranco bus was being pushed by some passengers, when its engine
abruptly started and when the said bus bumped and ran over the victim. He
approached the bus driver defendant Manilhig herein and signalled to him to stop,
but the latter did not listen. So the police officer jumped into the bus and introducing
himself to the driver defendant as policeman, ordered the latter to stop. The said
defendant driver stopped the Philtranco bus near the Nijaga Park and Sgt. Yabao
thereafter, told the driver to proceed to the Police Headquarter which was only 100
meters away from Nijaga Park because he was apprehensive that the said driver
might be harmed by the relatives of the victim who might come to the scene of the
accident. Then Sgt. Yabao cordoned the scene where the vehicular accident
occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an
investigation and make a sketch of the crime scene. Sgt. Yambao Yabao was only
about 20 meters away when he saw the bus of defendant Philtranco bumped [sic]
and [sic] ran over the victim. From the place where the victim was actually bumped
by the bus, the said vehicle still had run to a distance of about 15 meters away. iv[4]
For their part, the petitioners filed an Answer v[5] wherein they alleged that petitioner
Philtranco exercised the diligence of a good father of a family in the selection and
supervision of its employees, including petitioner Manilhig who had excellent record
as a driver and had undergone months of rigid training before he was hired.
Petitioner Manilhig had always been a prudent professional driver, religiously
observing traffic rules and regulations. In driving Philtranco's buses, he exercised
the diligence of a very cautious person.
As might be expected, the petitioners had a different version of the incident. They
alleged that in the morning of 24 March 1990, Manilhig, in preparation for his trip
back to Pasay City, warmed up the engine of the bus and made a few rounds within
the city proper of Calbayog. While the bus was slowly and moderately cruising along
Gomez Street, the victim, who was biking towards the same direction as the bus,
suddenly overtook two tricycles and swerved left to the center of the road. The
swerving was abrupt and so sudden that even as Manilhig applied the brakes and
blew the bus horn, the victim was bumped from behind and run over by the bus. It
was neither willful nor deliberate on Manilhig's part to proceed with the trip after his
bus bumped the victim, the truth being that when he looked at his rear-view window,
he saw people crowding around the victim, with others running after his bus. Fearing
that he might be mobbed, he moved away from the scene of the accident and
intended to report the incident to the police. After a man boarded his bus and

introduced himself as a policeman, Manilhig gave himself up to the custody of the

police and reported the accident in question.
The petitioners further claimed that it was the negligence of the victim in overtaking
two tricycles, without taking precautions such as seeing first that the road was clear,
which caused the death of the victim. The latter did not even give any signal of his
intention to overtake. The petitioners then counterclaimed for P50,000 as and for
attorney's fees; P1 million as moral damages; and P50,000 for litigation expenses.
However, the petitioners were not able to present their evidence, as they were
deemed to have waived that right by the failure of their counsel to appear at the
scheduled hearings on 30 and 31 March 1992. The trial court then issued an
Ordervi[6] declaring the case submitted for decision. Motions for the reconsideration
of the said Order were both denied.
On 22 January 1992, the trial court handed down a decision ordering the petitioners
to jointly and severally pay the private respondents the following amounts:
1) P55, 615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorneys fees; and
6) the costs of suit.vii[7]
Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals
imputing upon the trial court the following errors:
(1) in preventing or barring them from presenting their evidence;
(2) in finding that petitioner Manilhig was at fault;
(3) in not finding that Ramon was the one at fault and his own fault caused, or at
least contributed to, his unfortunate accident;
(4) in awarding damages to the private respondents; and
(5) in finding that petitioner Philtranco was solidarily liable with Manilhig for
damages.viii[8]
In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the
trial court. It held that the petitioners were not denied due process, as they were
given an opportunity to present their defense. The records show that they were
notified of the assignment of the case for 30 and 31 March 1992. Yet, their counsel
did not appear on the said dates. Neither did he file a motion for postponement of
the hearings, nor did he appeal from the denial of the motions for reconsideration of
the 31 March 1992 Order of the trial court. The petitioners have thereby waived their
right to present evidence. Their expectation that they would have to object yet to a
formal offer of evidence by the private respondents was misplaced, for it was within
the sound discretion of the court to allow oral offer of evidence.
As to the second and third assigned errors, the respondent court disposed as
follows:
... We cannot help but accord with the lower court's finding on appellant Manilhig's
fault. First, it is not disputed that the bus driven by appellant Manilhig was being
pushed at the time of the unfortunate happening. It is of common knowledge and
experience that when a vehicle is pushed to a jump-start, its initial movement is far
from slow. Rather, its movement is abrupt and jerky and it takes a while before the
vehicle attains normal speed. The lower court had thus enough basis to conclude,
as it did, that the bumping of the victim was due to appellant Manilhig's actionable

negligence and inattention. Prudence should have dictated against jump-starting the
bus in a busy section of the city. Militating further against appellants' posture was
the fact that the precarious pushing of subject bus to a jumpstart was done where
the bus had to take a left turn, thereby making the move too risky to take. The
possibility that pedestrians on Gomez Street, where the bus turned left and the victim
was biking, would be unaware of a vehicle being pushed to a jumpstart, was too
obvious to be overlooked. Verily, contrary to their bare arguments, there was gross
negligence on the part of appellants.
The doctrine of last clear chance theorized upon by appellants, is inapplicable under
the premises because the victim, who was bumped from behind, obviously, did not of
course anticipate a Philtranco bus being pushed from a perpendicular street.
The respondent court sustained the awards of moral and exemplary damages and of
attorneys fees, for they are warranted under Articles 2206, 2231, and 2208(1),
respectively, of the Civil Code. Anent the solidary liability of petitioner Philtranco, the
same finds support in Articles 2180 and 2194 of the said Code. The defense that
Philtranco exercised the diligence of a good father of a family in the selection and
supervision of its employees crumbles in the face of the gross negligence of its
driver, which caused the untimely death of the victim.
Their motion for reconsideration having been denied, the petitioners came to us
claiming that the Court of Appeals gravely erred
I
...IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT
THEIR EVIDENCE, AND THAT PETITIONERS WERE NOT DENIED DUE
PROCESS.
II
...IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE,
AND IN HOLDING THAT PETITIONER PHILTRANCO CAN NOT INVOKE THE
DEFENSE OF DILIGENCE OF A GOOD FATHER OF A FAMILY.
III
...IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING
THE TRIAL COURT'S AWARD OF DAMAGES EXCESSIVE.
We resolved to give due course to the petition and required the parties to submit
their respective memoranda after due consideration of the allegations, issues, and
arguments adduced in the petition, the comment thereon by the private respondents,
and the reply to the comment filed by the petitioners. The petitioners filed their
memorandum in due time; while the private respondents filed theirs only on 3
January 1997, after their counsel was fined in the amount of P1,000 for failure to
submit the required memorandum.
The first imputed error is without merit. The petitioners and their counsel, Atty. Jose
Buban, were duly notified in open court of the order of the trial court of 10 February
1992 setting the case for hearing on 30 and 31 March 1992.ix[9] On both dates
neither the petitioners nor their counsel appeared. In his motion for reconsideration, x
[10] Atty. Buban gave the following reasons for his failure to appear on the said
hearings:
1. That when this case was called on March 27, 1992, counsel was very much
indisposed due to the rigors of a very hectic campaign as he is a candidate for City
Councilor of Tacloban; he wanted to leave for Calbayog City, but he was seized with
slight fever on the morning of said date; but then, during the last hearing, counsel
was made to understand that plaintiffs would formally offer their exhibits in writing, for

which reason, counsel for defendants waited for a copy of said formal offer, but
counsel did not receive any copy as counsel for plaintiffs opted to formally offer their
exhibits orally in open court;
2. That counsel for defendants, in good faith believed that he would be given
reasonable time within which to comment on the formal offer in writing, only to know
that counsel for plaintiffs orally offered their exhibits in open court and that the same
were admitted by the Honorable Court; and that when this case was called on March
30 and 31, 1992, the undersigned counsel honestly believed that said schedule
would be cancelled, pending on the submission of the comments made by the
defendants on the formal offer; but it was not so, as the exhibits were admitted in
open court.xi[11]
In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid
of meritorious basis," as Atty. Buban could have filed a motion for postponement. xii
[12] Atty. Buban then filed a motion to reconsider xiii[13] the order of denial, which
was likewise denied by the trial court in its order of 12 August 1992. xiv[14] Nothing
more was done by the petitioners after receipt of the order of 12 August 1992. A
perusal of the first and second motions for reconsideration discloses absence of any
claim that the petitioners have meritorious defenses. Clearly, therefore, the trial
court committed no error in declaring the case submitted for decision on the basis of
private respondent's evidence.
The second imputed error is without merit either.
Civil Case No. 373 is an action for damages based on quasi-delictxv[15] under Article
2176 and 2180 of the Civil Code against petitioner Manilhig and his employer,
petitioner Philtranco, respectively. These articles pertinently provide:
ART. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter.
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.
...
The owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches in
which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks even though the former are
not engaged in any business or industry.
...
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
We have consistently held that the liability of the registered owner of a public service
vehicle, like petitioner Philtranco,xvi[16] for damages arising from the tortious acts of
the driver is primary, direct, and joint and several or solidary with the driver.xvii[17] As
to solidarity, Article 2194 expressly provides:
ART. 2194. The responsibility of two or more persons who are liable for a quasidelict is solidary.
Since the employer's liability is primary, direct and solidary, its only recourse if the
judgment for damages is satisfied by it is to recover what it has paid from its

employee who committed the fault or negligence which gave rise to the action based
on quasi-delict. Article 2181 of the Civil Code provides:
ART. 2181. Whoever pays for the damage caused by his dependents or employees
may recover from the latter what he has paid or delivered in satisfaction of the claim.
There is, however, merit in the third imputed error.
The trial court erroneously fixed the "death indemnity" at P200,000. The private
respondents defended the award in their Opposition to the Motion for
Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of
Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for
death is computed on the basis of the life expectancy of the deceased." In that case,
the "death indemnity" was computed by multiplying the victim's gross annual income
by his life expectancy, less his yearly living expenses. Clearly then, the "death
indemnity" referred to was the additional indemnity for the loss of earning capacity
mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death
mentioned in the first paragraph thereof. This article provides as follows:
ART. 2206. The amount of damages for death caused by a crime or quasi-delict
shall be at least three thousand pesos, even though there may have been mitigating
circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity
shall in every case be assessed and awarded by the court, unless the deceased on
account of permanent physical disability not caused by the defendant, had no
earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article
291, the recipient who is not an heir called to the decedent's inheritance by the law of
testate or intestate succession, may demand support from the person causing the
death, for a period of not exceeding five years, the exact duration to be fixed by the
court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of
the deceased.
We concur with petitioners view that the trial court intended the award of
"P200,000.00 as death indemnity" not as compensation for loss of earning capacity.
Even if the trial court intended the award as indemnity for loss of earning capacity,
the same must be struck out for lack of basis. There is no evidence on the victim's
earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the
amount of which has been fixed by current jurisprudence at P50,000.xviii[18]
The award of P1 million for moral damages to the heirs of Ramon Acuesta has no
sufficient basis and is excessive and unreasonable. This was based solely on the
testimony of one of the heirs, Atty. Julio Acuesta, contained in his "Direct Testimony...
As Plaintiff, conducted by Himself," xix[19] to wit:
Q.
What was your feeling or reaction as a result of the death of your father
Ramon A. Acuesta?
A.
We, the family members, have suffered much from wounded feelings, moral
shock, mental anguish, sleepless nights, to which we are entitled to moral damages
at the reasonable amount of ONE MILLION (P1,000,000.00) PESOS or at the sound
discretion of this Hon. Court."

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

KABIT SYSTEM

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26815 May 26, 19810
ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.
MELENCIO-HERRERA, J.:1wph1.t
The controversy in this case will be resolved on the basis of the following facts and
expositions. Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD,
for short) was a duly authorized passenger jeepney operator. Also prior to the
ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of
a passenger jeep, but he had no certificate of public convenience for the operation of
the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the
name of VIDAD so that it could be operated under the latter's certificate of public
convenience. ln other words, SANTOS became what is known in ordinary parlance
as a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer
document to the former, which was to be a private document presumably to be
registered if and where it was decided that the passenger jeep of SANTOS was to be
withdrawn from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was
bumped by a passenger jeepney operated by VIDAD and driven by Severe Gragas.
As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas
with the Court of First Instance of Manila, Branch XVII, then presided by Hon.
Arsenic Solidum. That Civil Case will hereinafter be referred to as the BRANCH XVII
CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD
and Gragas, jointly and severally, to pay SIBUG the sums of P506.20 as actual
damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No.
PUJ-343-64, registered in the name of VIDAD, and scheduled the public auction sale
thereof on May 8,1964.
On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging
actual ownership of the motor vehicle levied upon, and stating that registration

thereof in the name of VIDAD was merely to enable SANTOS to make use of
VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed,
SIBUG submitted to the Sheriff a bond issued by the Philippine Surety Insurance
Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if
he were to proceed with the sale and if SANTOS' third-party claim should be
ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS
instituted an action for Damages and injunction with a prayer for Preliminary
Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842
of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as
the BRANCH X CASE). The complaint was later amended to include the BONDING
COMPANY as a party defendant although its bond had not become effective. ln the
Complaint, SANTOS alleged essentially that he was the actual owner of the motor
vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was
executed by him in VIDAD'S favor for purposes of operating said vehicle as a
passenger jeepney under the latter's franchise; that SANTOS did not receive any
payment from VIDAD in consideration of said sale; that to protect SANTOS'
proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed
of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the
BRANCH XVII CASE and was not in any manner liable to the registered owner
VIDAD and the driver Gragas; that SANTOS derived a daily income of P30.00 from
the operation of said motor vehicle as a passenger jeepney and stood to suffer
irreparable damage will possession of said motor vehicle were not restored to him.
SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory
injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor
vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that,
after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and,
therefore, null and void, and adjudging SANTOS to be the absolute owner of the
vehicle in questioned and 3) that damages be awarded to SANTOS as proven during
the trial plus attorney's fees in the amount of P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a
Restraining Order enjoining the Sheriff from conducting the public auction sale of the
motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under the
provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be
restrained by another Court or by another Branch of the same Court. The Sheriff has
the right to continue with the public sale on his own responsibility, or he can desist
from conducting the public sale unless the attaching creditor files a bond securing
him against the third-party-claim. But the decision to proceed or not with the public
sale lies with him. As said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of
the Sheriff involve both discretional power and personal liability." The mentioned
discretional power and personal liability have been further elucidated in Planes and
Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t
The duty of the sheriff in connection with the execution and satisfaction
of judgment of the court is governed by Rule 39 of the Rules of Court.
Section 15 thereof provides for the procedure to be. followed where the
property levied on execution 'is claimed by a by person. lf the thirdparty claim is sufficient, the sheriff, upon receiving it, is not bound to
proceed with the levy of the property, unless he is given by the
judgment creditor an indemnity bond against the claim (Mangaoang vs.
Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed

with the levy even without the Indemnity bond, but in such case he will
answer for any damages with his own personal funds (Waits vs.
Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308;
Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565).
And the rule also provides that nothing therein contained shall prevent
a third person from vindicating his claim to the property by any proper
action (Sec. 15 of Rule 39.).
It appears from the above that if the attaching creditor should furnish an adequate
bond. the Sheriff has to proceed with the public auction. When such bond is not filed,
then the Sheriff shall decide whether to proceed. or to desist from proceeding, with
the public auction. lf he decides to proceed, he will incur personal liability in favor of
the successful third-party claimant.
On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in
question based on the evidence adduced, and decreed: 1wph1.t
WHEREFORE, judgment is hereby rendered, enjoining the defendants
from proceeding with the sale of the vehicle in question ordering its
return to the plaintiff and furthermore sentencing the defendant
Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April
10, 1964 until the vehicle is returned to him, and P500.00 as attorney's
fee's as well as the costs. 4
This was subsequently amended on December 5, 1965, upon motion for
reconsideration filed by SANTOS, to include the BONDING COMPANY as jointly slid
severally liable with SIBUG. 51wph1.t
... provided that the liability of the Philippine Surety & insurance Co.,
Inc. shall in no case exceed P6,500.00. Abraham Sibug is furthermore
condemned to pay the Philippine Surety & Insurance Co., Inc. the
same sums it is ordered to pay under this decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For
instance, since the undertaking furnished to the Sheriff by the BONDING COMPANY
did not become effective for the reason that the jeep was not sold, the public sale
thereof having been restrained, there was no reason for promulgating judgment
against the BONDING COMPANY. lt has also been noted that the Complaint against
VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his
rights of ownership to the vehicle in question, SANTOS candidly admitted his
participation in the illegal and pernicious practice in the transportation business
known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable
law, specifically provided: 1wph1.t
... it shall be unlawful for any public service or for the owner, lessee or
operator thereof, without the approval and authorization of the
Commission previously had ... (g) to sell, alienate, mortgage,
encumber or lease its property, franchise, certificates, privileges, or
rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become
the registered owner and operator of record at the time of the accident. lt is true that
VIDAD had executed a re-sale to SANTOS, but the document was not registered.
Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as
the registered owner/operator and grantee of the franchise, is directly and primarily
responsible and liable for the damages caused to SIBUG, the injured party, as a

consequence of the negligent or careless operation of the vehicle. 6 This ruling is

based on the principle that the operator of record is considered the operator of the
vehicle in contemplation of law as regards the public and third persons 7 even if the
vehicle involved in the accident had been sold to another where such sale had not
been approved by the then Public Service Commission. 8 For the same basic reason,
as the vehicle here in question was registered in VIDAD'S name, the levy on
execution against said vehicle should be enforced so that the judgment in the
BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret
ownership of the vehicle belonged to another. SANTOS, as the kabit should not be
allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit
owner for he had led the public to believe that the vehicle belonged to VIDAD. This is
one way of curbing the pernicious kabit system that facilitates the commission of
fraud against the travelling public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the
vehicle, is to go against VIDAD, the actual operator who was responsible for the
accident, for the recovery of whatever damages SANTOS may suffer by reason of
the execution. In fact, if SANTOS, as the kabit had been impleaded as a party
defendant in the BRANCH XVII CASE, he should be held jointly and severally liable
with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for
exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS
moved for immidiately execution. SIBUG opposed it on the ground that Branch X had
no jurisdiction over the BRANCH XVII CASE, and that Branch X had no power to
interfere by injunction with the judgment of Branch XVII a Court of concurrent or
coordinate jurisdiction. 11
On November 13, 1965, Branch X released an order authorizing immediate
execution on the theory that the BRANCH X CASE is "principally an action for the
issuance of a writ of prohibition to forbid the Sheriff from selling at public auction
property not belonging to the judgment creditor (sic) and there being no attempt in
this case to interfere with the Judgment or decree of another court of concurrent
jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought
relief from respondent Appellate Court in a Petition for certiorari with Preliminary
injunction. On November 18, 1965, respondent Court of Appeals enjoined the
enforcement of the Branch X Decision and the Order of execution issued by said
Branch. 13 On September 28, 1966, respondent Count of Appeals rendered the
herein challenged Decision nullifying the judgment renderred in the Branch X Case
and permanently restraining V from taking cognizance of the BRANCH X CASE
SANTOS. It ruled that: 1wph1.t
... the respondent Court Branch X, indeed, encroached and interfered
with the judgment of Branch XVII when it issued a restraining order and
finally a decision permanently enjoining the other court from excuting
the decision rendered in Civil Case No. 54335. This to our mind
constitutes an interference with the powers and authority of the other
court having co-equal and coordinate jurisdiction. To rule otherwise,
would indubitably lead to confusion which might hamper or hinder the
proper administration of justice. ... 14

Respondent Court further held that SANTOS may not be permitted to prove his
ownership over a particular vehicle being levied upon but registered in another's
name in a separated action, observing that: 1wph1.t
As the vehicle in question was registered in the name of Vicente U.
Vidad, the government or any person affected by the representation
that said vehicle is registered under the name of a particular person
had the right to rely on his declaration of ownership and registration:
and the registered owner or any other person for that matter cannot be
permitted to repudiate said declaration with the objective of proving that
said registered vehicle is owned by another person and not by the
registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil
Code)
xxx xxx xxx
Were we to allow a third person to prove that he is the real owner of a
particular vehicle and not the registered owner it would in effect be
tantamount to sanctioning the attempt of the registered owner of the
particular vehicle in evading responsibility for it cannot be dispelled that
the door would be opened to collusion between a person and a
registered owner for the latter to escape said responsibility to the public
or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that:
1wph1.t
1) The respondent Court of Appeals erred in holding that Branch X of
the Court of First Instance of Manila has no jurisdiction to restrain by
Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy
the judgment indebtedness of another person:
2) The respondent Court of Appeals erred in holding that petitioner as
owner of a motor vehicle that was levied upon pursuant to a Writ of
Execution issued by Branch XVII of the Court of i stance of Manila in
Civil Case No. 54335 cannot be allowed to prove in a separate suit
filed in Branch X of the same court (Civil Case No. 56842) that he is
the true owner of the said motor vehicle and not its registered owner;
3) The respondent Court of Appeals erred in declaring null and void the
decision of the Court of First Instance of Manila (Branch X ) in Civil
Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966
and considered the case submitted for decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a
Court of First Instance to issue, at the instance of a third-party claimant, an Injunction
restraining the execution sale of a passenger jeepney levied upon by a judgment
creditor in another Court of First Instance. The corollary issue is whether or not the
third-party claimant has a right to vindicate his claim to the vehicle levied upon
through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc.
vs. Hon. Serafin Salvador, 15 speaking through Mr. Justice Ramon Aquino, succinctly
held: 1wph1.t
It is noteworthy that, generally, the rule, that no court has authority to
interfere by injunction with the judgments or decrees of a concurrent or
coordinate jurisdiction having equal power to grant the injunctive relief,

is applied in cases, where no third-party claimant is involved, in order

to prevent one court from nullifying the judgment or process of another
court of the same rank or category, a power which devolves upon the
proper appellate court.
xxx xxx xxx
When the sheriff, acting beyond the bounds of his authority, seizes a
stranger's property, the writ of injunction, which is issued to stop the
auction sale of that property, is not an interference with the writ of
execution issued by another court because the writ of execution was
improperly implemented by the sheriff. Under that writ, he could attach
the property of the judgment debtor. He is not authorized to levy upon
the property of the third-party claimant (Polaris Marketing Corporation
vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald
Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).
An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine
more extensively: 1wph1.t
Courts; Jurisdiction Courts without power to interfere by injunction with
judgments or decrees of a court of concurrent jurisdiction. No court
has power to interfere by injunction with the judgments or decrees of a
court of concurrent or coordinate jurisdiction having equal power to
grant the relief sought by injunction.
Same, Same; Same; When applicable. For this doctrine to apply, the
injunction issued by one court must interfere with the judgment or
decree issued by another court of equal or coordinate jurisdiction and
the relief sought by such injunction must be one which could be
granted by the court which rendered the judgment or issued the
decree.
Same, Same Same; Exception Judgment rendered by another court in
favor of a third person who claims property levied upon on execution.
Under section 17 of Rule 39 a third person who claims property levied
upon on execution may vindicate such claim by action. A judgment
rendered in his favor - declaring him to be the owner of the property would not constitute interference with the powers or processes of the
court which rendered the judgment to enforce which the execution was
levied. lf that be so - and it is so because the property, being that of a
stranger, is not subject to levy - then an interlocutory order, such as
injunction, upon a claim and prima facie showing of ownership by the
claimant, cannot be considered as such interference either.
Execution; Where property levied on claimed by third person; "Action"
in section l7, Rule 39 of the Rules of Court, interpreted The right of a
person who claims to be the owner of property levied upon on
execution to file a third-party claim with the sheriff is not exclusive, and
he may file an action to vindicate his claim even if the judgment creditor
files an indemnity bond in favor of the sheriff to answer for any
damages that may be suffered by the third party claimant. By "action",
as stated in the Rule, what is meant is a separate and independent
action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the
Decision of respondent Court, it was appropriate, as a matter of procedure, for

SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a

separate action under Section 17 of Rule 39. And the judgment rendered in his favor
by Branch X, declaring him to be the owner of the property, did not as a basic
proposition, constitute interference with the powers or processes of Branch XVII
which rendered the judgment, to enforce which the was levied upon. And this is so
because property belonging to a stranger is not ordinarily subject to levy. While it is
true that the vehicle in question was in custodia legis, and should not be interfered
with without the permission of the proper Court, the property must be one in which
the defendant has proprietary interest. Where the Sheriff seizes a stranger's
property, the rule does not apply and interference with his custody is not interference
with another Court's Order of attachment. 17
However, as a matter of substance and on the merits, the ultimate conclusion of
respondent Court nullifying the Decision of Branch X permanently enjoining the
auction sale, should be upheld. Legally speaking, it was not a "stranger's property"
that was levied upon by the Sheriff pursuant to the judgment rendered by Branch
XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the judgment
debtors. And what is more, the aspect of public service, with its effects on the riding
public, is involved. Whatever legal technicalities may be invoked, we find the
judgment of respondent Court of Appeals to be in consonance with justice.
WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for
review on certiorari filed by Adolfo L. Santos is dismissed with costs against the
petitioner.
SO ORDERED.
Makasiar, Guerrero and De Castro, * JJ., concur.1wph1.t
Teehankee (Chairman), concurs in the result.

ii

iiiRepublic of the Philippines

SUPREME COURT
Manila
EN BANC
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.:+.wph!1
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tunehonored maxim that must be applied to the parties in the case at bar. Having entered into
an illegal contract, neither can seek relief from the courts, and each must bear the
consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5)
Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to
operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the latter's certificate of public
convenience in consideration of an initial payment of P1,000.00 and a monthly rental of
P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in
the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile
spouses Ocampo who operated and maintained the same under the name Acme Taxi,
petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee,
Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from
the head injuries sustained therefrom. A criminal case was eventually filed against the
driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the
taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila,
petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of
P25,000.00 and P7,000.00 for attorney's fees.
This decision having become final, a writ of execution was issued. One of the vehicles of
respondent spouses with Engine No. 2R-914472 was levied upon and sold at public
auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine
No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a
certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in
his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the
registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a

complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety
& Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with
damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial
on the merits ensued and on July 22, 1975, the said court rendered a decision, the
dispositive portion of which reads: t.hqw
WHEREFORE, the complaint is hereby dismissed as far as defendants
Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and
the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration
certificate of the three Toyota cars not levied upon with Engine Nos. 2R230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a
deed of conveyance in favor of the plaintiff.
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in
arrears for the certificate of convenience from March 1973 up to May 1973 at
the rate of P200 a month per unit for the three cars. (Annex A, Record on
Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same
was denied by the court a quo on October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate
Court modified the decision by including as part of its dispositive portion another
paragraph, to wit: t.hqw
In the event the condition of the three Toyota rears will no longer serve the
purpose of the deed of conveyance because of their deterioration, or
because they are no longer serviceable, or because they are no longer
available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair
market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us,
praying that: t.hqw
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued,
reversing, annulling or amending the decision of public respondent so that:
(a) the additional paragraph added by the public respondent to the
DECISION of the lower court (CFI) be deleted;
(b) that private respondents be declared liable to petitioner for whatever
amount the latter has paid or was declared liable (in Civil Case No. 72067) of
the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as
heir of the victim Florante Galvez, who died as a result ot the gross
negligence of private respondents' driver while driving one private
respondents' taxicabs. (p. 39, Rollo.)
Unquestionably, the parties herein operated under an arrangement, comonly known as the
"kabit system", whereby a person who has been granted a certificate of convenience
allows another person who owns motors vehicles to operate under such franchise for a
fee. A certificate of public convenience is a special privilege conferred by the government .
Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit
system" has been Identified as one of the root causes of the prevalence of graft and
corruption in the government transportation offices. In the words of Chief Justice
Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It
constitutes an imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under

Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have
accorded the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid. It provides:t.hqw
ART. 1412. if the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed;
(1) when the fault, is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured
by ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse
of time cannot give efficacy to contracts that are null void."
The principle of in pari delicto is well known not only in this jurisdiction but also in the
United States where common law prevails. Under American jurisdiction, the doctrine is
stated thus: "The proposition is universal that no action arises, in equity or at law, from an
illegal contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or damages for its property agreed to be sold or
delivered, or damages for its violation. The rule has sometimes been laid down as though
it was equally universal, that where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other." 3 Although certain exceptions to the rule
are provided by law, We see no cogent reason why the full force of the rule should not be
applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and
Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court
of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and
Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., DefendantAppellant," of the Intermediate Appellate Court, as well as the decisions rendered therein
are hereby annuleled and set aside. No costs.
SO ORDERED.1wph1.t
Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De
Castro, Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
Aquino, J., took no part.

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xii

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xiv

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xvi

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xviii

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE,
respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored
maxim that must be applied to the parties in the case at bar. Having entered into an illegal
contract, neither can seek relief from the courts, and each must bear the consequences of
his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the
respondent court in its now assailed decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with
complete accessories and a sidecar in the total consideration of P8,000.00
as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the
defendant gave a downpayment of P1,700.00 with a promise that he would
pay plaintiff the balance within sixty days. The defendant, however, failed to
comply with his promise and so upon his own request, the period of paying
the balance was extended to one year in monthly installments until January
1976 when he stopped paying anymore. The plaintiff made demands but just
the same the defendant failed to comply with the same thus forcing the
plaintiff to consult a lawyer and file this action for his damage in the amount
of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
plaintiff also claims that as of February 20, 1978, the total account of the
defendant was already P2,731.06 as shown in a statement of account
(Exhibit. "B"). This amount includes not only the balance of P1,700.00 but an
additional 12% interest per annum on the said balance from January 26,
1976 to February 27, 1978; a 2% service charge; and P 546.21 representing
attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as
a security for the payment of the balance of the purchase price. It has been
the practice of financing firms that whenever there is a balance of the
purchase price the registration papers of the motor vehicle subject of the sale
are not given to the buyer. The records of the LTC show that the motorcycle
sold to the defendant was first mortgaged to the Teja Marketing by Angel
Jaucian though the Teja Marketing and Angel Jaucian are one and the same,
because it was made to appear that way only as the defendant had no
franchise of his own and he attached the unit to the plaintiff's MCH Line. The
agreement also of the parties here was for the plaintiff to undertake the
yearly registration of the motorcycle with the Land Transportation
Commission. Pursuant to this agreement the defendant on February 22,
1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and
the P82.00 for the registration fee of the motorcycle. The plaintiff, however
failed to register the motorcycle on that year on the ground that the
defendant failed to comply with some requirements such as the payment of
the insurance premiums and the bringing of the motorcycle to the LTC for
stenciling, the plaintiff saying that the defendant was hiding the motorcycle
from him. Lastly, the plaintiff explained also that though the ownership of the
motorcycle was already transferred to the defendant the vehicle was still
mortgaged with the consent of the defendant to the Rural Bank of Camaligan
for the reason that all motorcycle purchased from the plaintiff on credit was
rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding
balance of P1,700. 00 still payable to the plaintiff. The defendant was
persuaded to buy from the plaintiff the motorcycle with the side car because
of the condition that the plaintiff would be the one to register every year the
motorcycle with the Land Transportation Commission. In 1976, however, the
plaintfff failed to register both the chattel mortgage and the motorcycle with
the LTC notwithstanding the fact that the defendant gave him P90.00 for
mortgage fee and registration fee and had the motorcycle insured with La
Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of

cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his
obligation to register the motorcycle the defendant suffered damages when
he failed to claim any insurance indemnity which would amount to no less
than P15,000.00 for the more than two times that the motorcycle figured in
accidents aside from the loss of the daily income of P15.00 as boundary fee
beginning October 1976 when the motorcycle was impounded by the LTC for
not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the
plaintiff the motorcycle resulting in its not being registered. The truth being
that the motorcycle was being used for transporting passengers and it kept
on travelling from one place to another. The motor vehicle sold to him was
mortgaged by the plaintiff with the Rural Bank of Camaligan without his
consent and knowledge and the defendant was not even given a copy of the
mortgage deed. The defendant claims that it is not true that the motorcycle
was mortgaged because of re-discounting for rediscounting is only true with
Rural Banks and the Central Bank. The defendant puts the blame on the
plaintiff for not registering the motorcycle with the LTC and for not giving him
the registration papers inspite of demands made. Finally, the evidence of the
defendant shows that because of the filing of this case he was forced to
retain the services of a lawyer for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the
motorcycle in question, particularly for the purpose of engaging and using the
same in the transportation business and for this purpose said trimobile unit
was attached to the plaintiffs transportation line who had the franchise, so
much so that in the registration certificate, the plaintiff appears to be the
owner of the unit. Furthermore, it appears to have been agreed, further
between the plaintiff and the defendant, that plaintiff would undertake the
yearly registration of the unit in question with the LTC. Thus, for the
registration of the unit for the year 1976, per agreement, the defendant gave
to the plaintiff the amount of P82.00 for its registration, as well as the
insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of
Money with Damages" against private respondent Pedro N. Nale in the City Court of Naga
City. The City Court rendered judgment in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and
ordering the defendant to pay plaintiff the sum of P1,700.00 representing the
unpaid balance of the purchase price with legal rate of interest from the date
of the filing of the complaint until the same is fully paid; to pay plaintiff the
sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as
expenses of litigation; and to pay the costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in
toto. Private respondent filed a petition for review with the Intermediate Appellate Court
and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of
which reads
However, as the purchase of the motorcycle for operation as a trimobile
under the franchise of the private respondent Jaucian, pursuant to what is
commonly known as the "kabit system", without the prior approval of the
Board of Transportation (formerly the Public Service Commission) was an

illegal transaction involving the fictitious registration of the motor vehicle in

the name of the private respondent so that he may traffic with the privileges
of his franchise, or certificate of public convenience, to operate a tricycle
service, the parties being in pari delicto, neither of them may bring an action
against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint
of respondent Teja Marketing and/or Angel Jaucian, as well as the
counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of
First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City
Court of Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or
Angel Jaucian presenting a lone assignment of error whether or not respondent court
erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as
the "kabit system" whereby a person who has been granted a certificate of public
convenience allows another person who owns motor vehicles to operate under such
franchise for a fee. A certificate of public convenience is a special privilege conferred by
the government. Abuse of this privilege by the grantees thereof cannot be countenanced.
The "kabit system" has been Identified as one of the root causes of the prevalence of graft
and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably
recognized as being contrary to public policy and, therefore, void and in existent under
Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave both where it finds then. Upon this
premise it would be error to accord the parties relief from their predicament. Article 1412 of
the Civil Code denies them such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may
recover that he has given by virtue of the contract, or demand, the
performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or
by prescription. The mere lapse of time cannot give efficacy to contracts that are null and
void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of
the Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.
Alampay, J., took no part.

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xxv

BOUNDARY SYSTEM

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16790
April 30, 1963
URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees,
vs.
DELFIN BERNARDO, defendant-appellant.

Parades, Gaw and Associates for plaintiffs-appellees.

Bonifacio B. Camacho for defendant-appellant.
MAKALINTAL, J.:
Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by
the latter to this Court on the ground that only questions of law are involved.
The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo
is for enforcement of his subsidiary liability as employer in accordance with Article 103,
Revised Penal Code. The trial court ordered defendant to pay plaintiffs P3,000.00 and
costs upon the following stipulated facts:
1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived
with them and was under their custody until his death on October 24,1956 when he
was killed in a motor vehicle accident, the fatal vehicle being a passenger jeepney
with Plate No, AC-1963 (56) owned by the defendant;
2. That at the time of the accident, said passenger jeepney was driven by Conrado
Roque;
3. That the contract between Conrado Roque and defendant Delfin Bernardo was
that Roque was to pay to defendant the sum of P8.00, which he paid to said
defendant, for privilege of driving the jeepney on October 24, 1956, it being their
agreement that whatever earnings Roque could make out of the use of the jeepney
in transporting passengers from one point to another in the City of Manila would
belong entirely to Conrado Roque;
4. That as a consequence of the accident and as a result of the death of Cesar
Magboo in said accident, Conrado Roque was prosecuted for homicide thru
reckless imprudence before the Court of First Instance of Manila, the information
having been docketed as Criminal Case No. 37736, and that upon arraignment
Conrado Roque pleaded guilty to the information and was sentenced to six (6)
months of arresto mayor, with the accessory penalties of the law; to indemnify the
heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment in
case of insolvency, and to pay the costs;
5. That pursuant to said judgment Conrado Roque served his sentence but he was
not able to pay the indemnity because he was insolvent."
Appellant assails said decision, assigning three errors which boil down to the question of
whether or not an employer-employee relationship exists between a jeepney-owner and a
driver under a "boundary system" arrangement. Appellant contends that the relationship is
essentially that of lessor and lessee.
A similar contention has been rejected by this Court in several cases. In National Labor
Union v. Dinglasan, 52 O.G., No. 4, 1933, it was held that the features which characterize
the "boundary system" namely, the fact that the driver does not receive a fixed wage but
gets only the excess of the receipt of fares collected by him over the amount he pays to
the jeep-owner and that the gasoline consumed by the jeep is for the account of the driver
are not sufficient to withdraw the relationship between them from that of employer and
employee. The ruling was subsequently cited and applied in Doce v. Workmen's
Compensation Commission, L-9417, December 22, 1958, which involved the liability of a
bus owner for injury compensation to a conductor working under the "boundary system."
The same principle applies with greater reason in negligence cases concerning the right of
third parties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868,
December 29, 1953, the owner and operator of a passenger jeepney leased it to another,
but without the approval of the Public Service Commission. In a subsequent collision a
passenger died. We ruled that since the lease was made without such approval, which
was required by law, the owner continued to be the operator of the vehicle in legal

contemplation and as such was responsible for the consequences incident to its operation.
The same responsibility was held to attach in a case where the injured party was not a
passenger but a third person, who sued on the theory of culpa aquiliana (Timbol vs. Osias,
L-7547, April 30, 1955). There is no reason why a different rule should be applied in a
subsidiary liability case under Article 103 of the Revised Penal Code. As in the existence of
an employer-employee relationship between the owner of the vehicle and the driver.
Indeed to exempt from liability the owner of a public vehicle who operates it under the
"boundary system" on the ground that he is a mere lessor would be not only to abet
flagrant violations of the Public Service law but also to place the riding public at the mercy
of reckless and irresponsible drivers - reckless because the measure of their earnings
depends largely upon the number of trips they make and, hence, the speed at which they
drive; and irresponsible because most if not all of them are in no position to pay the
damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
and approved by this Honorable Court, without prejudice to the parties adducing other
evidence to prove their case not covered by this stipulation of facts. 1wph1.t
Appellant further argues that he should not have been held subsidiarily liable because
Conrado Roque (the driver of the jeepney) pleaded guilty to the charge in the criminal case
without appellant's knowledge and contrary to the agreement between them that such plea
would not be entered but, instead evidence would be presented to prove Roque's
innocence. On this point we quote with approval the pertinent portion of the decision
appealed from:
"'With respect to the contention of the defendant that he was taken unaware by the
spontaneous plea of guilt entered by the driver Conrado Roque, and that he did not
have a chance to prove the innocence of said Conrado Roque, the Court holds that
at this stage, it is already too late to try the criminal case all over again. Defendant's
allegation that he relied on his belief that Conrado Roque would defend himself and
they had sufficient proof to show that Roque was not guilty of the crime charged
cannot be entertained. Defendant should have taken it to himself to aid in the
defense of Conrado Roque. Having failed to take this step and the accused having
been declared guilty by final judgment of the crime of homicide thru reckless
imprudence, there appears no more way for the defendant to escape his subsidiary
liability as provided for in Article 103 of the Revised Penal Code."'
WHEREFORE, the judgment appealed from, being in accordance with law, is hereby
affirmed, with costs against defendant-appellant.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and
Regala, JJ., concur.
Padilla, J., took no part.

LIABILITY OF CARRIERS FOR LOSS, DESTRUCTION AND

DETERIORATION OF GOODS; EXCEPTIONS; PRESUMPTION OF
NEGLIGENCE

ART 1734-1735; 1739-1743

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
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).<re||an1w> The 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:

I
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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 94151 April 30, 1991
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE COURT OF APPEALS and THE FIRST NATIONWIDE ASSURANCE
CORPORATION, respondents.
Jimenez, Dala & Zaragoza for petitioner.
Reloy Law Office for private respondent.
GANCAYCO, J.:p
The extent of the liability of the common carrier and its insurer for damage to the cargo
upon its delivery to the arrastre operator is the center of this controversy.
The findings of fact of the trial court which were adopted by the appellate court and which
are not disputed are as follows:
On September 4, 1978, thirteen coils of uncoated 7-wire stress relieved wire
strand for prestressed concrete were shipped on board the vessel "Japri
Venture," owned and operated by the defendant Eastern Shipping Lines,
Inc., at Kobe, Japan, for delivery to Stresstek Post-Tensioning Phils., Inc. in
Manila, as evidenced by the bill of lading, commercial invoice, packing list
and commercial invoice marked Exhibits A, B, C, D; 3, 4, 5 and 6-Razon
which were insured by the plaintiff First Nationwide Assurance Corporation
for P171,923 (Exhibit E).
On September 16, 1978, the carrying vessel arrived in Manila and
discharged the cargo to the custody of the defendant E. Razon, Inc. (Exhibits
1, 2, 3, 4 and 5-ESL), from whom the consignee's customs broker received it
for delivery to the consignee's warehouse.
On February 19, 1979, the plaintiff indemnified the consignee in the amount
of P171,923.00 for damage and loss to the insured cargo, whereupon the
former was subrogated for the latter (Exhibit I).

The plaintiff now seeks to recover from the defendants what it has
indemnified the consignee, less P48,293.70, the salvage value of the cargo,
or the total amount of P123,629.30.
It appears that while enroute from Kobe to Manila, the carrying vessel
"encountered very rough seas and stormy weather" for three days, more or
less, which caused it to roll and pound heavily, moving its master to execute
a marine note of protest upon arrival at the port of Manila on September 15,
1978 (Exhibit 1-Razon); that the coils wrapped in burlap cloth and cardboard
paper were stored in the lower hold of the hatch of the vessel which was
flooded with water about one foot deep; that the water entered the hatch
when the vessel encountered heavy weather enroute to Manila (Exhibits G,
2, 2A, 2B-Razon); that upon request, a survey of bad order cargo was
conducted at the pier in the presence of the representatives of the consignee
and the defendant E. Razon, Inc. and it was found that seven coils were
rusty on one side each (Exhibits F and 10-Razon); that upon survey
conducted at the consignee's warehouse it was found that the "wetting (of
the cargo) was caused by fresh water" that entered the hatch when the
vessel encountered heavy weather enroute to Manila (p. 3, Exhibit G); and
that all thirteen coils were extremely rusty and totally unsuitable for the
intended purpose (p. 3, Exhibit G), (pp. 217-218, orig. rec.) 1
The complaint that was filed by the First Nationwide Assurance Corporation (insurer)
against Eastern Shipping Lines, Inc. and E. Razon, Inc., in the Regional Trial Court,
Manila, was dismissed in a decision dated November 25, 1985. An appeal therefrom was
interposed by the insurer to the Court of Appeals wherein in due course a decision was
rendered on April 27, 1990, the dispositive part of which reads as follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE. The
appellees are ordered to pay the appellant the sum of P123,629.30, with
legal rate of interest from July 24, 1979 until fully paid, Eastern Shipping
Lines, Inc. to assume 8/13 thereof, and E. Razon, Inc. to assume 5/13
thereof. No pronouncement as to costs.
SO ORDERED. 2
Only Eastern Shipping Lines, Inc. filed this petition for review by certiorari based on the
following assigned errors:
I. IT REFUSED TO CONSIDER THE COUNTER-ASSIGNMENT OF
ERRORS OF PETITIONER AS CONTAINED IN ITS BRIEF FOR THE
DEFENDANT-APPELLEE EASTERN SHIPPING LINES, INC. AND WHICH
ARE ONLY MEANT TO SUSTAIN THE DECISION OF DISMISSAL OF THE
TRIAL COURT;
II. AGAINST ITS OWN FINDINGS OF FACT THAT THE CARGO WAS
DISCHARGED AND DELIVERED COMPLETE UNTO THE CUSTODY OF
THE ARRASTRE OPERATOR UNDER CLEAN TALLY SHEETS, IT
NEVERTHELESS ARBITRARILY CONCLUDED PETITIONER AS LIABLE
FOR THE CLAIMED DAMAGES;
III. IT FAILED TO HOLD PETITIONER RELIEVED OF ANY LIABILITY OVER
THE CARGO NOTWITHSTANDING IT FOUND THAT THE SAME WAS
DISCHARGED AND DELIVERED UNTO THE CUSTODY OF THE
ARRASTRE OPERATOR UNDER CLEAN TALLY SHEETS AND ERGO TO
BE CONSIDERED GOOD ORDER CARGO WHEN DELIVERED; and,
IV. IT ARBITRARILY AWARDED INTEREST AT THE LEGAL RATE TO
COMMENCE FROM THE DATE OF THE COMPLAINT IN VIOLATION OF
THE DOCTRINAL RULE THAT IN CASE OF UNLIQUIDATED CLAIMS

SUCH AS THE CLAIM IN QUESTION, INTEREST SHOULD ONLY

COMMENCE FROM THE DATE OF THE DECISION OF THE TRIAL
COURT. 3
Under the first assigned error, petitioner contends that the appellate court did not consider
its counter-assignment of errors which was only meant to sustain the decision of dismissal
of the trial court. An examination of the questioned decision shows that the appellate court
did not consider the counter-assignment of errors of petitioner as it did not appeal the
decision of the trial court.
Nevertheless, when such counter-assignments are intended to sustain the judgment
appealed from on other grounds, but not to seek modification or reversal thereof, the
appellate court should consider the same in the determination of the case but no
affirmative relief can be granted thereby other than what had been obtained from the lower
court. 4 The contention of petitioner on this aspect is, thus, well-taken.
Be that as it may, under the second and third assigned errors, petitioner claims it should
not be held liable as the shipment was discharged and delivered complete into the custody
of the arrastre operator under clean tally sheets.
While it is true the cargo was delivered to the arrastre operator in apparent good order
condition, it is also undisputed that while en route from Kobe to Manila, the vessel
encountered "very rough seas and stormy weather", the coils wrapped in burlap cloth and
cardboard paper were stored in the lower hatch of the vessel which was flooded with water
about one foot deep; that the water entered the hatch; that a survey of bad order cargo
which was conducted in the pier in the presence of representatives of the consignee and
E. Razon, Inc., showed that seven coils were rusty on one side (Exhibits F and 10-Razon);
that a survey conducted at the consignee's warehouse also showed that the "wetting (of
the cargo) was caused by fresh water" that entered the hatch when the vessel
encountered heavy rain en route to Manila (Exhibit G); and that all thirteen coils were
extremely rusty and totally unsuitable for the intended purpose. 5
Consequently, based on these facts, the appellate court made the following findings and
conclusions:
Plainly, the heavy seas and rains referred to in the master's report were not
caso fortuito, but normal occurrences that an ocean-going vessel, particularly
in the month of September which, in our area, is a month of rains and heavy
seas would encounter as a matter of routine. They are not unforeseen nor
unforeseeable. These are conditions that ocean-going vessels would
encounter and provide for, in the ordinary course of a voyage. That rain
water (not sea water) found its way into the holds of the Jupri Venture is a
clear indication that care and foresight did not attend the closing of the ship's
hatches so that rain water would not find its way into the cargo holds of the
ship.
Moreover, under Article 1733 of the Civil Code, common carriers are bound
to observe "extra-ordinary vigilance over goods . . . .according to all
circumstances of each case," and Article 1735 of the same Code states, to
wit:
Art. 1735. In all cases other than those mentioned in Nos. 1, 2,
3, 4, and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in
article 1733.
Since the carrier has failed to establish any caso fortuito, the presumption by
law of fault or negligence on the part of the carrier applies; and the carrier

must present evidence that it has observed the extraordinary diligence

required by Article 1733 of the Civil Code in order to escape liability for
damage or destruction to the goods that it had admittedly carried in this case.
No such evidence exists of record. Thus, the carrier cannot escape liability.
The Court agrees with and is bound by the foregoing findings of fact made by the appellate
court. The presumption, therefore, that the cargo was in apparent good condition when it
was delivered by the vessel to the arrastre operator by the clean tally sheets has been
overturned and traversed. The evidence is clear to the effect that the damage to the cargo
was suffered while aboard petitioner's vessel.
The last assigned error is untenable. The interest due on the amount of the judgment
should commence from the date of judicial demand. 6
WHEREFORE, the petition is DISMISSED, with costs against petitioner.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
THIRD DIVISION
[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 A.
FORTADES., respondent.
DECISION
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 petitioners motion for reconsideration for being a mere rehash
of the arguments raised in the appellants 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 petitioners 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 Marisols U.S. immigration (green) card, among
other important documents and personal belongings. Her belongings was kept in the
baggage compartment of the bus, but during a stopover at Daet, it was discovered that all
but one bag remained in the open compartment. The others, including Fatimas things,
were missing and could have dropped along the way. Some of the passengers suggested
retracing the route 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 petitioners office
in Legazpi City and later at its head office in Manila. The latter, 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, they 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 Fatimas bags was recovered. Marisol also reported the incident to the
National Bureau of Investigations 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, attorneys fees and expenses of litigation. They claimed that the loss was due
to petitioners failure to observe extraordinary diligence in the care of Fatimas 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
herein 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 attorneys 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 courts 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 having 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 petitioners 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 with the help of 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 mothers 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. Other passengers 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 also lost her chemical engineering review
materials, while her brother lost abaca products he was transporting to Bicol.[5]
Petitioners receipt of Fatimas 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 x x x
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 for transportation until the same are
delivered, actually or constructively, by the carrier to x x x 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 petitioners 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:
x x x. Where the common carrier accepted its passengers 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 carriers own lookout. It is responsible for the consequent loss of
the baggage. In the instant case, defendant appellants 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 respondent an additional P20,000.00 as moral damages
and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

THIRD DIVISION
[G.R. No. 102316. June 30, 1997]
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT
OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo[1] valid? This is the main
question raised in this petition for review assailing the Decision of Respondent Court of
Appeals[2] in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of
Appeals modified the judgment of the Regional Trial Court of Valenzuela, Metro Manila,
Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance
Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing
the value of the policy of the lost logs with legal interest thereon from the date of demand
on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven
Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS

(P2,000,000.00) representing the value of lost logs plus legal interest from the date of
demand on April 24, 1984 until full payment thereof; the reasonable attorneys fees in the
amount equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum
of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance
of the stipulated freight charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby
dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the
liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned which is
hereby REVERSED and SET ASIDE.[3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as
follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply,
Inc.) entered into an agreement with the defendant Seven Brothers (Shipping Corporation)
whereby the latter undertook to load on board its vessel M/V Seven Ambassador the
formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment
to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant
South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its
Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium
and documentary stamps due on the policy was tendered due to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance
policy it issued as of the date of the inception for non-payment of the premium due in
accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance
Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the
policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and
against defendants. Both defendants shipping corporation and the surety company
appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo
the following assignment of errors, to wit:
A.
The lower court erred in holding that the proximate cause of the sinking of the
vessel Seven Ambassadors, was not due to fortuitous event but to the negligence of the
captain in stowing and securing the logs on board, causing the iron chains to snap and the
logs to roll to the portside.
B.
The lower court erred in declaring that the non-liability clause of the Seven Brothers
Shipping Corporation from logs (sic) of the cargo stipulated in the charter party is void for
being contrary to public policy invoking article 1745 of the New Civil Code.
C.
The lower court erred in holding defendant-appellant Seven Brothers Shipping
Corporation liable in the alternative and ordering/directing it to pay plaintiff-appellee the

amount of two million (P2,000,000.00) pesos representing the value of the logs plus legal
interest from date of demand until fully paid.
D.
The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorneys fees in the amount equivalent to 5% of
the amount of the claim and the costs of the suit.
E.
The lower court erred in not awarding defendant-appellant Seven Brothers
Corporation its counter-claim for attorneys fees.
F.
The lower court erred in not dismissing the complaint against Seven Brothers
Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following
errors:
A.
The trial court erred in holding that Victorio Chua was an agent of defendantappellant South Sea Surety and Insurance Company, Inc. and likewise erred in not holding
that he was the representative of the insurance broker Columbia Insurance Brokers, Ltd.
B.
The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies issued by the defendantappellant South Sea Surety and Insurance Company, Inc.
C.
The trial court erred in not applying Section 77 of the Insurance Code.
D.
The trial court erred in disregarding the receipt of payment clause attached to and
forming part of the Marine Cargo Insurance Policy No. 84/24229.
E.
The trial court in disregarding the statement of account or bill stating the amount of
premium and documentary stamps to be paid on the policy by the plaintiff-appellee.
F.
The trial court erred in disregarding the indorsement of cancellation of the policy
due to non-payment of premium and documentary stamps.
G.
The trial court erred in ordering defendant-appellant South Sea Surety and
Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the
policy with legal interest from 2 February 1984 until the amount is fully paid,
H.
The trial court erred in not awarding to the defendant-appellant the attorneys fees
alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation
and the surety company are liable to the plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South
Sea Surety and Insurance Company (South Sea), but modified it by holding that Seven
Brothers Shipping Corporation (Seven Brothers) was not liable for the lost cargo.[5] In
modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence
of its agent is valid (Home Insurance Company, Inc. vs. American Steamship Agencies,
Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs.[6]
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc.
(Valenzuela) filed separate petitions for review before this Court. In a Resolution dated
June 2, 1995, this Court denied the petition of South Sea.[7] There the Court found no

reason to reverse the factual findings of the trial court and the Court of Appeals that Chua
was indeed an authorized agent of South Sea when he received Valenzuelas premium
payment for the marine cargo insurance policy which was thus binding on the insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing
the CA Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not
respondent Court (of Appeals) committed a reversible error in upholding the validity of the
stipulation in the charter party executed between the petitioner and the private respondent
exempting the latter from liability for the loss of petitioners logs arising from the negligence
of its (Seven Brothers) captain.[9]
The Courts Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the
(o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo.[10] The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the
proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo
was the snapping of the iron chains and the subsequent rolling of the logs to the portside
due to the negligence of the captain in stowing and securing the logs on board the vessel
and not due to fortuitous event.[11] Likewise undisputed is the status of Private
Respondent Seven Brothers as a private carrier when it contracted to transport the cargo
of Petitioner Valenzuela. Even the latter admits this in its petition.[12]
The trial court deemed the charter party stipulation void for being contrary to public policy,
[13] citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
(1)
That the goods are transported at the risk of the owner or shipper;
(2)
That the common carrier will not be liable for any loss, destruction, or deterioration
of the goods;
(3)
That the common carrier need not observe any diligence in the custody of the
goods;
(4)
That the common carrier shall exercise a degree of diligence less than that of a
good father of a family, or of a man of ordinary prudence in the vigilance over the
movables transported;
(5)
That the common carrier shall not be responsible for the acts or omissions of his
or its employees;
(6)
That the common carriers liability for acts committed by thieves, or of robbers who
do not act with grave or irresistible threat, violence or force, is dispensed with or
diminished;
(7)
That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle, ship,
airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and
587 of the Code of Commerce[14] and Articles 1170 and 1173 of the Civil Code. Citing
Article 1306 and paragraph 1, Article 1409 of the Civil Code,[15] petitioner further contends
that said stipulation gives no duty or obligation to the private respondent to observe the
diligence of a good father of a family in the custody and transportation of the cargo."

The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent
had acted as a private carrier in transporting petitioners lauan logs. Thus, Article 1745
and other Civil Code provisions on common carriers which were cited by petitioner may
not be applied unless expressly stipulated by the parties in their charter party.[16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the
cargo rests solely on the charterer, exempting the shipowner from liability for loss of or
damage to the cargo caused even by the negligence of the ship captain. Pursuant to
Article 1306[17] of the Civil Code, such stipulation is valid because it is freely entered into
by the parties and the same is not contrary to law, morals, good customs, public order, or
public policy. Indeed, their contract of private carriage is not even a contract of adhesion.
We stress that in a contract of private carriage, the parties may freely stipulate their duties
and obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving
common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they
were resolved long ago by this Court in Home Insurance Co. vs. American Steamship
Agencies, Inc.[18] In that case, the trial court similarly nullified a stipulation identical to that
involved in the present case for being contrary to public policy based on Article 1744 of the
Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court held
the shipowner liable for damages resulting from the partial loss of the cargo. This Court
reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following
well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American
law. Under American jurisprudence, a common carrier undertaking to carry a special
cargo or chartered to a special person only, becomes a private carrier. As a private carrier,
a stipulation exempting the owner from liability for the negligence of its agent is not against
public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should
not be applied where the carrier is not acting as such but as a private carrier. The
stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy governing common
carriers is applied. Such policy has no force where the public at large is not involved, as in
this case of a ship totally chartered for the use of a single party.[19] (Underscoring
supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general
public enters into a contract of transportation with common carriers without a hand or a
voice in the preparation thereof. The riding public merely adheres to the contract; even if
the public wants to, it cannot submit its own stipulations for the approval of the common
carrier. Thus, the law on common carriers extends its protective mantle against one-sided
stipulations inserted in tickets, invoices or other documents over which the riding public
has no understanding or, worse, no choice. Compared to the general public, a charterer in
a contract of private carriage is not similarly situated. It can -- and in fact it usually does -enter into a free and voluntary agreement. In practice, the parties in a contract of private
carriage can stipulate the carriers obligations and liabilities over the shipment which, in
turn, determine the price or consideration of the charter. Thus, a charterer, in exchange
for convenience and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal business

risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case
because it covers only a stipulation exempting a private carrier from liability for the
negligence of his agent, but it does not apply to a stipulation exempting a private carrier
like private respondent from the negligence of his employee or servant which is the
situation in this case.[20] This contention of petitioner is bereft of merit, for it raises a
distinction without any substantive difference. The case of Home Insurance specifically
dealt with the liability of the shipowner for acts or negligence of its captain and crew[21]
and a charter party stipulation which exempts the owner of the vessel from any loss or
damage or delay arising from any other source, even from the neglect or fault of the
captain or crew or some other person employed by the owner on board, for whose acts the
owner would ordinarily be liable except for said paragraph.[22] Undoubtedly, Home
Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is
not the rule in the Philippines[23] deserves scant consideration. The Court there
categorically held that said rule was reasonable and proceeded to apply it in the
resolution of that case. Petitioner miserably failed to show such circumstances or
arguments which would necessitate a departure from a well-settled rule. Consequently,
our ruling in said case remains a binding judicial precedent based on the doctrine of stare
decisis and Article 8 of the Civil Code which provides that (j)udicial decisions applying or
interpreting the laws or the Constitution shall form part of the legal system of the
Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agent is
valid.[24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the
Court, however, will discuss the other arguments of petitioner for the benefit and
satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and
587 of the Code of Commerce which confer on petitioner the right to recover damages
from the shipowner and ship agent for the acts or conduct of the captain.[25] We are not
persuaded. Whatever rights petitioner may have under the aforementioned statutory
provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is
contrary to law, public order, public policy, morals, or good customs, or prejudicial to a
person with a right recognized by law. As a general rule patrimonial rights may be waived
as opposed to rights to personality and family rights which may not be made the subject of
waiver.[26] Being patently and undoubtedly patrimonial, petitioners right conferred under
said articles may be waived. This, the petitioner did by acceding to the contractual
stipulation that it is solely responsible for any damage to the cargo, thereby exempting the
private carrier from any responsibility for loss or damage thereto. Furthermore, as
discussed above, the contract of private carriage binds petitioner and private respondent
alone; it is not imbued with public policy considerations for the general public or third
persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code[27] which read:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages
Art. 1173.
The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one
with an obligation to perform. In the instant case, Private Respondent Seven Brothers is
not an obligor in respect of the cargo, for this obligation to bear the loss was shifted to
petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed,
is not void. The provisions cited by petitioner are, therefore, inapplicable to the present
case.
Moreover, the factual milieu of this case does not justify the application of the second
paragraph of Article 1173 of the Civil Code which prescribes the standard of diligence to be
observed in the event the law or the contract is silent. In the instant case, Article 362 of
the Code of Commerce[28] provides the standard of ordinary diligence for the carriage of
goods by a carrier. The standard of diligence under this statutory provision may, however,
be modified in a contract of private carriage as the petitioner and private respondent had
done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan
Ysmael & Co. vs. Gabino Barreto & Co.[30] and argues that the public policy
considerations stated there vis--vis contractual stipulations limiting the carriers liability be
applied with equal force to this case.[31] It also cites Manila Railroad Co. vs. Compaia
Transatlantica[32] and contends that stipulations exempting a party from liability for
damages due to negligence should not be countenanced and should be strictly
construed against the party claiming its benefit.[33] We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they
necessarily justify the application of such policy considerations and concomitantly stricter
rules. As already discussed above, the public policy considerations behind the rigorous
treatment of common carriers are absent in the case of private carriers. Hence, the
stringent laws applicable to common carriers are not applied to private carriers. The case
of Manila Railroad is also inapplicable because the action for damages there does not
involve a contract for transportation. Furthermore, the defendant therein made a promise
to use due care in the lifting operations and, consequently, it was bound by its
undertaking; besides, the exemption was intended to cover accidents due to hidden
defects in the apparatus or other unforseeable occurrences not caused by its personal
negligence. This promise was thus construed to make sense together with the stipulation
against liability for damages.[34] In the present case, we stress that the private respondent
made no such promise. The agreement of the parties to exempt the shipowner from
responsibility for any damage to the cargo and place responsibility over the same to
petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A.
Smith & Co. vs. Cadwallader Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha
and Co.,[37] Ohta Development Co. vs. SteamshipPompey[38] and Limpangco Sons vs.
Yangco Steamship Co.[39] in support of its contention that the shipowner be held liable for
damages.[40] These however are not on all fours with the present case because they do
not involve a similar factual milieu or an identical stipulation in the charter party expressly

exempting the shipowner from responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against
it because this Court has earlier affirmed the liability of South Sea for the loss suffered by
petitioner. Private respondent submits that petitioner is not legally entitled to collect twice
for a single loss.[41] In view of the above disquisition upholding the validity of the
questioned charter party stipulation and holding that petitioner may not recover from
private respondent, the present issue is moot and academic. It suffices to state that the
Resolution of this Court dated June 2, 1995[42] affirming the liability of South Sea does
not, by itself, necessarily preclude the petitioner from proceeding against private
respondent. An aggrieved party may still recover the deficiency from the person causing
the loss in the event the amount paid by the insurance company does not fully cover the
loss. Article 2207 of the Civil Code provides:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party
shall be entitled to recover the deficiency from the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to
show any reversible error on the part of Respondent Court. The assailed Decision is
AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

THIRD DIVISION
[G.R. No. 113003. October 17, 1997]
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT OF APPEALS,
LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.
DECISION
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is
whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous
event that exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee
and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao
City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus
exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree.
The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other
passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and
attorneys fees was filed by Leny and her children against Alberta Yobido, the owner of the
bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When
the defendants therein filed their answer to the complaint, they raised the affirmative
defense of caso fortuito. They also filed a third-party complaint against Philippine Phoenix
Surety and Insurance, Inc. This third-party defendant filed an answer with compulsory
counterclaim. At the pre-trial conference, the parties agreed to a stipulation of facts.[1]
Upon a finding that the third party defendant was not liable under the insurance contract,
the lower court dismissed the third party complaint. No amicable settlement having been
arrived at by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the
defendants was brought about by the drivers failure to exercise the diligence required of
the carrier in transporting passengers safely to their place of destination. According to
Leny Tumboy, the bus left Mangagoy at 3:00 oclock in the afternoon. The winding road it
traversed was not cemented and was wet due to the rain; it was rough with crushed rocks.
The bus which was full of passengers had cargoes on top. Since it was running fast, she
cautioned the driver to slow down but he merely stared at her through the mirror. At around
3:30 p.m., in Trento, she heard something explode and immediately, the bus fell into a
ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous
event. Abundio Salce, who was the bus conductor when the incident happened, testified
that the 42-seater bus was not full as there were only 32 passengers, such that he himself
managed to get a seat. He added that the bus was running at a speed of 60 to 50 and
that it was going slow because of the zigzag road. He affirmed that the left front tire that
exploded was a brand new tire that he mounted on the bus on April 21, 1988 or only five
(5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the

new Goodyear tire from Davao Toyo Parts on April 20, 1988 and she was present when it
was mounted on the bus by Salce. She stated that all driver applicants in Yobido Liner
underwent actual driving tests before they were employed. Defendant Cresencio Yobido
underwent such test and submitted his professional drivers license and clearances from
the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decision[2] dismissing the action for lack
of merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that
the falling of the bus to the cliff was a result of no other outside factor than the tire blowout. It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus[3] that a
tire blowout is a mechanical defect of the conveyance or a fault in its equipment which
was easily discoverable if the bus had been subjected to a more thorough or rigid checkup before it took to the road that morning is inapplicable to this case. It reasoned out that
in said case, it was found that the blowout was caused by the established fact that the
inner tube of the left front tire was pressed between the inner circle of the left wheel and
the rim which had slipped out of the wheel. In this case, however, the cause of the
explosion remains a mystery until at present. As such, the court added, the tire blowout
was a caso fortuito which is completely an extraordinary circumstance independent of the
will of the defendants who should be relieved of whatever liability the plaintiffs may have
suffered by reason of the explosion pursuant to Article 1174[4] of the Civil Code.
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower
court the following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to
hold that the defendants did not exercise utmost and/or extraordinary diligence required of
carriers under Article 1755 of the Civil Code, and (c) deciding the case contrary to the
ruling in Juntilla v. Fontanar,[5] and Necesito v. Paras.[6]
On August 23, 1993, the Court of Appeals rendered the Decision[7] reversing that of the
lower court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the
blow-out, if due to a factory defect, improper mounting, excessive tire pressure, is not an
unavoidable event. On the other hand, there may have been adverse conditions on the
road that were unforeseeable and/or inevitable, which could make the blow-out a caso
fortuito. The fact that the cause of the blow-out was not known does not relieve the carrier
of liability. Owing to the statutory presumption of negligence against the carrier and its
obligation to exercise the utmost diligence of very cautious persons to carry the passenger
safely as far as human care and foresight can provide, it is the burden of the defendants to
prove that the cause of the blow-out was a fortuitous event. It is not incumbent upon the
plaintiff to prove that the cause of the blow-out is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants burden. As enunciated in Necesito vs. Paras, the passenger has neither
choice nor control over the carrier in the selection and use of its equipment, and the good
repute of the manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and
rough. The driver could have explained that the blow-out that precipitated the accident
that caused the death of Toto Tumboy could not have been prevented even if he had
exercised due care to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered
ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy,
P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.

The defendants filed a motion for reconsideration of said decision which was denied on
November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the
position that the tire blowout that caused the death of Tito Tumboy was a caso fortuito.
Petitioners claim further that the Court of Appeals, in ruling contrary to that of the lower
court, misapprehended facts and, therefore, its findings of fact cannot be considered final
which shall bind this Court. Hence, they pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability
of the established principle that the factual findings of the Court of Appeals are final and
may not be reviewed on appeal by this Court. This general principle is subject to
exceptions such as the one present in this case, namely, that the lower court and the Court
of Appeals arrived at diverse factual findings.[8] However, upon such re-examination, we
found no reason to overturn the findings and conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the
mode of travel he has taken. After all, a carrier is not an insurer of the safety of its
passengers and is not bound absolutely and at all events to carry them safely and without
injury.[9] However, when a passenger is injured or dies while travelling, the law presumes
that the common carrier is negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.
Article 1755 provides that (a) common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances. Accordingly, in culpa contractual,
once a passenger dies or is injured, the carrier is presumed to have been at fault or to
have acted negligently. This disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligence as prescribed by Articles 1733,[10]
1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a
fortuitous event.[11] Consequently, the court need not make an express finding of fault or
negligence on the part of the carrier to hold it responsible for damages sought by the
passenger.[12]
In view of the foregoing, petitioners contention that they should be exempt from liability
because the tire blowout was no more than a fortuitous event that could not have been
foreseen, must fail. A fortuitous event is possessed of the following characteristics: (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.[13] As Article 1174
provides, no person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable. In other words, there must be an
entire exclusion of human agency from the cause of injury or loss.[14]
Under the circumstances of this case, the explosion of the new tire may not be considered
a fortuitous event. There are human factors involved in the situation. The fact that the tire
was new did not imply that it was entirely free from manufacturing defects or that it was
properly mounted on the vehicle. Neither may the fact that the tire bought and used in the
vehicle is of a brand name noted for quality, resulting in the conclusion that it could not
explode within five days use. Be that as it may, it is settled that an accident caused either
by defects in the automobile or through the negligence of its driver is not a caso fortuito
that would exempt the carrier from liability for damages.[15]

Moreover, a common carrier may not be absolved from liability in case of force majeure or
fortuitous event alone. The common carrier must still prove that it was not negligent in
causing the death or injury resulting from an accident.[16] This Court has had occasion to
state:
While it may be true that the tire that blew-up was still good because the grooves of the
tire were still visible, this fact alone does not make the explosion of the tire a fortuitous
event. No evidence was presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to compensate for any
conditions liable to cause accidents. The sudden blowing-up, therefore, could have been
caused by too much air pressure injected into the tire coupled by the fact that the jeepney
was overloaded and speeding at the time of the accident.[17]
It is interesting to note that petitioners proved through the bus conductor, Salce, that the
bus was running at 60-50 kilometers per hour only or within the prescribed lawful speed
limit. However, they failed to rebut the testimony of Leny Tumboy that the bus was running
so fast that she cautioned the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the presumption of negligence of the
carrier in the law. Coupled with this is the established condition of the road rough,
winding and wet due to the rain. It was incumbent upon the defense to establish that it
took precautionary measures considering partially dangerous condition of the road. As
stated above, proof that the tire was new and of good quality is not sufficient proof that it
was not negligent. Petitioners should have shown that it undertook extraordinary diligence
in the care of its carrier, such as conducting daily routinary check-ups of the vehicles
parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength of
each and every part of its vehicles before each trip; but we are of the opinion that a due
regard for the carriers obligations toward the traveling public demands adequate
periodical tests to determine the condition and strength of those vehicle portions the failure
of which may endanger the safety of the passengers.[18]
Having failed to discharge its duty to overthrow the presumption of negligence with clear
and convincing evidence, petitioners are hereby held liable for damages. Article 1764[19]
in relation to Article 2206[20] of the Civil Code prescribes the amount of at least three
thousand pesos as damages for the death of a passenger. Under prevailing
jurisprudence, the award of damages under Article 2206 has been increased to fifty
thousand pesos (P50,000.00).[21]
Moral damages are generally not recoverable in culpa contractual except when bad faith
had been proven. However, the same damages may be recovered when breach of
contract of carriage results in the death of a passenger,[22] as in this case. Exemplary
damages, awarded by way of example or correction for the public good when moral
damages are awarded,[23] may likewise be recovered in contractual obligations if the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.[24]
Because petitioners failed to exercise the extraordinary diligence required of a common
carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted recklessly.
[25] As such, private respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the
modification that petitioners shall, in addition to the monetary awards therein, be liable for
the award of exemplary damages in the amount of P20,000.00. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.