G.R. No.

143866

May 19, 2006

POLIAND INDUSTRIAL LIMITED, Petitioner,

vs.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE
PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth
Division), Respondents.
x-----------------------------x
G.R. No. 143877

May 19, 2006

NATIONAL DEVELOPMENT COMPANY, Petitioner,

vs.
POLIAND INDUSTRIAL LIMITED, Respondent.
RESOLUTION
TINGA, J.:
For resolution is the "Motion For Leave to File And To Admit The Attached Second
Motion For Partial Reconsideration" filed by Poliand Industrial Limited (POLIAND),
seeking the partial review of the Courts Resolution dated November 23, 2005.
Poliand is the petitioner in G.R. No. 143866 and the respondent in G.R. No. 143877.
On August 22, 2005, the Court promulgated a consolidated Decision in G.R. Nos.
143866 & 143877, the dispositive portion of which reads:
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED.
The Decision of the Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the
extent that National Development Company is liable to Poliand Industrial Limited for
the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety
Eight US Dollars and Fifty Six US Cents (US$ 1, 193, 298.56), plus interest of 12%
per annum computed from 25 September 1991 until fully paid. In other respects,
said Decision is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Both POLIAND and National Development Company (NDC) separately filed motions
for partial reconsideration. Poliand, for its part, asserted that the computation of
interest should be reckoned from September 12, 1984, the date of the last
foreclosure sale of the vessels, in conformity with the dispositive portion of the
Court of Appeals Decision. The Court denied the separate motions of Poliand and
NDC in its November 23, 2005 Resolution. More than simply denying Poliands
motion for reconsideration, said Resolution passed upon for the first time the issue
on the computation of interest and, thus, modified the August 22, 2005 Decision by
reckoning the computation of interest from the date of the finality of judgment. Not
satisfied with the Courts ruling, Poliand filed the instant subsequent motion for

reconsideration with leave of court, praying in the alternative that the interest rate
should be computed from September 25, 1991, the date of extrajudicial demand,
that is, in conformity with the tack ordered in the Decision dated August 22, 2005.
Ordinarily, no second motion for reconsideration of a judgment or final resolution by
the same party shall be entertained.1 Essentially, however, the instant motion is not
a second motion for reconsideration since the viable relief it seeks calls for the
review, not of the Decision dated August 22, 2005, but the November 23, 2005
Resolution which delved for the first time on the issue of the reckoning date of the
computation of interest. In resolving the instant motion, the Court will be reverting
to the Decision dated August 22, 2005. In so doing, the Court will be shunning
further delay so as to ensure that finis is written to this controversy and the
adjudication of this case attains finality at the earliest possible time as it should.
After going over the instant motion, the Court is persuaded to take a fresh scrutiny
of the facts and circumstances obtaining herein and accordingly modify its finding
that Poliands claim cannot be considered due and demandable until the finality of
the Courts Decision. Indeed, there are certain factual premises which the Court
glossed over in arriving at such pronouncement. First, the trial court had already
made a factual finding to the effect that extrajudicial demands had been made by
Poliand on September 25, 1991 on NDC, Galleon Shipping Corporation and
Development Bank of the Philippines, not only with respect to the alleged loan
accommodations granted to Galleon but also, in the alternative, with respect to the
maritime lien. Second, the extrajudicial demand on NDC for the payment of the
maritime lien was for a specified amount, which was the same amount prayed for in
the complaint and eventually upheld by the trial court. This fact indicates that upon
extrajudicial demand, Poliands claim for the satisfaction of the maritime lien had
already been ascertained. An account that has been "liquidated" can also mean that
the item has been made certain as to what, and how much, is deemed to be
owing.2 The amount claimed and the date of demand being both certain, to arrive at
the liquidated amount would merely be a matter of mathematical
computation.31avvphil.net
The finding of the trial court that an extrajudicial demand was made by Poliand on
September 25, 1991 on NDC for the payment of a determinate amount equivalent
to its maritime lien, unmodified as it was by the appellate court, constitutes
adequate basis to conclude that as of said date, Poliands claim was already due
and demandable. Such factual finding of the trial court, duly supported as it is by
the evidence on record, deserves great weight and respect and is binding on the
Court.
Poliands main stance that the interest payment on its maritime lien should be
reckoned from the date of the last foreclosure sale of the vessels has no merit, apart
from being barred by the rule against second motions for reconsideration.

Poliand contends that the Courts finding that the institution of the extrajudicial
foreclosure proceedings was tainted with bad faith provides the basis to reckon the
computation of legal interest from the date of the foreclosure sale. Suffice it to say,
this theory has no basis in law. An act done in bad faith may be the basis of some
other award but not the award of legal interest.
Next, Poliand argues that the payment of legal interest should be reckoned from the
date of the last foreclosure sale of the vessels or on September 12, 1984 on the
basis of Section 17 (a) of Presidential Decree No. 1521. 4The provision is inapplicable
to the question of interest payment as it merely enumerates the prioritized liens
which are entitled to satisfaction upon the sale of a mortgaged vessel.
WHEREFORE, the instant "second" Motion for Partial Reconsideration dated
December 30, 2005 is GRANTED. The dispositive portion of the Decision dated
August 22, 2005 in G.R. No. 143866 and G.R. No. 143877 is REINSTATED in full.
SO ORDERED.

G.R. No. 115381 December 23, 1994

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

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are
essential to the general public. They are enterprises which specially cater to the
needs of the public and conduce to their comfort and convenience. As such, public
utility services are impressed with public interest and concern. The same is true
with respect to the business of common carrier which holds such a peculiar relation
to the public interest that there is superinduced upon it the right of public regulation
when private properties are affected with public interest, hence, they cease to
be juris privati only. When, therefore, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public an interest in that use, and

must submit to the control by the public for the common good, to the extent of the
interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their
functions as the instant petition seeks to show, is indeed lamentable. Not only is it
an unsound administrative policy but it is inimical to public trust and public interest
as well.
The instant petition for certiorari assails the constitutionality and validity of certain
memoranda, circulars and/or orders of the Department of Transportation and
Communications (DOTC) and the Land Transportation Franchising and Regulatory
Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without
application therefor with the LTFRB and without hearing and approval thereof by
said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended,
otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix
and determine just and reasonable fares by delegating that function to bus
operators, and (b) establish a presumption of public need in favor of applicants for
certificates of public convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in patent violation not only of
Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating
that fares should be "just and reasonable." It is, likewise, violative of the Rules of
Court which places upon each party the burden to prove his own affirmative
allegations. 3 The offending provisions contained in the questioned issuances
pointed out by petitioner, have resulted in the introduction into our highways and
thoroughfares thousands of old and smoke-belching buses, many of which are righthand driven, and have exposed our consumers to the burden of spiraling costs of
public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the
instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990
relative to the implementation of a fare range scheme for provincial bus services in
the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of
transport services; (c) DOTC Memorandum dated October 8, 1992, laying down
rules and procedures to implement Department Order No. 92-587; (d) LTFRB
Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC
Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case
No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum
Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing
provincial bus operators to charge passengers rates within a range of 15% above

and 15% below the LTFRB official rate for a period of one (1) year. The text of the
memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the
priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987
1992) is the liberalization of regulations in the transport sector. Along this line, the
Government intends to move away gradually from regulatory policies and make
progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging
passenger rates above and below the official fare declared by LTFRB on many
provincial routes. It is in this context that some form of liberalization on public
transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range
scheme for all provincial bus routes in country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official
rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in
coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible,"
Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos
on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which
the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a
fare range scheme for all provincial bus routes in the country (except those
operating within Metro Manila)" that will allow operators "to charge passengers
within a range of fifteen percent (15%) above and fifteen percent (15%) below the
LTFRB official rate for a period of one year" the undersigned is respectfully adverting
the Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the fixing and
determination of rates (a) the rates to be approved should be proposed by public
service operators; (b) there should be a publication and notice to concerned or
affected parties in the territory affected; (c) a public hearing should be held for the
fixing of the rates; hence, implementation of the proposed fare range scheme on
August 6 without complying with the requirements of the Public Service Act may not
be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the
present LTFRB fares in the wake of the devastation, death and suffering caused by
the July 16 earthquake will not be socially warranted and will be politically unsound;
most likely public criticism against the DOTC and the LTFRB will be triggered by the
untimely motu propio implementation of the proposal by the mere expedient of
publicizing the fare range scheme without calling a public hearing, which scheme
many as early as during the Secretary's predecessor know through newspaper
reports and columnists' comments to be Asian Development Bank and World Bank
inspired.
3. More than inducing a reduction in bus fares by fifteen percent (15%) the
implementation of the proposal will instead trigger an upward adjustment in bus
fares by fifteen percent (15%) at a time when hundreds of thousands of people in
Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio
City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and
havoc caused by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies involved in public
transportation can consider measures and reforms in the industry that will be
socially uplifting, especially for the people in the areas devastated by the recent
earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that
the implementation of the proposed fare range scheme this year be further studied
and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of
the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An acrossthe-board increase of eight and a half centavos (P0.085) per kilometer for all types
of provincial buses with a minimum-maximum fare range of fifteen (15%) percent
over and below the proposed basic per kilometer fare rate, with the said minimummaximum fare range applying only to ordinary, first class and premium class buses
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was
sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare
to an across-the-board increase of six and a half (P0.065) centavos per kilometer for
ordinary buses. The decrease was due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla
C. Bautista alleging that the proposed rates were exorbitant and unreasonable and
that the application contained no allegation on the rate of return of the proposed
increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the
fare rate increase in accordance with the following schedule of fares on a straight
computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR P1.50 P0.37
STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415. 4
On March 30, 1992, then Secretary of the Department of Transportation and
Communications Pete Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The
full text of the said order is reproduced below in view of the importance of the
provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of
Transportation and Communications (DOTC) as the primary policy, planning,
regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable
transportation system, the transportation regulatory agencies under or attached to
the DOTC have to harmonize their decisions and adopt a common philosophy and
direction;
WHEREAS, the government proposes to build on the successful liberalization
measures pursued over the last five years and bring the transport sector nearer to a
balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the
following policies and principles in the economic regulation of land, air, and water
transportation services are hereby adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against
monopoly, no franchise holder shall be permitted to maintain a monopoly on any
route. A minimum of two franchise holders shall be permitted to operate on any
route.
The requirements to grant a certificate to operate, or certificate of public
convenience, shall be: proof of Filipino citizenship, financial capability, public need,
and sufficient insurance cover to protect the riding public.
In determining public need, the presumption of need for a service shall be deemed
in favor of the applicant. The burden of proving that there is no need for a proposed
service shall be with the oppositor(s).
In the interest of providing efficient public transport services, the use of the "prior
operator" and the "priority of filing" rules shall be discontinued. The route measured
capacity test or other similar tests of demand for vehicle/vessel fleet on any route
shall be used only as a guide in weighing the merits of each franchise application
and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban
areas, or at airports and ports, the use of demand management measures in
conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business decision,
subject only to the filing of appropriate notice and following a phase-out period, to
inform the public and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government
controls. Passenger fares shall also be deregulated, except for the lowest class of
passenger service (normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of particular services
may fix their own fares within a range 15% above and below the indicative or
reference rate.
Where there is lack of effective competition for services, or on specific routes, or for
the transport of particular commodities, maximum mandatory freight rates or
passenger fares shall be set temporarily by the government pending actions to
increase the level of competition.
For unserved or single operator routes, the government shall contract such services
in the most advantageous terms to the public and the government, following public
bids for the services. The advisability of bidding out the services or using other
kinds of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the
government shall not engage in special financing and incentive programs, including
direct subsidies for fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be considered.
Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics
Board, the Maritime Industry Authority are hereby directed to submit to the Office of
the Secretary, within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set forth. In the formulation
of such rules, the concerned agencies shall be guided by the most recent studies on
the subjects, such as the Provincial Road Passenger Transport Study, the Civil
Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping
Industry, and the Inter-island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of
Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to
the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules
and procedures to implement above-quoted Department Order No. 92-587 that laid
down deregulation and other liberalization policies for the transport sector. Attached
to the said memorandum was a revised draft of the required rules and procedures
covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting,
with comments and suggestions from the World Bank incorporated therein.
Likewise, resplendent from the said memorandum is the statement of the DOTC
Secretary that the adoption of the rules and procedures is a pre-requisite to the
approval of the Economic Integration Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC
Department Order No. 92-587. The Circular provides, among others, the following
challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public
need. The presumption of public need for a service shall be deemed in favor of the
applicant, while burden of proving that there is no need for the proposed service
shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition

complementary with the quality of service, subject to prior notice and public
hearing. Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for
provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with
the authorized fare to be replaced by an indicative or reference rate as the basis for
the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier
services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the
deregulation policy of the DOTC allowing provincial bus operators to collect plus
20% and minus 25% of the prescribed fare without first having filed a petition for
the purpose and without the benefit of a public hearing, announced a fare increase
of twenty (20%) percent of the existing fares. Said increased fares were to be made
effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the
upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the
petition for lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties,
hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case.
This petition in this case was resolved with dispatch at the request of petitioner to
enable it to immediately avail of the legal remedies or options it is entitled under
existing laws.
SO ORDERED. 6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a
temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining,
prohibiting and preventing respondents from implementing the bus fare rate
increase as well as the questioned orders and memorandum circulars. This meant
that provincial bus fares were rolled back to the levels duly authorized by the LTFRB
prior to March 16, 1994. A moratorium was likewise enforced on the issuance of
franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by
respondent LTFRB to provincial bus operators to set a fare range of plus or minus
fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (25%) percent, over and above the existing authorized fare without having to file a
petition for the purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an applicant for a
proposed transport service without having to prove public necessity, is illegal for
being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the
issues raised by the petitioner, questions the wisdom and the manner by which the
instant petition was filed. It asserts that the petitioner has no legal standing to sue
or has no real interest in the case at bench and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents
DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner
does not have the standing to maintain the instant suit. They further claim that it is
within DOTC and LTFRB's authority to set a fare range scheme and establish a
presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has
the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section
1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide
causes pending between parties who have the right to sue in the courts of law and
equity. Corollary to this provision is the principle of locus standi of a party litigant.
One who is directly affected by and whose interest is immediate and substantial in
the controversy has the standing to sue. The rule therefore requires that a party
must show a personal stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision so as to warrant an invocation of the
court's jurisdiction and to justify the exercise of the court's remedial powers in his
behalf. 8

In the case at bench, petitioner, whose members had suffered and continue to
suffer grave and irreparable injury and damage from the implementation of the
questioned memoranda, circulars and/or orders, has shown that it has a clear legal
right that was violated and continues to be violated with the enforcement of the
challenged memoranda, circulars and/or orders. KMU members, who avail of the use
of buses, trains and jeepneys everyday, are directly affected by the burdensome
cost of arbitrary increase in passenger fares. They are part of the millions of
commuters who comprise the riding public. Certainly, their rights must be
protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this
court is ready to brush aside this barren procedural infirmity and recognize the legal
standing of the petitioner in view of the transcendental importance of the issues
raised. And this act of liberality is not without judicial precedent. As early as
the Emergency Powers Cases, this Court had exercised its discretion and waived the
requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto
Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases
where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in
the exercise of its discretion, set aside in view of the importance of the issues
raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v.
Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055
(Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v.
Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as
taxpayers' suits are concerned, this Court had declared that it "is not devoid of
discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43
SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before
this court to question the constitutionality or validity of laws, acts, decisions,
rulings, or orders of various government agencies or instrumentalities. Among such
cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it
allows retirement gratuity and commutation of vacation and sick leave to Senators
and Representatives and to elective officials of both Houses of Congress (Philippine
Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order

No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant secretaries to hold
other government offices or positions (Civil Liberties Union v. Executive Secretary,
194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No.
7056 on the holding of desynchronized elections (Osmea v. Commission on
Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is contrary to morals,
public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197
SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include
those attacking the validity or legality of (a) an order allowing the importation of
rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn
Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and
1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031
insofar as it directed the COMELEC to supervise, control, hold, and conduct the
referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on
Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the
approval without hearing by the Board of Investments of the amended application of
the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to
Batangas and the validity of such transfer and the shift of feedstock from naphtha
only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the
decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the
Fiscal Incentives Review Board exempting the National Power Corporation from
indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of
the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199
SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95
per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219
[1992]); (h) resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of Sanggunians (De
Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum
orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and
Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this
Court, despite its unequivocal ruling that the petitioners therein had no personality
to file the petition, resolved nevertheless to pass upon the issues raised because of

the far-reaching implications of the petition. We did no less in De Guia v. COMELEC

(Supra) where, although we declared that De Guia "does not appear to have locus
standi, a standing in law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue involved, concerning
as it does the political exercise of qualified voters affected by the apportionment,
and petitioner alleging abuse of discretion and violation of the Constitution by
respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. The
Commission shall have power, upon proper notice and hearing in accordance with
the rules and provisions of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or
schedules thereof, as well as commutation, mileage kilometrage, and other special
rates which shall be imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion, approve rates
proposed by public services provisionally and without necessity of any hearing; but
it shall call a hearing thereon within thirty days thereafter, upon publication and
notice to the concerns operating in the territory affected: Provided, further, That in
case the public service equipment of an operator is used principally or secondarily
for the promotion of a private business, the net profits of said private business shall
be considered in relation with the public service of such operator for the purpose of
fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public
Service Commission the power of fixing the rates of public services. Respondent
LTFRB, the existing regulatory body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive
order authorizes LTFRB "to determine, prescribe, approve and periodically review
and adjust, reasonable fares, rates and other related charges, relative to the
operation of public land transportation services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in
order to adapt to the increasing complexity of modern life. As subjects for
governmental regulation multiply, so does the difficulty of administering the laws.
Hence, specialization even in legislation has become necessary. Given the task of

determining sensitive and delicate matters as

route-fixing and rate-making for the transport sector, the responsible regulatory
body is entrusted with the power of subordinate legislation. With this authority, an
administrative body and in this case, the LTFRB, may implement broad policies laid
down in a statute by "filling in" the details which the Legislature may neither have
time or competence to provide. However, nowhere under the aforesaid provisions of
law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that
power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus
operators to set a fare range over and above the authorized existing fare, is illegal
and invalid as it is tantamount to an undue delegation of legislative
authority. Potestas delegata non delegari potest. What has been delegated cannot
be delegated. This doctrine is based on the ethical principle that such a delegated
power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening
mind of another. 10 A further delegation of such power would indeed constitute a
negation of the duty in violation of the trust reposed in the delegate mandated to
discharge it directly. 11 The policy of allowing the provincial bus operators to change
and increase their fares at will would result not only to a chaotic situation but to an
anarchic state of affairs. This would leave the riding public at the mercy of transport
operators who may increase fares every hour, every day, every month or every
year, whenever it pleases them or whenever they deem it "necessary" to do so.
In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine
Railway Co. was granted by the Public Service Commission the authority to change
its freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate
to the Philippine Railway Co. the power of altering its freight rates whenever it
should find it necessary to do so in order to meet the competition of road trucks
and autobuses, or to change its freight rates at will, or to regard its present rates as
maximum rates, and to fix lower rates whenever in the opinion of the Philippine
Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is
enough to show that it is untenable. The Legislature has delegated to the Public
Service Commission the power of fixing the rates of public services, but it has not
authorized the Public Service Commission to delegate that power to a common
carrier or other public service. The rates of public services like the Philippine
Railway Co. have been approved or fixed by the Public Service Commission, and any
change in such rates must be authorized or approved by the Public Service
Commission after they have been shown to be just and reasonable. The public
service may, of course, propose new rates, as the Philippine Railway Co. did in case
No. 31827, but it cannot lawfully make said new rates effective without the approval
of the Public Service Commission, and the Public Service Commission itself cannot

authorize a public service to enforce new rates without the prior approval of said
rates by the commission. The commission must approve new rates when they are
submitted to it, if the evidence shows them to be just and reasonable, otherwise it
must disapprove them. Clearly, the commission cannot determine in advance
whether or not the new rates of the Philippine Railway Co. will be just and
reasonable, because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to
change its freight rates at will. It may change them every day or every hour,
whenever it deems it necessary to do so in order to meet competition or whenever
in its opinion it would be to its advantage. Such a procedure would create a most
unsatisfactory state of affairs and largely defeat the purposes of the public service
law. 13 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded
fare. If transport operators will be authorized to impose and collect an additional
amount equivalent to 20% over and above the authorized fare over a period of time,
this will unduly prejudice a commuter who will be made to pay a fare that has been
computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus
operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary
buses. At the same time, they were allowed to impose and collect a fare range of
plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer
authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent
to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another
five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for
computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If
bus operators will exercise their authority to impose an additional 20% over and
above the authorized fare, then the fare to be collected shall amount to P0.56 (that
is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect,
commuters will be continuously subjected, not only to a double fare adjustment but
to a compounding fare as well. On their part, transport operators shall enjoy a
bigger chunk of the pie. Aside from fare increase applied for, they can still collect an
additional amount by virtue of the authorized fare range. Mathematically, the
situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990
1994
1998
2002

P0.37
P0.42
P0.56
P0.73

15% (P0.05) P0.42

+ 0.05 = 0.47 20% (P0.09) P0.56
+ 0.05 = 0.61 20% (P0.12) P0.73
+ 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive
government function that requires dexterity of judgment and sound discretion with
the settled goal of arriving at a just and reasonable rate acceptable to both the
public utility and the public. Several factors, in fact, have to be taken into
consideration before a balance could be achieved. A rate should not be confiscatory
as would place an operator in a situation where he will continue to operate at a loss.
Hence, the rate should enable public utilities to generate revenues sufficient to
cover operational costs and provide reasonable return on the investments. On the
other hand, a rate which is too high becomes discriminatory. It is contrary to public
interest. A rate, therefore, must be reasonable and fair and must be affordable to
the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching
effects on millions of commuters, government must not relinquish this important
function in favor of those who would benefit and profit from the industry. Neither
should the requisite notice and hearing be done away with. The people, represented
by reputable oppositors, deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and
satisfactory arrangement for all parties involved. To do away with such a procedure
and allow just one party, an interested party at that, to determine what the rate
should be, will undermine the right of the other parties to due process. The purpose
of a hearing is precisely to determine what a just and reasonable rate
is. 15 Discarding such procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB
for the operation of land transportation services for public use as required by law.
Pursuant to Section 16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to wit: (i) the applicant
must be a citizen of the Philippines, or a corporation or co-partnership, association
or joint-stock company constituted and organized under the laws of the Philippines,
at least 60 per centum of its stock or paid-up capital must belong entirely to citizens
of the Philippines; (ii) the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to its operation; and
(iii) the applicant must prove that the operation of the public service proposed and
the authorization to do business will promote the public interest in a proper and
suitable manner. It is understood that there must be proper notice and hearing
before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and
contradictory policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public
need. The presumption of public need for a service shall be deemed in favor of the
applicant, while the burden of proving that there is no need for the proposed
service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section
16(c)(iii) of the Public Service Act which requires that before a CPC will be issued,
the applicant must prove by proper notice and hearing that the operation of the
public service proposed will promote public interest in a proper and suitable
manner. On the contrary, the policy guideline states that the presumption of public
need for a public service shall be deemed in favor of the applicant. In case of
conflict between a statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or
suited to the public need. 16 As one of the basic requirements for the grant of a CPC,
public convenience and necessity exists when the proposed facility or service meets
a reasonable want of the public and supply a need which the existing facilities do
not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact
that must be established by evidence, real and/or testimonial; empirical data;
statistics and such other means necessary, in a public hearing conducted for that
purpose. The object and purpose of such procedure, among other things, is to look
out for, and protect, the interests of both the public and the existing transport
operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition
that after full-dress hearing and investigation, it shall find, as a fact, that the
proposed operation is for the convenience of the public. 17 Basic convenience is the
primary consideration for which a CPC is issued, and that fact alone must be
consistently borne in mind. Also, existing operators in subject routes must be given
an opportunity to offer proof and oppose the application. Therefore, an applicant
must, at all times, be required to prove his capacity and capability to furnish the
service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for
that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses
well-settled and institutionalized judicial, quasi-judicial and administrative
procedures. It allows the party who initiates the proceedings to prove, by mere
application, his affirmative allegations. Moreover, the offending provisions of the
LTFRB memorandum circular in question would in effect amend the Rules of Court

by adding another disputable presumption in the enumeration of 37 presumptions

under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's
authority cannot be countenanced as only this Court is mandated by law to
promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in
our country given the present circumstances. Advocacy of liberalized franchising
and regulatory process is tantamount to an abdication by the government of its
inherent right to exercise police power, that is, the right of government to regulate
public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative
orders to regulate the transport sector, we find that they committed grave abuse of
discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services
and LTFRB Memorandum Circular No. 92-009 promulgating the implementing
guidelines on DOTC Department Order No. 92-587, the said administrative
issuances being amendatory and violative of the Public Service Act and the Rules of
Court. Consequently, we rule that the twenty (20%) per centum fare increase
imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition
and a public hearing is null and void and of no force and effect. No grave abuse of
discretion however was committed in the issuance of DOTC Memorandum Order No.
90-395 and DOTC Memorandum dated October 8, 1992, the same being merely
internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and
the challenged administrative issuances and orders, namely: DOTC Department
Order No. 92-587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are
hereby DECLARED contrary to law and invalid insofar as they affect provisions
therein (a) delegating to provincial bus and jeepney operators the authority to
increase or decrease the duly prescribed transportation fares; and (b) creating a
presumption of public need for a service in favor of the applicant for a certificate of
public convenience and placing the burden of proving that there is no need for the
proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE
PERMANENT insofar as it enjoined the bus fare rate increase granted under the
provisions of the aforementioned administrative circulars, memoranda and/or orders
declared invalid.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-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
tune-honored maxim that must be applied to the parties in the case at bar. Having
entered into an illegal contract, neither can seek relief from the courts, and each
must bear the consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein
private respondents, purchased in installment from the Delta Motor Sales
Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they
had no franchise to operate taxicabs, they contracted with petitioner Lita
Enterprises, Inc., through its representative, Manuel Concordia, for the use of the
latter's certificate of public convenience in consideration of an initial payment of
P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id
agreement, the aforesaid cars were registered in the name of petitioner Lita
Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who
operated and maintained the same under the name Acme Taxi, petitioner's trade
name.
About a year later, on March 18, 1967, one of said taxicabs driven by their
employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante
Galvez, died from the head injuries sustained therefrom. A criminal case was
eventually filed against the driver Emeterio Martin, while a civil case for damages
was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita
Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No.
72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was
adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for
attorney's fees.
This decision having become final, a writ of execution was issued. One of the
vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and
sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder.
Another car with Engine No. 2R-915036 was likewise levied upon and sold at public
auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his

taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc.
to turn over the registration papers to him, but the latter allegedly refused. Hence,
he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda.
de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for
reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of
the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975,
the said court rendered a decision, the dispositive portion of which reads: t.
hqw
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita
Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of
Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of
the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and
2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the
plaintiff.
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for
the certificate of convenience from March 1973 up to May 1973 at the rate of P200
a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the
same was denied by the court a quo on October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate
Appellate Court modified the decision by including as part of its dispositive portion
another paragraph, to wit: t.hqw
In the event the condition of the three Toyota rears will no longer serve the purpose
of the deed of conveyance because of their deterioration, or because they are no
longer serviceable, or because they are no longer available, then Lita Enterprises,
Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex
"D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came
to Us, praying that: t.hqw
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued,
reversing, annulling or amending the decision of public respondent so that:
(a) the additional paragraph added by the public respondent to the DECISION of the
lower court (CFI) be deleted;

(b) that private respondents be declared liable to petitioner for whatever amount
the latter has paid or was declared liable (in Civil Case No. 72067) of the Court of
First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim
Florante Galvez, who died as a result ot the gross negligence of private
respondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.)
Unquestionably, the parties herein operated under an arrangement, comonly known
as the "kabit system", whereby a person who has been granted a certificate of
convenience allows another person who owns motors vehicles to operate under
such franchise for a fee. A certificate of public convenience is a special privilege
conferred by the government . Abuse of this privilege by the grantees thereof
cannot be countenanced. The "kabit system" has been Identified as one of the root
causes of the prevalence of graft and corruption in the government transportation
offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that
cannot be too severely condemned. It constitutes an imposition upon the goo faith
of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is
invariably recognized as being contrary to public policy and, therefore, void and
inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the
court will not aid either party to enforce an illegal contract, but will leave them both
where it finds them. Upon this premise, it was flagrant error on the part of both the
trial and appellate courts to have accorded the parties relief from their predicament.
Article 1412 of the Civil Code denies them such aid. It provides:t.hqw
ART. 1412. if the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed;
(1) when the fault, is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be
cured by ratification or by prescription. As this Court said in Eugenio v.
Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null
void."
The principle of in pari delicto is well known not only in this jurisdiction but also in
the United States where common law prevails. Under American jurisdiction, the
doctrine is stated thus: "The proposition is universal that no action arises, in equity
or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or damages
for its property agreed to be sold or delivered, or damages for its violation. The rule
has sometimes been laid down as though it was equally universal, that where the
parties are in pari delicto, no affirmative relief of any kind will be given to one
against the other." 3 Although certain exceptions to the rule are provided by law, We

see no cogent reason why the full force of the rule should not be applied in the
instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo
and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of
the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio
Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc.,
Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions
rendered therein are hereby annuleled and set aside. No costs.
SO ORDERED.
G.R. No. 138810

September 29, 2004

BATANGAS CATV, INC., petitioner,

vs.
THE COURT OF APPEALS, THE BATANGAS CITY SANGGUNIANG
PANLUNGSOD and BATANGAS CITY MAYOR, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
In the late 1940s, John Walson, an appliance dealer in Pennsylvania, suffered a
decline in the sale of television (tv) sets because of poor reception of signals in his
community. Troubled, he built an antenna on top of a nearby mountain. Using
coaxial cable lines, he distributed the tv signals from the antenna to the homes of
his customers. Walsons innovative idea improved his sales and at the same time
gave birth to a new telecommunication system -- the Community Antenna Television
(CATV) or Cable Television.1
This technological breakthrough found its way in our shores and, like in its country
of origin, it spawned legal controversies, especially in the field of regulation. The
case at bar is just another occasion to clarify a shady area. Here, we are tasked to
resolve the inquiry -- may a local government unit (LGU) regulate the subscriber
rates charged by CATV operators within its territorial jurisdiction?
This is a petition for review on certiorari filed by Batangas CATV, Inc. (petitioner
herein) against the Sangguniang Panlungsod and the Mayor of Batangas City
(respondents herein) assailing the Court of Appeals (1) Decision2dated February 12,
1999 and (2) Resolution3 dated May 26, 1999, in CA-G.R. CV No. 52361.4 The
Appellate Court reversed and set aside the Judgment 5 dated October 29, 1995 of
the Regional Trial Court (RTC), Branch 7, Batangas City in Civil Case No.
4254,6 holding that neither of the respondents has the power to fix the subscriber
rates of CATV operators, such being outside the scope of the LGUs power.
The antecedent facts are as follows:

On July 28, 1986, respondent Sangguniang Panlungsod enacted Resolution No.

2107 granting petitioner a permit to construct, install, and operate a CATV system
in Batangas City. Section 8 of the Resolution provides that petitioner is authorized to
charge its subscribers the maximum rates specified therein, "provided, however,
that any increase of rates shall be subject to the approval of the Sangguniang
Panlungsod."8
Sometime in November 1993, petitioner increased its subscriber rates from P88.00
to P180.00 per month. As a result, respondent Mayor wrote petitioner a
letter9 threatening to cancel its permit unless it secures the approval of respondent
Sangguniang Panlungsod, pursuant to Resolution No. 210.
Petitioner then filed with the RTC, Branch 7, Batangas City, a petition for injunction
docketed as Civil Case No. 4254. It alleged that respondent Sangguniang
Panlungsod has no authority to regulate the subscriber rates charged by CATV
operators because under Executive Order No. 205, the National Telecommunications
Commission (NTC) has the sole authority to regulate the CATV operation in the
Philippines.
On October 29, 1995, the trial court decided in favor of petitioner, thus:
"WHEREFORE, as prayed for, the defendants, their representatives, agents,
deputies or other persons acting on their behalf or under their instructions, are
hereby enjoined from canceling plaintiffs permit to operate a Cable
Antenna Television (CATV) system in the City of Batangas or its environs or
in any manner, from interfering with the authority and power of the
National Telecommunications Commission to grant franchises to operate
CATV systems to qualified applicants, and the right of plaintiff in fixing its
service rates which needs no prior approval of the Sangguniang
Panlungsod of Batangas City.
The counterclaim of the plaintiff is hereby dismissed. No pronouncement as to costs.
IT IS SO ORDERED."10
The trial court held that the enactment of Resolution No. 210 by respondent violates
the States deregulation policy as set forth by then NTC Commissioner Jose Luis A.
Alcuaz in his Memorandum dated August 25, 1989. Also, it pointed out that the sole
agency of the government which can regulate CATV operation is the NTC, and that
the LGUs cannot exercise regulatory power over it without appropriate legislation.
Unsatisfied, respondents elevated the case to the Court of Appeals, docketed as CAG.R. CV No. 52361.
On February 12, 1999, the Appellate Court reversed and set aside the trial courts
Decision, ratiocinating as follows:

"Although the Certificate of Authority to operate a Cable Antenna

Television (CATV) System is granted by the National Telecommunications
Commission pursuant to Executive Order No. 205, this does not preclude
the Sangguniang Panlungsod from regulating the operation of the CATV in
their locality under the powers vested upon it by Batas Pambansa Bilang
337, otherwise known as the Local Government Code of 1983. Section 177
(now Section 457 paragraph 3 (ii) of Republic Act 7160) provides:
Section 177. Powers and Duties The Sangguniang Panlungsod shall:
a) Enact such ordinances as may be necessary to carry into effect and discharge the
responsibilities conferred upon it by law, and such as shall be necessary and proper
to provide for health and safety, comfort and convenience, maintain peace and
order, improve the morals, and promote the prosperity and general welfare of the
community and the inhabitants thereof, and the protection of property therein;
xxx
d) Regulate, fix the license fee for, and tax any business or profession being carried
on and exercised within the territorial jurisdiction of the city, except travel agencies,
tourist guides, tourist transports, hotels, resorts, de luxe restaurants, and tourist
inns of international standards which shall remain under the licensing and
regulatory power of the Ministry of Tourism which shall exercise such authority
without infringement on the taxing and regulatory powers of the city government;
Under cover of the General Welfare Clause as provided in this section, Local
Government Units can perform just about any power that will benefit their
constituencies. Thus, local government units can exercise powers that
are: (1) expressly granted; (2) necessarily implied from the power that is expressly
granted; (3) necessary, appropriate or incidental for its efficient and effective
governance; and (4) essential to the promotion of the general welfare of their
inhabitants. (Pimentel, The Local Government Code of 1991, p. 46)
Verily, the regulation of businesses in the locality is expressly provided in
the Local Government Code. The fixing of service rates is lawful under the
General Welfare Clause.
Resolution No. 210 granting appellee a permit to construct, install and operate a
community antenna television (CATV) system in Batangas City as quoted earlier in
this decision, authorized the grantee to impose charges which cannot be increased
except upon approval of the Sangguniang Bayan. It further provided that in case of
violation by the grantee of the terms and conditions/requirements specifically
provided therein, the City shall have the right to withdraw the franchise.
Appellee increased the service rates from EIGHTY EIGHT PESOS (P88.00) to ONE
HUNDRED EIGHTY PESOS (P180.00) (Records, p. 25) without the approval of

appellant. Such act breached Resolution No. 210 which gives appellant the
right to withdraw the permit granted to appellee."11
Petitioner filed a motion for reconsideration but was denied. 12
Hence, the instant petition for review on certiorari anchored on the following
assignments of error:
"I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE
CLAUSE of the LOCAL GOVERNMENT CODE AUTHORIZES RESPONDENT
SANGGUNIANG PANLUNGSOD TO EXERCISE THE REGULATORY FUNCTION
SOLELY LODGED WITH THE NATIONAL TELECOMMUNICATIONS COMMISSION
UNDER EXECUTIVE ORDER NO. 205, INCLUDING THE AUTHORITY TO FIX
AND/OR APPROVE THE SERVICE RATES OF CATV OPERATORS; AND
II
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION APPEALED
FROM AND DISMISSING PETITIONERS COMPLAINT."13
Petitioner contends that while Republic Act No. 7160, the Local Government Code of
1991, extends to the LGUs the general power to perform any act that will benefit
their constituents, nonetheless, it does not authorize them to regulate the CATV
operation. Pursuant to E.O. No. 205, only the NTC has the authority to regulate the
CATV operation, including the fixing of subscriber rates.
Respondents counter that the Appellate Court did not commit any reversible error in
rendering the assailed Decision. First, Resolution No. 210 was enacted pursuant to
Section 177(c) and (d) of Batas Pambansa Bilang 337, the Local Government Code
of 1983, which authorizes LGUs to regulate businesses. The term "businesses"
necessarily includes the CATV industry. And second, Resolution No. 210 is in the
nature of a contract between petitioner and respondents, it being a grant to the
former of a franchise to operate a CATV system. To hold that E.O. No. 205 amended
its terms would violate the constitutional prohibition against impairment of
contracts.14
The petition is impressed with merit.
Earlier, we posed the question -- may a local government unit (LGU) regulate the
subscriber rates charged by CATV operators within its territorial jurisdiction? A
review of pertinent laws and jurisprudence yields a negative answer.
President Ferdinand E. Marcos was the first one to place the CATV industry under
the regulatory power of the national government. 15 On June 11, 1978, he
issued Presidential Decree (P.D.) No. 151216 establishing a monopoly of the

industry by granting Sining Makulay, Inc., an exclusive franchise to operate CATV

system in any place within the Philippines. Accordingly, it terminated all franchises,
permits or certificates for the operation of CATV system previously granted by local
governments or by any instrumentality or agency of the national
government.17 Likewise, it prescribed the subscriber rates to be charged by Sining
Makulay, Inc. to its customers.18
On July 21, 1979, President Marcos issued Letter of Instruction (LOI) No. 894 vesting
upon the Chairman of the Board of Communications direct supervision over the
operations of Sining Makulay, Inc. Three days after, he issued E.O. No.
54619 integrating the Board of Communications 20 and the Telecommunications
Control Bureau21to form a single entity to be known as the "National
Telecommunications Commission." Two of its assigned functions are:
"a. Issue Certificate of Public Convenience for the operation of communications
utilities and services, radio communications systems, wire or wireless telephone or
telegraph systems, radio and television broadcasting system and other similar
public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of
public service communications; and determine and prescribe charges or rates
pertinent to the operation of such public utility facilities and services except in
cases where charges or rates are established by international bodies or associations
of which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;"
Although Sining Makulay Inc.s exclusive franchise had a life term of 25 years, it was
cut short by the advent of the 1986 Revolution. Upon President Corazon C. Aquinos
assumption of power, she issued E.O. No. 20522 opening the CATV industry to all
citizens of the Philippines. It mandated the NTC to grant Certificates of
Authority to CATV operators and to issue the necessary implementing
rules and regulations.
On September 9, 1997, President Fidel V. Ramos issued E.O. No. 43623 prescribing
policy guidelines to govern CATV operation in the Philippines. Cast in more definitive
terms, it restated the NTCs regulatory powers over CATV operations, thus:
"SECTION 2. The regulation and supervision of the cable television industry in
the Philippines shall remain vested solely with the National Telecommunications
Commission (NTC).
SECTION 3. Only persons, associations, partnerships, corporations or cooperatives,
granted a Provisional Authority or Certificate of Authority by the Commission may
install, operate and maintain a cable television system or render cable television
service within a service area."

Clearly, it has been more than two decades now since our national government,
through the NTC, assumed regulatory power over the CATV industry. Changes in the
political arena did not alter the trend. Instead, subsequent presidential issuances
further reinforced the NTCs power. Significantly, President Marcos and President
Aquino, in the exercise of their legislative power, issued P.D. No. 1512, E.O. No. 546
and E.O. No. 205. Hence, they have the force and effect of statutes or laws passed
by Congress.24 That the regulatory power stays with the NTC is also clear from
President Ramos E.O. No. 436 mandating that the regulation and supervision of the
CATV industry shall remain vested "solely" in the NTC. Blacks Law Dictionary
defines "sole" as "without another or others." 25 The logical conclusion,
therefore, is that in light of the above laws and E.O. No. 436, the NTC
exercises regulatory power over CATV operators to the exclusion of other
bodies.
But, lest we be misunderstood, nothing herein should be interpreted as to strip
LGUs of their general power to prescribe regulations under the general welfare
clause of the Local Government Code. It must be emphasized that when E.O. No.
436 decrees that the "regulatory power" shall be vested "solely" in the NTC, it
pertains to the "regulatory power" over those matters which are peculiarly within
the NTCs competence, such as, the: (1) determination of rates, (2) issuance of
"certificates of authority, (3) establishment of areas of operation, (4) examination
and assessment of the legal, technical and financial qualifications of applicant
operators, (5) granting of permits for the use of frequencies, (6) regulation of
ownership and operation, (7) adjudication of issues arising from its functions, and
(8) other similar matters.26 Within these areas, the NTC reigns supreme as it
possesses the exclusive power to regulate -- a power comprising varied acts, such
as "to fix, establish, or control; to adjust by rule, method or established mode; to
direct by rule or restriction; or to subject to governing principles or laws." 27
Coincidentally, respondents justify their exercise of regulatory power over
petitioners CATV operation under the general welfare clause of the Local
Government Code of 1983. The Court of Appeals sustained their stance.
There is no dispute that respondent Sangguniang Panlungsod, like other local
legislative bodies, has been empowered to enact ordinances and approve
resolutions under the general welfare clause of B.P. Blg. 337, the Local Government
Code of 1983. That it continues to posses such power is clear under the new law,
R.A. No. 7160 (the Local Government Code of 1991). Section 16 thereof provides:
"SECTION 16. General Welfare. Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and effective governance, and
those which are essential to the promotion of the general welfare. Within their
respective territorial jurisdictions, local government units shall ensure and support,
among others, the preservation and enrichment of culture, promote health and

safety, enhance the right of the people to a balanced ecology, encourage and
support the development of appropriate and self-reliant, scientific and technological
capabilities, improve public morals, enhance economic prosperity and social justice,
promote full employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants."
In addition, Section 458 of the same Code specifically mandates:
"SECTION 458. Powers, Duties, Functions and Compensation. (a)
The Sangguniang Panlungsod, as the legislative body of the city, shall enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of this
Code, x x x:"
The general welfare clause is the delegation in statutory form of the police
power of the State to LGUs.28Through this, LGUs may prescribe regulations to
protect the lives, health, and property of their constituents and maintain peace and
order within their respective territorial jurisdictions. Accordingly, we have upheld
enactments providing, for instance, the regulation of gambling, 29 the occupation of
rig drivers,30 the installation and operation of pinball machines, 31 the maintenance
and operation of cockpits,32 the exhumation and transfer of corpses from public
burial grounds,33 and the operation of hotels, motels, and lodging houses 34 as valid
exercises by local legislatures of the police power under the general welfare clause.
Like any other enterprise, CATV operation maybe regulated by LGUs under the
general welfare clause. This is primarily because the CATV system commits the
indiscretion of crossing public properties. (It uses public properties in order to reach
subscribers.) The physical realities of constructing CATV system the use of public
streets, rights of ways, the founding of structures, and the parceling of large regions
allow an LGU a certain degree of regulation over CATV operators. 35 This is the
same regulation that it exercises over all private enterprises within its territory.
But, while we recognize the LGUs power under the general welfare clause, we
cannot sustain Resolution No. 210. We are convinced that respondents strayed from
the well recognized limits of its power. The flaws in Resolution No. 210 are: (1) it
violates the mandate of existing laws and (2) it violates the States deregulation
policy over the CATV industry.
I.
Resolution No. 210 is an enactment of an LGU acting only as agent of the national
legislature. Necessarily, its act must reflect and conform to the will of its principal.
To test its validity, we must apply the particular requisites of a valid ordinance as
laid down by the accepted principles governing municipal corporations. 36

Speaking for the Court in the leading case of United States vs. Abendan, 37 Justice
Moreland said: "An ordinance enacted by virtue of the general welfare clause is
valid, unless it contravenes the fundamental law of the Philippine Islands, or an Act
of the Philippine Legislature, or unless it is against public policy, or is unreasonable,
oppressive, partial, discriminating, or in derogation of common right." In De la Cruz
vs. Paraz,38 we laid the general rule "that ordinances passed by virtue of the implied
power found in the general welfare clause must be reasonable, consonant with the
general powers and purposes of the corporation, and not inconsistent with the laws
or policy of the State."
The apparent defect in Resolution No. 210 is that it contravenes E.O. No. 205 and
E.O. No. 436 insofar as it permits respondent Sangguniang Panlungsod to usurp a
power exclusively vested in the NTC, i.e., the power to fix the subscriber rates
charged by CATV operators. As earlier discussed, the fixing of subscriber rates is
definitely one of the matters within the NTCs exclusive domain.
In this regard, it is appropriate to stress that where the state legislature has made
provision for the regulation of conduct, it has manifested its intention that the
subject matter shall be fully covered by the statute, and that a municipality, under
its general powers, cannot regulate the same conduct. 39 In Keller vs. State,40 it was
held that: "Where there is no express power in the charter of a municipality
authorizing it to adopt ordinances regulating certain matters which are specifically
covered by a general statute, a municipal ordinance, insofar as it attempts to
regulate the subject which is completely covered by a general statute of the
legislature, may be rendered invalid. x x x Where the subject is of statewide
concern, and the legislature has appropriated the field and declared the rule, its
declaration is binding throughout the State." A reason advanced for this view is that
such ordinances are in excess of the powers granted to the municipal corporation. 41
Since E.O. No. 205, a general law, mandates that the regulation of CATV operations
shall be exercised by the NTC, an LGU cannot enact an ordinance or approve a
resolution in violation of the said law.
It is a fundamental principle that municipal ordinances are inferior in status and
subordinate to the laws of the state. An ordinance in conflict with a state law of
general character and statewide application is universally held to be invalid. 42 The
principle is frequently expressed in the declaration that municipal authorities, under
a general grant of power, cannot adopt ordinances which infringe the spirit of a
state law or repugnant to the general policy of the state. 43 In every power to pass
ordinances given to a municipality, there is an implied restriction that the
ordinances shall be consistent with the general law. 44 In the language of Justice
Isagani Cruz (ret.), this Court, in Magtajas vs. Pryce Properties Corp., Inc.,45 ruled
that:

"The rationale of the requirement that the ordinances should not contravene a
statute is obvious. Municipal governments are only agents of the national
government. Local councils exercise only delegated legislative powers conferred on
them by Congress as the national lawmaking body. The delegate cannot be superior
to the principal or exercise powers higher than those of the latter. It is a heresy to
suggest that the local government units can undo the acts of Congress, from which
they have derived their power in the first place, and negate by mere ordinance the
mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights
wholly from the legislature. It breathes into them the breath of life, without which
they cannot exist. As it creates, so it may destroy. As it may destroy, it may abridge
and control. Unless there is some constitutional limitation on the right, the
legislature might, by a single act, and if we can suppose it capable of so great a
folly and so great a wrong, sweep from existence all of the municipal corporations in
the State, and the corporation could not prevent it. We know of no limitation on the
right so far as to the corporation themselves are concerned. They are, so to phrase
it, the mere tenants at will of the legislature.
This basic relationship between the national legislature and the local government
units has not been enfeebled by the new provisions in the Constitution
strengthening the policy of local autonomy. Without meaning to detract from that
policy, we here confirm that Congress retains control of the local government units
although in significantly reduced degree now than under our previous Constitutions.
The power to create still includes the power to destroy. The power to grant still
includes the power to withhold or recall. True, there are certain notable innovations
in the Constitution, like the direct conferment on the local government units of the
power to tax, which cannot now be withdrawn by mere statute. By and large,
however, the national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it."
Respondents have an ingenious retort against the above disquisition. Their theory is
that the regulatory power of the LGUs is granted by R.A. No. 7160 (the Local
Government Code of 1991), a handiwork of the national lawmaking authority. They
contend that R.A. No. 7160 repealed E.O. No. 205 (issued by President Aquino).
Respondents argument espouses a bad precedent. To say that LGUs exercise the
same regulatory power over matters which are peculiarly within the NTCs
competence is to promote a scenario of LGUs and the NTC locked in constant clash
over the appropriate regulatory measure on the same subject matter. LGUs must
recognize that technical matters concerning CATV operation are within the
exclusive regulatory power of the NTC.
At any rate, we find no basis to conclude that R.A. No. 7160 repealed E.O. No. 205,
either expressly or impliedly. It is noteworthy that R.A. No. 7160 repealing clause,

which painstakingly mentions the specific laws or the parts thereof which are
repealed, does not include E.O. No. 205, thus:
"SECTION 534. Repealing Clause. (a) Batas Pambansa Blg. 337, otherwise
known as the Local Government Code." Executive Order No. 112 (1987), and
Executive Order No. 319 (1988) are hereby repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders,
instructions, memoranda and issuances related to or concerning the barangay are
hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding
hospital fund; Section 3, a (3) and b (2) of Republic Act. No. 5447 regarding the
Special Education Fund; Presidential Decree No. 144 as amended by Presidential
Decree Nos. 559 and 1741; Presidential Decree No. 231 as amended; Presidential
Decree No. 436 as amended by Presidential Decree No. 558; and Presidential
Decree Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are hereby repealed and
rendered of no force and effect.
(d) Presidential Decree No. 1594 is hereby repealed insofar as it governs locallyfunded projects.
(e) The following provisions are hereby repealed or amended insofar as they are
inconsistent with the provisions of this Code: Sections 2, 16, and 29 of Presidential
Decree No. 704; Section 12 of Presidential Decree No. 87, as amended; Sections 52,
53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential Decree No. 463, as
amended; and Section 16 of Presidential Decree No. 972, as amended, and
(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly."
Neither is there an indication that E.O. No. 205 was impliedly repealed by R.A. No.
7160. It is a settled rule that implied repeals are not lightly presumed in the
absence of a clear and unmistakable showing of such intentions. In Mecano vs.
Commission on Audit,46 we ruled:
"Repeal by implication proceeds on the premise that where a statute of later date
clearly reveals an intention on the part of the legislature to abrogate a prior act on
the subject, that intention must be given effect. Hence, before there can be a
repeal, there must be a clear showing on the part of the lawmaker that the intent in
enacting the new law was to abrogate the old one. The intention to repeal must be
clear and manifest; otherwise, at least, as a general rule, the later act is to be
construed as a continuation of, and not a substitute for, the first act and will
continue so far as the two acts are the same from the time of the first enactment."

As previously stated, E.O. No. 436 (issued by President Ramos) vests upon the NTC
the power to regulate the CATV operation in this country. So also Memorandum
Circular No. 8-9-95, the Implementing Rules and Regulations of R.A. No. 7925 (the
"Public Telecommunications Policy Act of the Philippines"). This shows that the NTCs
regulatory power over CATV operation is continuously recognized.
It is a canon of legal hermeneutics that instead of pitting one statute against
another in an inevitably destructive confrontation, courts must exert every effort to
reconcile them, remembering that both laws deserve a becoming respect as the
handiwork of coordinate branches of the government. 47 On the assumption of a
conflict between E.O. No. 205 and R.A. No. 7160, the proper action is not to uphold
one and annul the other but to give effect to both by harmonizing them if possible.
This recourse finds application here. Thus, we hold that the NTC, under E.O. No. 205,
has exclusive jurisdiction over matters affecting CATV operation, including
specifically the fixing of subscriber rates, but nothing herein precludes LGUs from
exercising its general power, under R.A. No. 7160, to prescribe regulations to
promote the health, morals, peace, education, good order or safety and general
welfare of their constituents. In effect, both laws become equally effective and
mutually complementary.
The grant of regulatory power to the NTC is easily understandable. CATV system is
not a mere local concern. The complexities that characterize this new technology
demand that it be regulated by a specialized agency. This is particularly true in the
area of rate-fixing. Rate fixing involves a series of technical
operations.48 Consequently, on the hands of the regulatory body lies the ample
discretion in the choice of such rational processes as might be appropriate to the
solution of its highly complicated and technical problems. Considering that the CATV
industry is so technical a field, we believe that the NTC, a specialized agency, is in a
better position than the LGU, to regulate it. Notably, in United States vs.
Southwestern Cable Co.,49 the US Supreme Court affirmed the Federal
Communications Commissions (FCCs) jurisdiction over CATV operation. The Court
held that the FCCs authority over cable systems assures the preservation of the
local broadcast service and an equitable distribution of broadcast services among
the various regions of the country.
II.
Resolution No. 210 violated the States deregulation policy.
Deregulation is the reduction of government regulation of business to permit freer
markets and competition.50Oftentimes, the State, through its regulatory agencies,
carries out a policy of deregulation to attain certain objectives or to address certain
problems. In the field of telecommunications, it is recognized that many areas in the
Philippines are still "unserved" or "underserved." Thus, to encourage private sectors
to venture in this field and be partners of the government in stimulating the growth

and development of telecommunications, the State promoted the policy of

deregulation.
In the United States, the country where CATV originated, the Congress observed,
when it adopted the Telecommunications Act of 1996, that there was a need to
provide a pro-competitive, deregulatory national policy framework designed to
accelerate rapidly private sector deployment of advanced telecommunications and
information technologies and services to all Americans by opening all
telecommunications markets to competition. The FCC has adopted regulations to
implement the requirements of the 1996 Act and the intent of the Congress.
Our country follows the same policy. The fifth Whereas Clause of E.O. No. 436
states:
"WHEREAS, professionalism and self-regulation among existing operators, through a
nationally recognized cable television operators association, have enhanced the
growth of the cable television industry and must therefore be maintained along with
minimal reasonable government regulations;"
This policy reaffirms the NTCs mandate set forth in the Memorandum dated August
25, 1989 of Commissioner Jose Luis A. Alcuaz, to wit:
"In line with the purpose and objective of MC 4-08-88, Cable Television System or
Community Antenna Television (CATV) is made part of the broadcast media to
promote the orderly growth of the Cable Television Industry it being in its
developing stage. Being part of the Broadcast Media, the service rates of CATV are
likewise considered deregulated in accordance with MC 06-2-81 dated 25 February
1981, the implementing guidelines for the authorization and operation of Radio and
Television Broadcasting stations/systems.
Further, the Commission will issue Provisional Authority to existing CATV operators
to authorize their operations for a period of ninety (90) days until such time that the
Commission can issue the regular Certificate of Authority."
When the State declared a policy of deregulation, the LGUs are bound to follow. To
rule otherwise is to render the States policy ineffective. Being mere creatures of the
State, LGUs cannot defeat national policies through enactments of contrary
measures. Verily, in the case at bar, petitioner may increase its subscriber rates
without respondents approval.
At this juncture, it bears emphasizing that municipal corporations are bodies politic
and corporate, created not only as local units of local self-government, but as
governmental agencies of the state.51 The legislature, by establishing a municipal
corporation, does not divest the State of any of its sovereignty; absolve itself from
its right and duty to administer the public affairs of the entire state; or divest itself

of any power over the inhabitants of the district which it possesses before the
charter was granted.52
Respondents likewise argue that E.O. No. 205 violates the constitutional prohibition
against impairment of contracts, Resolution No. 210 of Batangas City Sangguniang
Panlungsod being a grant of franchise to petitioner.
We are not convinced.
There is no law specifically authorizing the LGUs to grant franchises to operate CATV
system. Whatever authority the LGUs had before, the same had been withdrawn
when President Marcos issued P.D. No. 1512 "terminating all franchises, permits or
certificates for the operation of CATV system previously granted by local
governments." Today, pursuant to Section 3 of E.O. No. 436, "only persons,
associations, partnerships, corporations or cooperatives granted a Provisional
Authority or Certificate of Authority by the NTC may install, operate and maintain a
cable television system or render cable television service within a service area." It is
clear that in the absence of constitutional or legislative authorization, municipalities
have no power to grant franchises. 53Consequently, the protection of the
constitutional provision as to impairment of the obligation of a contract does not
extend to privileges, franchises and grants given by a municipality in excess of its
powers, or ultra vires.54
One last word. The devolution of powers to the LGUs, pursuant to the Constitutional
mandate of ensuring their autonomy, has bred jurisdictional tension between said
LGUs and the State. LGUs must be reminded that they merely form part of the
whole. Thus, when the Drafters of the 1987 Constitution enunciated the policy of
ensuring the autonomy of local governments,55 it was never their intention to create
an imperium in imperio and install an intra-sovereign political subdivision
independent of a single sovereign state.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals dated February 12, 1999 as well as its Resolution dated May 26, 1999 in
CA-G.R. CV No. 52461, are hereby REVERSED. The RTC Decision in Civil Case No.
4254 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 100727 March 18, 1992
COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION, petitioner,
vs.
THE COURT OF APPEALS, LUNGSOD SILANGAN TRANSPORT SERVICES,
CORP., INC., respondents.

MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
which affirmed with modification the decision of the Regional Trial Court awarding
damages in favor of respondent Lungsod Silangan Transport Services Corp., Inc.
(Lungsod Corp. for brevity).
The antecedents facts of this case are as follows:
It appears that a certificate of public convenience to operate a jeepney service was
ordered to be issued in favor of Lungsod Silangan to ply the Cogeo-Cubao route
sometime in 1983 on the justification that public necessity and convenience will
best be served, and in the absence of existing authorized operators on the lined
apply for . . . On the other hand, defendant-Association was registered as a nonstock, non-profit organization with the Securities and Exchange Commission on
October 30, 1985 . . . with the main purpose of representing plaintiff-appellee for
whatever contract and/or agreement it will have regarding the ownership of units,
and the like, of the members of the Association . . .
Perturbed by plaintiffs' Board Resolution No. 9 . . . adopting a Bandera' System
under which a member of the cooperative is permitted to queue for passenger at
the disputed pathway in exchange for the ticket worth twenty pesos, the proceeds
of which shall be utilized for Christmas programs of the drivers and other benefits,
and on the strength of defendants' registration as a collective body with the
Securities and Exchange Commission, defendants-appellants, led by Romeo Oliva
decided to form a human barricade on November 11, 1985 and assumed the
dispatching of passenger jeepneys . . . This development as initiated by defendantsappellants gave rise to the suit for damages.
Defendant-Association's Answer contained vehement denials to the insinuation of
take over and at the same time raised as a defense the circumstance that the
organization was formed not to compete with plaintiff-cooperative. It, however,
admitted that it is not authorized to transport passengers . . . (pp. 15-16, Rollo)
On July 31, 1989, the trial court rendered a decision in favor of respondent Lungsod
Corp., the dispositive portion of which states:
WHEREFORE FROM THE FOREGOING CONSIDERATION, the Court hereby renders
judgment in favor of the plaintiff and against the defendants as follows:
1. Ordering defendants to pay plaintiff the amount of P50,000.00 as actual
damages;
2. Ordering the defendants to pay the plaintiffs the amount of P10,000.00 as
attorney's fees.

SO ORDERED. (P. 39, Rollo)

Not satisfied with the decision, petitioner Association appealed with the Court of
Appeals. On May 27, 1991, respondent appellate court rendered its decision
affirming the findings of the trial court except with regard to the award of actual
damages in the amount of P50,000.00 and attorney's fees in the amount of
P10,000.00. The Court of Appeals however, awarded nominal damages to petitioner
in the amount of P10,000.00.
Hence, this petition was filed with the petitioner assigning the following errors of the
appellate court:
I. THE RESPONDENT COURT ERRED IN MERELY MODIFYING THE JUDGMENT OF THE
TRIAL COURT.
II. THE RESPONDENT COURT ERRED IN HOLDING THAT THE PETITIONER USURPED
THE PROPERTY RIGHT OF THE PRIVATE RESPONDENT.
III. AND THE RESPONDENT COURT ERRED IN DENYING THE MOTION FOR
RECONSIDERATION.
Since the assigned errors are interrelated, this Court shall discuss them jointly. The
main issue raised by the petitioner is whether or not the petitioner usurped the
property right of the respondent which shall entitle the latter to the award of
nominal damages.
Petitioner contends that the association was formed not to complete with the
respondent corporation in the latter's operation as a common carrier; that the same
was organized for the common protection of drivers from abusive traffic officers who
extort money from them, and for the elimination of the practice of respondent
corporation of requiring jeepney owners to execute deed of sale in favor of the
corporation to show that the latter is the owner of the jeeps under its certificate of
public convenience. Petitioner also argues that in organizing the association, the
members thereof are merely exercising their freedom or right to redress their
grievances.
We find the petition devoid of merit.
Under the Public Service Law, a certificate of public convenience is an authorization
issued by the Public Service Commission for the operation of public services for
which no franchise is required by law. In the instant case, a certificate of public
convenience was issued to respondent corporation on January 24, 1983 to operate a
public utility jeepney service on the Cogeo-Cubao route. As found by the trial court,
the certificate was issued pursuant to a decision passed by the Board of
Transportation in BOT Case No. 82-565.

A certification of public convenience is included in the term "property" in the broad

sense of the term. Under the Public Service Law, a certificate of public convenience
can be sold by the holder thereof because it has considerable material value and is
considered as valuable asset (Raymundo v. Luneta Motor Co., et al., 58 Phil. 889).
Although there is no doubt that it is private property, it is affected with a public
interest and must be submitted to the control of the government for the common
good (Pangasinan Transportation Co. v. PSC, 70 Phil 221). Hence, insofar as the
interest of the State is involved, a certificate of public convenience does not confer
upon the holder any proprietary right or interest or franchise in the route covered
thereby and in the public highways (Lugue v. Villegas, L-22545, Nov . 28, 1969, 30
SCRA 409). However, with respect to other persons and other public utilities, a
certificate of public convenience as property, which represents the right and
authority to operate its facilities for public service, cannot be taken or interfered
with without due process of law. Appropriate actions may be maintained in courts by
the holder of the certificate against those who have not been authorized to operate
in competition with the former and those who invade the rights which the former
has pursuant to the authority granted by the Public Service Commission (A.L.
Ammen Transportation Co. v. Golingco. 43 Phil. 280).
In the case at bar, the trial court found that petitioner association forcibly took over
the operation of the jeepney service in the Cogeo-Cubao route without any
authorization from the Public Service Commission and in violation of the right of
respondent corporation to operate its services in the said route under its certificate
of public convenience. These were its findings which were affirmed by the appellate
court:
The Court from the testimony of plaintiff's witnesses as well as the documentary
evidences presented is convinced that the actions taken by defendant herein
though it admit that it did not have the authority to transport passenger did in fact
assume the role as a common carrier engaged in the transport of passengers within
that span of ten days beginning November 11, 1985 when it unilaterally took upon
itself the operation and dispatching of jeepneys at St. Mary's St. The president of
the defendant corporation. Romeo Oliva himself in his testimony confirmed that
there was indeed a takeover of the operations at St. Mary's St. . . . (p. 36, Rollo)
The findings of the trial court especially if affirmed by the appellate court bear great
weight and will not be disturbed on appeal before this Court. Although there is no
question that petitioner can exercise their constitutional right to redress their
grievances with respondent Lungsod Corp., the manner by which this constitutional
right is to be, exercised should not undermine public peace and order nor should it
violate the legal rights of other persons. Article 21 of the Civil Code provides that
any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the
damage. The provision covers a situation where a person has a legal right which
was violated by another in a manner contrary to morals, good customs or public

policy. It presupposes loss or injury, material or otherwise, which one may suffer as
a result of such violation. It is clear form the facts of this case that petitioner formed
a barricade and forcibly took over the motor units and personnel of the respondent
corporation. This paralyzed the usual activities and earnings of the latter during the
period of ten days and violated the right of respondent Lungsod Corp. To conduct its
operations thru its authorized officers.
As to the propriety of damages in favor of respondent Lungsod Corp., the
respondent appellate court stated:
. . . it does not necessarily follow that plaintiff-appellee is entitled to actual damages
and attorney's fees. While there may have been allegations from plaintiffcooperative showing that it did in fact suffer some from of injury . . . it is legally
unprecise to order the payment of P50,000.00 as actual damages for lack of
concrete proof therefor. There is, however, no denying of the act of usurpation by
defendants-appellants which constituted an invasion of plaintiffs'-appellees'
property right. For this, nominal damages in the amount of P10,000.00 may be
granted. (Article 2221, Civil Code). (p. 18, Rollo)
No compelling reason exists to justify the reversal of the ruling of the respondent
appellate court in the case at bar. Article 2222 of the Civil Code states that the court
may award nominal damages in every obligation arising from any source
enumerated in Article 1157, or in every case where any property right has been
invaded. Considering the circumstances of the case, the respondent corporation is
entitled to the award of nominal damages.
ACCORDINGLY, the petition is DENIED and the assailed decision of the respondent
appellate court dated May 27, 1991 is AFFIRMED.
SO ORDERED.
G.R. No. L-8325

March 10, 1914

C. B. WILLIAMS, plaintiff-appellant,
vs.
TEODORO R. YANGCO, defendant-appellant.
William A. Kincaid and Thomas L. Hartigan for plaintiff.
Haussermann, Cohn, & Fisher fro defendant.
CARSON, J.:
The steamer Subic, owned by the defendant, collided with the lunch Euclid owned
by the plaintiff, in the Bay of Manila at an early hour on the morning of January 9,
1911, and the Euclid sank five minutes thereafter. This action was brought to
recover the value of the Euclid.

The court below held from the evidence submitted that the Euclid was worth at a
fair valuation P10,000; that both vessels were responsible for the collision; and that
the loss should be divided equally between the respective owners, P5,000 to be
paid the plaintiff by the defendant, and P5,000 to be borne by the plaintiff himself.
From this judgment both defendant and plaintiff appealed.
After a careful review of all the evidence of record we are all agreed with the trial
judge in his holding that the responsible officers on both vessels were negligent in
the performance of their duties at the time when the accident occurred, and that
both vessels were to blame for the collision. We do not deem it necessary to review
the conflicting testimony of the witnesses called by both parties, the trial also
having inserted in his opinion a careful and critical summary and analysis of the
testimony submitted to him, which, to our minds, fully and satisfactorily disposes of
the evidence are set forth in the following language (translated):
In view of the negligence of which the patron Millonario (of defendant's vessel) has
been guilty as well as that imputable to the patron of the launch Euclid, both
contributed in a decided manner and beyond all doubt to the occurrence of the
accident and the consequent damages resulting therefrom in the loss of the launch
Euclid.
With a little diligence which either of the two patrons might have practiced under
the circumstances existing at the time of the collision, if both had not been so
distracted and so negligent in the fulfillment of their respective duties, the disaster
could have been easily avoided, since the sea was free of obstacles and the night
one which permitted the patron Millonario to distinguish the hull of the launch
twenty minutes before the latter entered upon his path . . .
There is proven, therefore, the negligence of which the patron of the Euclid has
been guilty.
If the negligence by which the patron of the launch Euclid has contributed to the
cause of the accident and to the resulting damages is patent, none the less so is the
negligence of the patron of the steamer Subic, Hilarion Millonario by name, as may
be seen from his own testimony which is here copied for the better appreciation
thereof.
It will be seen that the trial judge was of opinion that the vessels were jointly liable
for the loss resulting from the sinking of the launch. But actions for damages
resulting from maritime collisions are governed in this jurisdiction by the provisions
of section 3, title 4, Book III of the Code of Commerce, and among these provisions
we find the following:
ART. 827. If both vessels may be blamed for the collision, each one shall be liable for
its own damages, and both shall be jointly responsible for the loss and damages
suffered by their cargoes.

In disposing of this case the trial judge apparently had in mind that portion of the
section which treats of the joint liability of both vessels for loss or damages suffered
by their cargoes. In the case at bar, however, the only loss incurred was that of the
launch Euclid itself, which went to the bottom soon after the collision. Manifestly,
under the plain terms of the statute, since the evidence of record clearly discloses,
as found by the trail judge, that "both vessels may be blamed for the collision,"
each one must be held may be blamed for it own damages, and the owner of
neither one can recover from the other in an action for damages to his vessel.
Counsel for the plaintiff, basing his contention upon the theory of the facts as
contended for by him, insisted that under he doctrine of "the last clear chance," the
defendant should be held liable because, as he insists, even if the officers on board
the plaintiff's launch were negligence in failing to exhibit proper lights and in failing
to take the proper steps to keep out of the path of the defendant's vessel,
nevertheless the officers on defendant's vessel, by the exercise of due precautions
might have avoided the collision by a very simple manuever. But it is sufficient
answer to this contention to point out that the rule of liability in this jurisdiction for
maritime accidents such as that now under consideration is clearly, definitely, and
unequivocally laid down in the above-cited article 827 of the Code of Commerce;
and under that rule, the evidence disclosing that both vessels were blameworthy,
the owners of either can successfully maintain an action against the other for the
loss or injury of his vessel.
In cases of a disaster arising from the mutual negligence of two parties, the party
who has a last clear opportunity of avoiding the accident, notwithstanding the
negligence of his opponent, is considered wholly responsible for it under the
common-law rule of liability as applied in the courts of common law of the United
States. But this rule (which is not recognized in the courts of admiralty in the United
States, wherein the loss is divided in cases of mutual and concurring negligence, as
also where the error of one vessel has exposed her to danger of collision which was
consummated by he further rule, that where the previous application by the further
rule, that where the previous act of negligence of one vessel has created a position
of danger, the other vessel is not necessarily liable for the mere failure to recognize
the perilous situation; and it is only when in fact it does discover it in time to avoid
the casualty by the use of ordinary care, that it becomes liable for the failure to
make use of this last clear opportunity to avoid the accident. (See cases cited in
Notes, 7 Cyc., pp. 311, 312, 313.) So, under the English rule which conforms very
nearly to the common-law rule as applied in the American courts, it has been held
that the fault of the first vessel in failing to exhibit proper lights or to take the
proper side of the channel will relieve from liability one who negligently runs into
such vessels before he sees it; although it will not be a defense to one who, having
timely warning of the danger of collision, fails to use proper care to avoid it. (Pollock
on Torts, 374.) In the case at bar, the most that can be said in support of plaintiff's
contention is that there was negligence on the part of the officers on defendant's

vessel in failing to recognize the perilous situation created by the negligence of

those in charge of plaintiff's launch, and that had they recognized it in time, they
might have avoided the accident. But since it does not appear from the evidence
that they did, in fact, discover the perilous situation of the launch in time to avoid
the accident by the exercise of ordinary care, it is very clear that under the above
set out limitation to the rule, the plaintiff cannot escape the legal consequences of
the contributory negligence of his launch, even were we to hold that the doctrine is
applicable in the jurisdiction, upon which point we expressly reserve our decision at
this time.
The judgment of the court below in favor of the plaintiff and against the defendant
should be reserved, and the plaintiff's complaint should be dismissed without day,
without costs to either party in this instance. So ordered.
G.R. Nos. 111202-05

January 31, 2006

COMMISSIONER OF CUSTOMS, Petitioner,

vs.
THE COURT OF APPEALS; Honorable Arsenio M. Gonong, Presiding Judge
Regional Trial Court, Manila, Branch 8; Honorable MAURO T. ALLARDE,
Presiding Judge, REGIONAL TRIAL COURT Kalookan City, Branch 123;
AMADO SEVILLA and ANTONIO VELASCO, Special Sheriffs of Manila;
JOVENAL SALAYON, Special Sheriff of Kalookan City, DIONISIO J.
CAMANGON, Ex-Deputy Sheriff of Manila and CESAR S. URBINO, SR., doing
business under the name and style "Duraproof Services," Respondents.
DECISION
AZCUNA, J.:
These Petitions for Certiorari and Prohibition, with Prayers for a Writ of Preliminary
Injunction and/or Temporary Restraining Order, are the culmination of several court
cases wherein several resolutions and decisions are sought to be annulled.
Petitioner Commissioner of Customs specifically assails the following:
A) Decision of the Regional Trial Court (RTC) of Manila dated February 18, 1991 in
Civil Case No. 89-51451;
B) Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case No. C-234;
C) Resolution of the Court of Appeals (CA) dated March 6, 1992 in CA-G.R. SP No.
24669;
D) Resolution of the CA dated August 6, 1992 in CA-G.R. SP No. 28387;
E) Resolution of the CA dated November 10, 1992 in CA-G.R. SP No. 29317;
F) Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746; and

G) Decision of the CA dated July 19, 1993 in the consolidated petitions of CA-G.R. SP
Nos. 24669, 28387 and 29317.
Petitioner also seeks to prohibit the CA and the RTC of Kalookan 1 from further acting
in CA-G.R. CV No. 32746 and Civil Case No. 234, respectively.
The whole controversy revolves around a vessel and its cargo. On January 7, 1989,
the vessel M/V "Star Ace," coming from Singapore laden with cargo, entered the Port
of San Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had
an appraised value, at that time, of more or less Two Hundred Million Pesos
(P200,000,000). When the Bureau of Customs later became suspicious that the
vessels real purpose in docking was to smuggle its cargo into the country, seizure
proceedings were instituted under S.I. Nos. 02-89 and 03-89 and, subsequently, two
Warrants of Seizure and Detention were issued for the vessel and its cargo.1awph!
l.net
Respondent Cesar S. Urbino, Sr., does not own the vessel or any of its cargo but
claimed a preferred maritime lien under a Salvage Agreement dated June 8, 1989.
To protect his claim, Urbino initially filed two motions in the seizure and detention
cases: a Motion to Dismiss and a Motion to Lift Warrant of Seizure and
Detention.2Apparently not content with his administrative remedies, Urbino sought
relief with the regular courts by filing a case for Prohibition, Mandamus and
Damages before the RTC of SFLU3 on July 26, 1989, seeking to restrain the District
Collector of Customs from interfering with his salvage operation. The case was
docketed as Civil Case No. 89-4267. On January 31, 1991 the RTC of SFLU dismissed
the case for lack of jurisdiction because of the pending seizure and detention cases.
Urbino then elevated the matter to the CA where it was docketed as CA-G.R. CV No.
32746. The Commissioner of Customs, in response, filed a Motion to Suspend
Proceedings, advising the CA that it intends to question the jurisdiction of the CA
before this Court. The motion was denied on May 31, 1993. Hence, in this petition
the Commissioner of Customs assails the Resolution "F" recited above and seeks to
prohibit the CA from continuing to hear the case.
On January 9, 1990, while Civil Case No. 89-4267 was pending, Urbino filed another
case for Certiorari and Mandamus with the RTC of Manila, presided by Judge Arsenio
M. Gonong,4 this time to enforce his maritime lien. Impleaded as defendants were
the Commissioner of Customs, the District Collector of Customs, the owners of the
vessel and cargo, Vlason Enterprises, Singkong Trading Company, Banco do Brazil,
Dusit International Company Incorporated, Thai-Nam Enterprises Limited, ThaiUnited Trading Company Incorporated and Omega Sea Transport Company, and the
vessel M/V "Star Ace." This case was docketed as Civil Case No. 89-51451. The
Office of the Solicitor General filed a Motion to Dismiss on the ground that a similar
case was pending with the RTC of SFLU. The Motion to Dismiss was granted on July
2, 1990, but only insofar as the Commissioner of Customs and the District Collector
were concerned. The RTC of Manila proceeded to hear the case against the other

parties and received evidence ex parte. The RTC of Manila later rendered a decision
on February 18, 1991 finding in favor of Urbino (assailed Decision "A" recited
above).
Thereafter, on March 13, 1991, a writ of execution was issued by the RTC of Manila.
Respondent Camangon was appointed as Special Sheriff to execute the decision and
he issued a notice of levy and sale against the vessel and its cargo. The
Commissioner of Customs, upon learning of the notice of levy and sale, filed with
the RTC of Manila a motion to recall the writ, but before it could be acted upon,
Camangon had auctioned off the vessel and the cargo to Urbino for One Hundred
and Twenty Million Pesos (P120,000,000). The following day, Judge Gonong issued
an order commanding Sheriff Camangon to cease and desist from implementing the
writ. Despite the order, Camangon issued a Certificate of Sale in favor of Urbino. A
week later, Judge Gonong issued another order recalling the writ of execution. Both
cease and desist and recall orders of Judge Gonong were elevated by Urbino to the
CA on April 12, 1991 where it was docketed as CA-G.R. SP No. 24669. On April 26,
1991, the CA issued a Temporary Restraining Order (TRO) enjoining the RTC of
Manila from enforcing its cease and desist and recall orders. The TRO was
eventually substituted by a writ of preliminary injunction. A motion to lift the
injunction was filed by the Commissioner of Customs but it was denied. Hence, in
this petition the Commissioner of Customs assails Resolution "C" recited above.
On May 8, 1991, Urbino attempted to enforce the RTC of Manilas decision and the
Certificate of Sale against the Bureau of Customs by filing a third case, a Petition for
Certiorari, Prohibition and Mandamus with the RTC of Kaloocan. 5 The case was
docketed as Civil Case No. 234. On May 28, 1991, the RTC of Kaloocan ordered the
issuance of a writ of preliminary injunction to enjoin the Philippine Ports Authority
and the Bureau of Customs from interfering with the relocation of the vessel and its
cargo by Urbino (assailed Order "B" recited above).1awph!l.net
Meanwhile, on June 5, 1992, Camangon filed his Sheriffs Return with the Clerk of
Court. On June 26, 1992, the Executive Judge for the RTC of Manila, Judge Bernardo
P. Pardo,6 having been informed of the circumstances of the sale, issued an order
nullifying the report and all proceedings taken in connection therewith. With this
order Urbino filed his fourth case with the CA on July 15, 1992, a Petition for
Certiorari, Prohibition and Mandamus against Judge Pardo. This became CA-G.R. SP
No. 28387. The CA issued a Resolution on August 6, 1992 granting the TRO against
the Executive Judge to enjoin the implementation of his June 26, 1992 Order. Hence,
in this petition the Commissioner of Customs assails Resolution "D" recited above.
Going back to the seizure and detention proceedings, the decision of the District
Collector of Customs was to forfeit the vessel and cargo in favor of the Government.
This decision was affirmed by the Commissioner of Customs. Three appeals were
then filed with the Court of Tax Appeals (CTA) by different parties, excluding Urbino,
who claimed an interest in the vessel and cargo. These three cases were docketed

as CTA Case No. 4492, CTA Case No. 4494 and CTA Case No. 4500. Urbino filed his
own case, CTA Case No. 4497, but it was dismissed for want of capacity to sue. He,
however, was allowed to intervene in CTA Case No. 4500. On October 5, 1992, the
CTA issued an order authorizing the Commissioner of Customs to assign customs
police and guards around the vessel and to conduct an inventory of the cargo. In
response, on November 3, 1992, Urbino filed a fifth Petition for Certiorari and
Prohibition with the CA to assail the order as well as the jurisdiction of the Presiding
Judge and Associate Judges of the CTA in the three cases. That case was docketed
as CA G.R. SP No. 29317. On November 10, 1992, the CA issued a Resolution
reminding the parties that the vessel is under the control of the appellate court in
CA-G.R. SP No. 24669 (assailed Resolution "E" recited above).
CA-G.R. SP Nos. 24669, 28387 and 29317 were later consolidated and the CA issued
a joint Decision in July 19, 1993 nullifying and setting aside: 1) the Order recalling
the writ of execution by Judge Gonong of the the RTC of Manila; 2) the Order of
Executive Judge Pardo of the RTC of Manila nullifying the Sheriffs Report and all
proceedings connected therewith; and 3) the October 19, 1993 Order of the CTA, on
the ground of lack of jurisdiction. Hence, in these petitions, which have been
consolidated, the Commissioner of Customs assails Decision "G" recited
above.1awph!l.net
For purposes of deciding these petitions, the assailed Decisions and Resolutions will
be divided into three groups:
1. The Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746 with the
additional prayer to enjoin the CA from deciding the said case.
2. The Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case No. C234 with the additional prayer to enjoin the RTC of Kalookan from proceeding with
said case.
3. The Decision of the RTC of Manila dated February 18, 1991 in Civil Case No. 8951451, the Resolutions of the CA dated March 6, 1992, August 6, 1992, November
10, 1992 and the Decision of the CA dated July 19, 1993 in the consolidated
petitions CA-G.R. SP Nos. 24669, 28387 and 29317.
First Group
The Commissioner of Customs seeks to nullify the Resolution of the CA dated May
31, 1993 denying the Motion to Suspend Proceedings and to prohibit the CA from
further proceeding in CA-G.R. No. CV-32746 for lack of jurisdiction. This issue can be
easily disposed of as it appears that the petition has become moot and academic,
with the CA having terminated CA-G.R. No. CV-32746 by rendering its Decision on
May 13, 2002 upholding the dismissal of the case by the RTC of SFLU for lack of
jurisdiction, a finding that sustains the position of the Commissioner of Customs.
This decision became final and entry of judgment was made on June 14, 2002. 7

Second Group
The Court now proceeds to consider the Order granting an injunction dated May 28,
1991 in Civil Case No. C-234 issued by the RTC of Kalookan. The Commissioner of
Customs seeks its nullification and to prohibit the RTC of Kalookan from further
proceeding with the case.
The RTC of Kalookan issued the Order against the Philippine Ports Authority and
Bureau of Customs solely on the basis of Urbinos alleged ownership over the vessel
by virtue of his certificate of sale. By this the RTC of Kalookan committed a serious
and reversible error in interfering with the jurisdiction of customs authorities and
should have dismissed the petition outright. In Mison v. Natividad,8 this Court held
that the exclusive jurisdiction of the Collector of Customs cannot be interfered with
by regular courts even upon allegations of ownership.
To summarize the facts in that case, a warrant of seizure and detention was issued
against therein plaintiff over a number of
vehicles found in his residence for violation of customs laws. Plaintiff then filed a
complaint before the RTC of Pampanga alleging that he is the registered owner of
certain vehicles which the Bureau of Customs are threatening to seize and praying
that the latter be enjoined from doing so. The RTC of Pampanga issued a TRO and
eventually, thereafter, substituted it with a writ of preliminary injunction. This Court
found that the proceedings conducted by the trial court were null and void as it had
no jurisdiction over the res subject of the warrant of seizure and detention, holding
that:
A warrant of seizure and detention having already been issued, presumably in the
regular course of official duty, the Regional Trial Court of Pampanga was
indisputably precluded from interfering in said proceedings. That in his complaint in
Civil Case No. 8109 private respondent alleges ownership over several vehicles
which are legally registered in his name, having paid all the taxes and
corresponding licenses incident thereto, neither divests the Collector of Customs of
such jurisdiction nor confers upon said trial court regular jurisdiction over the case.
Ownership of goods or the legality of its acquisition can be raised as defenses in a
seizure proceeding; if this were not so, the procedure carefully delineated by law for
seizure and forfeiture cases may easily be thwarted and set to naught by scheming
parties. Even the illegality of the warrant of seizure and detention cannot justify the
trial courts interference with the Collectors jurisdiction. In the first place, there is a
distinction between the existence of the Collectors power to issue it and the
regularity of the proceeding taken under such power. In the second place, even if
there be such an irregularity in the latter, the Regional Trial Court does not have the
competence to review, modify or reverse whatever conclusions may result
therefrom x x x.

The facts in this case are like those in that case. Urbino claimed to be the owner of
the vessel and he sought to restrain the PPA and the Bureau of Customs from
interfering with his rights as owner. His remedy, therefore, was not with the RTC but
with the CTA where the seizure and detention cases are now pending and where he
was already allowed to intervene.
Moreover, this Court, on numerous occasions, cautioned judges in their issuance of
temporary restraining orders and writs of preliminary injunction against the
Collector of Customs based on the principle enunciated in Mison v. Natividad and
has issued Administrative Circular No. 7-99 to carry out this policy. 9 This Court again
reminds all concerned that the rule is clear: the Collector of Customs has exclusive
jurisdiction over seizure and forfeiture proceedings and trial courts are precluded
from assuming cognizance over such matters even through petitions for certiorari,
prohibition or mandamus.
Third Group
The Decision of the RTC of Manila dated February 18, 1991 has the following
dispositive portion:
WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations, prayer and
evidence adduced, both testimonial and documentary, the Court is convinced, that,
indeed, defendants/respondents are liable to plaintiff/petitioner in the amount
prayed for in the petition for which [it] renders judgment as follows:
1. Respondent M/V Star Ace, represented by Capt. Nahum Rada, Relief Captain of
the vessel and Omega Sea Transport Company, Inc., represented by Frank Cadacio
is ordered to refrain from alienating or transfer[r]ing the vessel M/V Star Ace to any
third parties;
2. Singko Trading Company to pay the following:
a. Taxes due the Government;
b. Salvage fees on the vessel in the amount of $1,000,000.00 based on the Lloyds
Standard Form of Salvage Agreement;
c. Preservation, securing and guarding fees on the vessel in the amount of
$225,000.00;
d. Salaries of the crew from August 16, 1989 to December, in the amount of
$43,000.00 and unpaid salaries from January 1990 up to the present;
e. Attorneys fees in the amount of P656,000.00;
3. Vlazon Enterprises to pay plaintiff in the amount of P3,000,000.00 for damages;

4. Banco do Brazil to pay plaintiff in the amount of $300,000.00 in damages; and

finally,
5. Costs of suit.
SO ORDERED.
On the other hand, the CA Resolutions are similar orders for the issuance of a writ of
preliminary injunction to enjoin Judge Gonong and Judge Pardo from enforcing their
recall and nullification orders and the CTA from exercising jurisdiction over the case,
to preserve the status quo pending resolution of the three petitions.
Finally, the Decision of the CA dated July 19, 1993 disposed of all three petitions in
favor of Urbino, and has the following dispositive portion:
ACCORDINGLY, in view of the foregoing disquisitions, all the three (3) consolidated
petitions for certiorari are hereby GRANTED.
THE assailed Order of respondent Judge Arsenio Gonong of the Regional Trial Court
of Manila, Branch 8, dated, April 5, 1991, in the first assailed petition for certiorari
(CA-G.R. SP No. 24669); the assailed Order of Judge Bernardo Pardo, Executive
Judge of the Regional Trial Court of Manila, Branch 8, dated July 6, 1992, in the
second petition for certiorari (CA-G.R. SP No. 28387); and Finally, the assailed order
or Resolution en banc of the respondent Court of Tax Appeals[,] Judges Ernesto
Acosta, Ramon de Veyra and Manuel Gruba, under date of October 5, 1992, in the
third petition for certiorari (CA-G.R. SP No. 29317) are all hereby NULLIFIED and SET
ASIDE thereby giving way to the entire decision dated February 18, 1991 of the
respondent Regional Trial Court of Manila, Branch 8, in Civil Case No. 89-51451
which remains valid, final and executory, if not yet wholly executed.
THE writ of preliminary injunction heretofore issued by this Court on March 6, 1992
and reiterated on July 22, 1992 and this date against the named respondents
specified in the dispositive portion of the judgment of the respondent Regional Trial
Court of Manila, Branch 8, in the first petition for certiorari,
which remains valid, existing and enforceable, is hereby MADE
PERMANENT without prejudice (1) to the petitioners remaining unpaid obligations to
herein party-intervenor in accordance with the Compromise Agreement or in
connection with the decision of the respondent lower court in CA-G.R. SP No. 24669
and (2) to the government, in relation to the forthcoming decision of the respondent
Court of Tax Appeals on the amount of taxes, charges, assessments or obligations
that are due, as totally secured and fully guaranteed payment by petitioners bond,
subject to relevant rulings of the Department of Finance and other prevailing laws
and jurisprudence.
We make no pronouncement as to costs.
SO ORDERED.

The Court rules in favor of the Commissioner of Customs.

First of all, the Court finds the decision of the RTC of Manila, in so far as it relates to
the vessel M/V "Star Ace," to be void as jurisdiction was never acquired over the
vessel.10 In filing the case, Urbino had impleaded the vessel as a defendant to
enforce his alleged maritime lien. This meant that he brought an action in
rem under the Code of Commerce under which the vessel may be attached and
sold.11 However, the basic operative fact for the institution and perfection of
proceedings in rem is the actual or constructive possession of the res by the
tribunal empowered by law to conduct the proceedings. 12 This means that to acquire
jurisdiction over the vessel, as a defendant, the trial court must have obtained
either actual or constructive possession over it. Neither was accomplished by the
RTC of Manila.
In his comment to the petition, Urbino plainly stated that "petitioner has actual[sic]
physical custody not only of the goods and/or cargo but the subject vessel, M/V Star
Ace, as well."13 This is clearly an admission that the RTC of Manila did not have
jurisdiction over the res. While Urbino contends that the Commissioner of Customs
custody was illegal, such fact, even if true, does not deprive the Commissioner of
Customs of jurisdiction thereon. This is a question that ought to be resolved in the
seizure and forfeiture cases, which are now pending with the CTA, and not by the
regular courts as a collateral matter to enforce his lien. By simply filing a case in
rem against the vessel, despite its being in the custody of customs officials, Urbino
has circumvented the rule that regular trial courts are devoid of any competence to
pass upon the validity or regularity of seizure and forfeiture proceedings conducted
in the Bureau of Customs, on his mere assertion that the administrative proceedings
were a nullity.14
On the other hand, the Bureau of Customs had acquired jurisdiction over
the res ahead and to the exclusion of the RTC of Manila. The forfeiture proceedings
conducted by the Bureau of Customs are in the nature of proceedings in rem15 and
jurisdiction was obtained from the moment the vessel entered the SFLU port.
Moreover, there is no question that forfeiture proceedings were instituted and the
vessel was seized even before the filing of the RTC of Manila case.
The Court is aware that Urbino seeks to enforce a maritime lien and, because of its
nature, it is equivalent to an attachment from the time of its
existence.16 Nevertheless, despite his liens constructive attachment, Urbino still
cannot claim an advantage as his lien only came about after the warrant of seizure
and detention was issued and implemented. The Salvage Agreement, upon which
Urbino based his lien, was entered into on June 8, 1989. The warrants of seizure and
detention, on the other hand, were issued on January 19 and 20, 1989. And to
remove further doubts that the forfeiture case takes precedence over the RTC of
Manila case, it should be noted that forfeiture retroacts to the date of the
commission of the offense, in this case the day the vessel entered the country. 17 A

maritime lien, in contrast, relates back to the period when it first attached, 18 in this
case the earliest retroactive date can only be the date of the Salvage Agreement.
Thus, when the vessel and its cargo are ordered forfeited, the effect will retroact to
the moment the vessel entered Philippine waters.
Accordingly, the RTC of Manila decision never attained finality as to the defendant
vessel, inasmuch as no jurisdiction was acquired over it, and the decision cannot be
binding and the writ of execution issued in connection therewith is null and void.
Moreover, even assuming that execution can be made against the vessel and its
cargo, as goods and chattels to satisfy the liabilities of the other defendants who
have an interest therein, the RTC of Manila may not execute its decision against
them while, as found by this Court, these are under the proper and lawful custody of
the Bureau of Customs.19 This is especially true when, in case of finality of the order
of forfeiture, the execution cannot anymore cover the vessel and cargo as
ownership of the Government will retroact to the date of entry of the vessel into
Philippine waters.
As regards the jurisdiction of the CTA, the CA was clearly in error when it issued an
injunction against it from deciding the forfeiture case on the basis that it interfered
with the subject of ownership over the vessel which was, according to the CA,
beyond the jurisdiction of the CTA. Firstly, the execution of the Decision against the
vessel and cargo, as aforesaid, was a nullity and therefore the sale of the vessel was
invalid. Without a valid certificate of sale, there can be no claim of ownership which
Urbino can present against the Government. Secondly, as previously stated,
allegations of ownership neither divest the Collector of Customs of such jurisdiction
nor confer upon the trial court jurisdiction over the case. Ownership of goods or the
legality of its acquisition can be raised as defenses in a seizure proceeding. 20 The
actions of the Collectors of Customs are appealable to the Commissioner of
Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of
the CTA.21Clearly, issues of ownership over goods in the custody of custom officials
are within the power of the CTA to determine.1awphi1.net
WHEREFORE, the consolidated petitions are GRANTED. The Decision of the
Regional Trial Court of Manila dated February 18, 1991 in Civil Case No. 89-51451,
insofar as it affects the vessel M/V "Star Ace," the Order of the Regional Trial Court
of Kalookan dated May 28, 1991 in Special Civil Case No. C-234, the Resolution of
the Court of Appeals dated March 6, 1992 in CA-G.R. SP No. 24669, the Resolution of
the Court of Appeals dated August 6, 1992 in CA-G.R. SP No. 28387, the Resolution
of the Court of Appeals dated November 10, 1992 in CA-G.R. SP No. 29317 and the
Decision of the Court of Appeals dated July 19, 1993 in the consolidated petitions in
CA-G.R. SP Nos. 24669, 28387 and 29317 are all SET ASIDE. The Regional Trial
Court of Kalookan is enjoined from further acting in Special Civil Case No. C-234.
The Order of respondent Judge Arsenio M. Gonong dated April 5, 1991 and the Order
of then Judge Bernardo P. Pardo dated June 26, 1992 are REINSTATED. The Court of

Tax Appeals is ordered to proceed with CTA Case No. 4492, CTA Case No. 4494 and
CTA Case No. 4500. No pronouncement as to costs.
SO ORDERED.
G.R. No. 161833. July 8, 2005
PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioners,
vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR," NATIONAL
SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL
CONTAINER SERVICES, INC., Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil
Procedure assailing the Decision1dated January 19, 2004 of the Court of Appeals
(CA) in CA-G.R. CV No. 57357 which affirmed the Decision dated February 17, 1997
of the Regional Trial Court (RTC) of Manila, Branch 37, in Civil Case No. 95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four
units of parts and accessories in the port of Pusan, Korea, on board the vessel
M/V "National Honor," represented in the Philippines by its agent, National Shipping
Corporation of the Philippines (NSCP). The shipment was for delivery to Manila,
Philippines. Freight forwarder, Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No.
SH94103062 in the name of the shipper consigned to the order of Metropolitan Bank
and Trust Company with arrival notice in Manila to ultimate consignee Blue Mono
International Company, Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 3 in the name of the
freight forwarder, as shipper, consigned to the order of Stamm International Inc.,
Makati, Philippines. It is provided therein that:
12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in
apparent good order and condition except as, otherwise, noted of the total number
of Containers or other packages or units enumerated overleaf. Proof to the contrary
shall be admissible when this Bill of Lading has been transferred to a third party
acting in good faith. No representation is made by the Carrier as to the weight,
contents, measure, quantity, quality, description, condition, marks, numbers, or
value of the Goods and the Carrier shall be under no responsibility whatsoever in
respect of such description or particulars.

13. The shipper, whether principal or agent, represents and warrants that the goods
are properly described, marked, secured, and packed and may be handled in
ordinary course without damage to the goods, ship, or property or persons and
guarantees the correctness of the particulars, weight or each piece or package and
description of the goods and agrees to ascertain and to disclose in writing on
shipment, any condition, nature, quality, ingredient or characteristic that may cause
damage, injury or detriment to the goods, other property, the ship or to persons,
and for the failure to do so the shipper agrees to be liable for and fully indemnify
the carrier and hold it harmless in respect of any injury or death of any person and
loss or damage to cargo or property. The carrier shall be responsible as to the
correctness of any such mark, descriptions or representations. 4
The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate
No. 2, complete and in good order condition, covered by Commercial Invoice No. YJ73564 DTD5 and a Packing List.6 There were no markings on the outer portion of the
crates except the name of the consignee.7 Crate No. 1 measured 24 cubic meters
and weighed 3,620 kgs. It contained the following articles: one (1) unit Lathe
Machine complete with parts and accessories; one (1) unit Surface Grinder complete
with parts and accessories; and one (1) unit Milling Machine complete with parts
and accessories. On the flooring of the wooden crates were three wooden battens
placed side by side to support the weight of the cargo. Crate No. 2, on the other
hand, measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine was
stuffed in the crate. The shipment had a total invoice value of US$90,000.00 C&F
Manila.8 It was insured for P2,547,270.00 with the Philippine Charter Insurance
Corporation (PCIC) thru its general agent, Family Insurance and Investment
Corporation,9 under Marine Risk Note No. 68043 dated October 24, 1994. 10
The M/V "National Honor" arrived at the Manila International Container Terminal
(MICT) on November 14, 1995. The International Container Terminal Services,
Incorporated (ICTSI) was furnished with a copy of the crate cargo list and bill of
lading, and it knew the contents of the crate. 11 The following day, the vessel started
discharging its cargoes using its winch crane. The crane was operated by Olegario
Balsa, a winchman from the ICTSI,12 the exclusive arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the
surveyor of the ICTSI, conducted an inspection of the cargo. 13 They inspected the
hatches, checked the cargo and found it in apparent good condition. 14 Claudio
Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate
No. 1.15 No sling cable was fastened on the mid-portion of the crate. In Dauzs
experience, this was a normal procedure.16 As the crate was being hoisted from the
vessels hatch, the mid-portion of the wooden flooring suddenly snapped in the air,
about five feet high from the vessels twin deck, sending all its contents crashing
down hard,17 resulting in extensive damage to the shipment.

BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such
damaged condition.18 Upon receipt of the damaged shipment, BMICI found that the
same could no longer be used for the intended purpose. The Mariners Adjustment
Corporation hired by PCIC conducted a survey and declared that the packing of the
shipment was considered insufficient. It ruled out the possibility of taxes due to
insufficiency of packing. It opined that three to four pieces of cable or wire rope
slings, held in all equal setting, never by-passing the center of the crate, should
have been used, considering that the crate contained heavy machinery. 19
BMICI subsequently filed separate claims against the NSCP, 20 the ICTSI,21 and its
insurer, the PCIC,22 for US$61,500.00. When the other companies denied liability,
PCIC paid the claim and was issued a Subrogation Receipt 23 for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a
Complaint for Damages24against the "Unknown owner of the vessel M/V National
Honor," NSCP and ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It
prayed, among others
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be
rendered ordering defendants to pay plaintiff, jointly or in the alternative, the
following:
1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of
the filing of this complaint until fully paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.25
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its codefendant NSCP, claiming that the loss/damage of the shipment was caused
exclusively by the defective material of the wooden battens of the shipment,
insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the
wooden battens placed on the wooden flooring of the crate was of good material
but was not strong enough to support the weight of the machines inside the crate.
He averred that most stevedores did not know how to read and write; hence, he
placed the sling cables only on those portions of the crate where the arrow signs
were placed, as in the case of fragile cargo. He said that unless otherwise indicated
by arrow signs, the ICTSI used only two cable slings on each side of the crate and
would not place a sling cable in the mid-section. 26 He declared that the crate fell
from the cranes because the wooden batten in the mid-portion was broken as it was
being lifted.27 He concluded that the loss/damage was caused by the failure of the
shipper or its packer to place wooden battens of strong materials under the flooring

of the crate, and to place a sign in its mid-term section where the sling cables would
be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the
damage to the cargo could be attributed to insufficient packing and unbalanced
weight distribution of the cargo inside the crate as evidenced by the types and
shapes of items found.28
The trial court rendered judgment for PCIC and ordered the complaint dismissed,
thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the
two defendants are dismissed, with costs against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained in Crate No. 1 was
due to the internal defect and weakness of the materials used in the fabrication of
the crates. The middle wooden batten had a hole (bukong-bukong). The trial court
rejected the certification30 of the shipper, stating that the shipment was properly
packed and secured, as mere hearsay and devoid of any evidentiary weight, the
affiant not having testified.
Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19,
2004 affirming in toto the appealed decision, with this fallo
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated
February 17, 1997, is AFFIRMED.
SO ORDERED.32
The appellate court held, inter alia, that it was bound by the finding of facts of the
RTC, especially so where the evidence in support thereof is more than substantial. It
ratiocinated that the loss of the shipment was due to an excepted cause "[t]he
character of the goods or defects in the packing or in the containers" and the failure
of the shipper to indicate signs to notify the stevedores that extra care should be
employed in handling the shipment.33 It blamed the shipper for its failure to use
materials of stronger quality to support the heavy machines and to indicate an
arrow in the middle portion of the cargo where additional slings should be
attached.34 The CA concluded that common carriers are not absolute insurers
against all risks in the transport of the goods. 35
Hence, this petition by the PCIC, where it alleges that:
I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING

THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY
THE SHIPMENT IN THE POSSESSION OF THE ARRASTRE OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING THE
STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING THAT
THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING
AND NOT TO THE FAULT AND NEGLIGENCE OF THE RESPONDENTS. 36
The petitioner asserts that the mere proof of receipt of the shipment by the
common carrier (to the carrier) in good order, and their arrival at the place of
destination in bad order makes out a prima facie case against it; in such case, it is
liable for the loss or damage to the cargo absent satisfactory explanation given by
the carrier as to the exercise of extraordinary diligence. The petitioner avers that
the shipment was sufficiently packed in wooden boxes, as shown by the fact that it
was accepted on board the vessel and arrived in Manila safely. It emphasizes that
the respondents did not contest the contents of the bill of lading, and that the
respondents knew that the manner and condition of the packing of the cargo was
normal and barren of defects. It maintains that it behooved the respondent ICTSI to
place three to four cables or wire slings in equal settings, including the center
portion of the crate to prevent damage to the cargo:
[A] simple look at the manifesto of the cargo and the bill of lading would have
alerted respondents of the nature of the cargo consisting of thick and heavy
machinery. Extra-care should have been made and extended in the discharge of the
subject shipment. Had the respondent only bothered to check the list of its
contents, they would have been nervous enough to place additional slings and
cables to support those massive machines, which were composed almost entirely of
thick steel, clearly intended for heavy industries. As indicated in the list, the boxes
contained one lat[h]e machine, one milling machine and one grinding machine-all
coming with complete parts and accessories. Yet, not one among the respondents
were cautious enough. Here lies the utter failure of the respondents to observed
extraordinary diligence in the handling of the cargo in their custody and possession,
which the Court of Appeals should have readily observed in its appreciation of the
pertinent facts.37
The petitioner posits that the loss/damage was caused by the mishandling of the
shipment by therein respondent ICTSI, the arrastre operator, and not by its
negligence.

The petitioner insists that the respondents did not observe extraordinary diligence
in the care of the goods. It argues that in the performance of its obligations, the
respondent ICTSI should observe the same degree of diligence as that required of a
common carrier under the New Civil Code of the Philippines. Citing Eastern Shipping
Lines, Inc. v. Court of Appeals,38 it posits that respondents are liable in solidum to it,
inasmuch as both are charged with the obligation to deliver the goods in good
condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not
solidarily liable with it. It further avers that the "carrier cannot discharge directly to
the consignee because cargo discharging is the monopoly of the arrastre." Liability,
therefore, falls solely upon the shoulder of respondent ICTSI, inasmuch as the
discharging of cargoes from the vessel was its exclusive responsibility. Besides, the
petitioner is raising questions of facts, improper in a petition for review
on certiorari.39
Respondent ICTSI avers that the issues raised are factual, hence, improper under
Rule 45 of the Rules of Court. It claims that it is merely a depository and not a
common carrier; hence, it is not obliged to exercise extraordinary diligence. It
reiterates that the loss/damage was caused by the failure of the shipper or his
packer to place a sign on the sides and middle portion of the crate that extra care
should be employed in handling the shipment, and that the middle wooden batten
on the flooring of the crate had a hole. The respondent asserts that the testimony of
Anthony Abarquez, who conducted his investigation at the site of the incident,
should prevail over that of Rolando Balatbat. As an alternative, it argues that if ever
adjudged liable, its liability is limited only to P3,500.00 as expressed in the liability
clause of Gate Pass CFS-BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only questions of law may be
entertained by this Court in a petition for review on certiorari. This rule, however, is
not ironclad and admits certain exceptions, such as when (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are
conflicting; (6) there is no citation of specific evidence on which the factual findings
are based; (7) the findings of absence of facts are contradicted by the presence of
evidence on record; (8) the findings of the Court of Appeals are contrary to those of
the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would justify a different conclusion;
(10) the findings of the Court of Appeals are beyond the issues of the case; and (11)
such findings are contrary to the admissions of both parties. 40

We have reviewed the records and find no justification to warrant the application of
any exception to the general rule.
We agree with the contention of the petitioner that common carriers, from the
nature of their business and for reasons of public policy, are mandated to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each
case.41 The Court has defined extraordinary diligence in the vigilance over the goods
as follows:
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage
and delivery. It requires common carriers to render service with the greatest skill
and foresight and "to use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires." 42
The common carriers duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed
in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance, by the person
entitled to receive them.43 When the goods shipped are either lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold it
liable.44 To overcome the presumption of negligence in the case of loss, destruction
or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence.45
However, under Article 1734 of the New Civil Code, the presumption of negligence
does not apply to any of the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the New Civil Code which
exempts the common carrier for the loss or damage to the cargo is a closed list. 46 To
exculpate itself from liability for the loss/damage to the cargo under any of the
causes, the common carrier is burdened to prove any of the aforecited causes

claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of

evidence is shifted to the shipper to prove that the carrier is negligent. 47
"Defect" is the want or absence of something necessary for completeness or
perfection; a lack or absence of something essential to completeness; a deficiency
in something essential to the proper use for the purpose for which a thing is to be
used.48 On the other hand, inferior means of poor quality, mediocre, or second
rate.49 A thing may be of inferior quality but not necessarily defective. In other
words, "defectiveness" is not synonymous with "inferiority."
In the present case, the trial court declared that based on the record, the loss of the
shipment was caused by the negligence of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The breakage and collapse
of Crate No. 1 and the total destruction of its contents were not imputable to any
fault or negligence on the part of said defendant in handling the unloading of the
cargoes from the carrying vessel, but was due solely to the inherent defect and
weakness of the materials used in the fabrication of said crate.
The crate should have three solid and strong wooden batten placed side by side
underneath or on the flooring of the crate to support the weight of its contents.
However, in the case of the crate in dispute, although there were three wooden
battens placed side by side on its flooring, the middle wooden batten, which carried
substantial volume of the weight of the crates contents, had a knot hole or
"bukong-bukong," which considerably affected, reduced and weakened its strength.
Because of the enormous weight of the machineries inside this crate, the middle
wooden batten gave way and collapsed. As the combined strength of the other two
wooden battens were not sufficient to hold and carry the load, they too
simultaneously with the middle wooden battens gave way and collapsed (TSN, Sept.
26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is
nothing in the record which would indicate that defendant ICTSI had any role in the
choice of the materials used in fabricating this crate. Said defendant, therefore,
cannot be held as blame worthy for the loss of the machineries contained in Crate
No. 1.50
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in Article 1734 of the
Civil Code, particularly number (4) thereof, i.e., the character of the goods or
defects in the packing or in the containers. The trial court found that the breakage
of the crate was not due to the fault or negligence of ICTSI, but to the inherent
defect and weakness of the materials used in the fabrication of the said crate.

Upon examination of the records, We find no compelling reason to depart from the
factual findings of the trial court.
It appears that the wooden batten used as support for the flooring was not made of
good materials, which caused the middle portion thereof to give way when it was
lifted. The shipper also failed to indicate signs to notify the stevedores that extra
care should be employed in handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and
responsibilities:
"Q: With regard to crates, what do you do with the crates?
A: Everyday with the crates, there is an arrow drawn where the sling is placed,
Maam.
Q: When the crates have arrows drawn and where you placed the slings, what do
you do with these crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with the crates?
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

Q: Now, what, if any, were written or were marked on the crate?

A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.
Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Maam.
Q: How many arrows did you see?
A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?

A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?

A: Nothing more, Maam.

Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts
where there are no arrows?
A: You can not place slings if there are no arrows, Maam."
Appellants allegation that since the cargo arrived safely from the port of [P]usan,
Korea without defect, the fault should be attributed to the arrastre operator who
mishandled the cargo, is without merit. The cargo fell while it was being carried only
at about five (5) feet high above the ground. It would not have so easily collapsed
had the cargo been properly packed. The shipper should have used materials of
stronger quality to support the heavy machines. Not only did the shipper fail to
properly pack the cargo, it also failed to indicate an arrow in the middle portion of
the cargo where additional slings should be attached. At any rate, the issue of
negligence is factual in nature and in this regard, it is settled that factual findings of
the lower courts are entitled to great weight and respect on appeal, and, in fact,
accorded finality when supported by substantial evidence. 51
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent ICTSI.
The petitioner failed to rebut the testimony of Dauz, that the crates were sealed and
that the contents thereof could not be seen from the outside. 52 While it is true that
the crate contained machineries and spare parts, it cannot thereby be concluded
that the respondents knew or should have known that the middle wooden batten
had a hole, or that it was not strong enough to bear the weight of the shipment.
There is no showing in the Bill of Lading that the shipment was in good order or
condition when the carrier received the cargo, or that the three wooden battens
under the flooring of the cargo were not defective or insufficient or inadequate. On
the other hand, under Bill of Lading No. NSGPBSML512565 issued by the respondent
NSCP and accepted by the petitioner, the latter represented and warranted that the
goods were properly packed, and disclosed in writing the "condition, nature, quality
or characteristic that may cause damage, injury or detriment to the goods." Absent
any signs on the shipment requiring the placement of a sling cable in the midportion of the crate, the respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good
condition, is sufficient to sustain a finding of absence of defects in the merchandise.
Case law has it that such statement will create a prima facie presumption only as to
the external condition and not to that not open to inspection. 53
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 92735

June 8, 2000

MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and

Hon. Judge AMANTE PURISIMA, petitioners,
vs.
COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 94867
ALLIED GUARANTEE INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ
SHIPPING CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 95578
EQUITABLE INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, Former First Division Composed of Hon. Justices
RODOLFO NOCON, PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ
SHIPPING CORPORATION, respondents.
DE LEON, JR., J.:
Before us are three consolidated petitions. G.R. No. 92735 is a petition for review
filed under Rule 45 of the Rules of Court assailing the decision of the Court of
Appeals dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which set aside the
writ of execution issued by the lower court for the full indemnification of the claims
of the petitioners, Monarch Insurance Company (hereafter "Monarch") and
Tabacalera Insurance Company, Incorporated (hereafter "Tabacalera") against
private respondent, Aboitiz Shipping Corporation (hereafter "Aboitiz") on the ground
that the latter is entitled to the benefit of the limited liability rule in maritime law;
G.R. No. 94867 is a petition for certiorari under Rule 65 of the Rules of Court to
annul and set aside the decision of the Court of Appeals dated August 15, 1990 in
CA-G.R. SP No. 20844 which ordered the lower court to stay the execution of the
judgment in favor of the petitioner, Allied Guarantee Insurance Company (hereafter
"Allied") against Aboitiz insofar as it impairs the rights of the other claimants to their
pro-rata share in the insurance proceeds from the sinking of the M/V P. Aboitiz, in
accordance with the rule on limited liability; and G.R. No. 95578 is a petition for
review under Rule 45 of the Rules of Court seeking a reversal of the decision of the
Court of Appeals dated August 24, 1990 and its resolution dated October 4, 1990 in
C.A. G.R. Civil Case No. 15071 which modified the judgment of the lower court's
award of actual damages to petitioner Equitable Insurance Corporation (hereafter

"Equitable") to its pro-rata share in the insurance proceeds from the sinking of the
M/V P. Aboitiz.
All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz,
a common carrier owned and operated by Aboitiz, sank on her voyage from Hong
Kong to Manila on October 31, 1980. Seeking indemnification for the loss of their
cargoes, the shippers, their successors-in-interest, and the cargo insurers such as
the instant petitioners filed separate suits against Aboitiz before the Regional Trial
Courts. The claims numbered one hundred and ten (110) for the total amount of
P41,230,115.00 which is almost thrice the amount of the insurance proceeds of
P14,500,000.00 plus earned freight of 500,000.00 according to Aboitiz. To this day,
some of these claims, including those of herein petitioners, have not yet been
settled.
G.R. No. 92735.
Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the
shippers and were consequently subrogated to their rights, interests and actions
against Aboitiz, the cargo carrier. 1 Because Aboitiz refused to compensate Monarch,
it filed two complaints against Aboitiz, docketed as Civil Cases Nos. 82-2767 and 822770. For its part, Tabacalera also filed two complaints against the same defendant,
docketed as Civil Cases Nos. 82-2768 and 82-2769. As these four (4) cases had
common causes of action, they were consolidated and jointly tried. 2
In Civil Case No. 82-2767 where Monarch also named Malaysian International
Shipping Corporation and Litonja Merchant Shipping Agency as Aboitiz's codefendants, Monarch sough recovery of P29,719.88 representing the value of three
(3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus attorney's fees of
not less than P5,000.00, litigation expenses, interest at the legal rate on all these
amounts, and the cost of suit. 3 Civil Case. No. 82-2770 was a complaint filed by
Monarch against Aboitiz and co-defendants Compagnie Maritime des Chargeurs
Reunis and F.E. Zuellig (M), Inc. for the recovery of P39,597.00 representing the
value of the one case motor vehicle parts which was lost when the M/V P. Aboitiz
sank on her way to Manila, plus Attorney's fees of not less than P10,000.00 and cost
of suit. 4
Tabacalera sought against Franco Belgian Services, F.E. Zuellig and Aboitiz in Civil
Case No. 82-2768 the recovery of P284,218.00 corresponding to the value of nine
(9) cases of Renault spare parts, P213,207.00 for the value of twenty-five (25) cases
of door closers and P42,254.00 representing the value of eighteen (18) cases of
plastic spangle, plus attorney's fees of not less than P50,000.00 and cost of suit. 5 In
Civil Case No. 82-2769, Tabacalera claimed from Hong Kong Island Shipping Co.,
Ltd., Citadel Lines and Aboitiz indemnification in the amount of P75,058.00 for the
value of four (4) cartons of motor vehicle parts foundered with the M/V P. Aboitiz,
plus attorney's fees of not less than P20,000.00 and cost of suit. 6

In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the
ground that the sinking of its cargo vessel was due to force majeure or an act of
God. 7 Aboitiz was subsequently declared as in default for its failure to appear
during the pre-trial. Its counsel fried a motion to set aside the order of default with
notice of his withdrawal as such counsel. Before the motion could be acted upon,
Judge Bienvenido Ejercjto, the presiding judge of the trial court, was promoted to
the then intermediate Appellate Court. The cases were thus re-raffled to Branch VII
of the RTC of Manila presided by Judge Amante P. Purisima, the co-petitioner in G.R.
No. 92735. Without resolving the pending motion to set aside the order of default,
the trial court set the cases for hearing. However, since Aboitiz had repeatedly
failed to appear in court, the trial court denied the said motion and allowed Monarch
and Tabacalera to present evidence ex-parte. 8
Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a
surveyor commissioned to investigate the possible cause of the sinking of the cargo
vessel. The survey established that on her voyage to Manila from Hong Kong, the
vessel did not encounter weather so inclement that Aboitiz would be exculpated
from liability for losses. In his note of protest, the master of M/V P. Aboitiz described
the wind force encountered by the vessel as from ten (10) to fifteen (15) knots, a
weather condition classified as typical and moderate in the South China Sea at that
particular time of the year. The survey added that the seaworthiness of the vessel
was in question especially because the breaches of the hull and the serious flooding
of two (2) cargo holds occurred simultaneously in "seasonal weather." 9
In due course, the trial court rendered judgment against Aboitiz but the complaint
against all the other defendants was dismissed. Aboitiz was held liable for the
following: (a) in Civil Case No. 82-2767, P29,719.88 with legal interest from the filing
of the complaint until fully paid plus attorney's fees of P30,000.00 and cost of suit;
(b) in Civil Case No. 82-2768, P539,679.00 with legal interest of 12% per
annum from date of filing of the complaint until fully paid, plus attorney's fees of
P30,000.00, litigation expenses and cost of suit; (c) in Civil Case No. 82-2769,
P75,058.00 with legal interest of 12% per annum from date of filing of the complaint
until-fully paid, plus P5,000.00 attorney's fees, litigation expenses and cost of suit,
and (d) in Civil Case No. 82-2770, P39,579.66 with legal interest of 12% per
annum from date of filing of the complaint until fully paid, plus attorney's fees of
P5,000.00, litigation expenses and cost of suit.
Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift
the order of default. The court denied the motion on August 27, 1986. 10 Aboitiz
appealed to the Court of Appeals but the appeal was dismissed for its failure to file
appellant's brief. It subsequently filed an urgent motion for reconsideration of the
dismissal with prayer for the admission of its attached appellant's brief. The
appellate court denied that motion for lack of merit in a Resolution dated July 8,
1988. 11

Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158,
the petition was denied in the Resolution of October 10, 1988 for being filed out of
time. Aboitiz's motion for the reconsideration of said Resolution was similarly
denied. 12 Entry of judgment was made in the case. 13
Consequently, Monarch and Tabacalera moved for execution of judgment. The trial
court granted the motion on April 4, 1989 14 and issued separate writs of execution.
However, on April 12, 1989, Aboitiz, invoking the real and hypothecary nature of
liability in maritime law, filed an urgent motion to quash the writs of
execution. 15 According to Aboitiz, since its liability is limited to the value of the
vessel which was insufficient to satisfy the aggregate claims of all 110 claimants, to
indemnify Monarch and Tabacalera ahead of the other claimants would be
prejudicial to the latter. Monarch and Tabacalera opposed the motion to quash. 16
On April 17, 1989, before the motion to quash could be heard, the sheriff levied
upon five (5) heavy equipment owned by Aboitiz for the public auction sale. At said
sale, Monarch was the highest bidder for one (1) unit FL-151 Fork Lift (big) and one
(1) unit FL-25 Fork Lift (small). Tabacalera was also the highest bidder for one (1)
unit TCH TL-251 Hyster Container Lifter, one (1) unit Hyster Top Lifter (out of order),
and one (1) unit ER-353 Crane. The corresponding certificates of sale 17 were issued
to Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a
supplement to its motion, to add the fact that an auction sale had taken place. On
April 19, 1989, Judge Purisima issued an order denying the motion to quash but
freezing execution proceedings for ten (10) days to give Aboitiz time to secure a
restraining order from a higher court. 18 Execution was scheduled to resume to fully
satisfy the judgment when the grace period shall have lapsed without such
restraining order having been obtained by Aboitiz.
Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with
prayer for preliminary injunction and/or temporary restraining order under CA-G.R.
No. SP-17427. 19 On March 29, 1990, the appellate court rendered a Decision the
dispositive portion of which reads:
WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of
execution, auction sale, certificates of sale, and the assailed orders of respondent
Judge dated April 4 and April 19, 1989 insofar as the money value of those
properties of Aboitiz, levied on execution and sold at public auction, has exceeded
the pro-rata shares of Monarch and Tabacalera in the insurance proceeds of Aboitiz
in relation to the pro-rata shares of the 106 other claimants.
The writ of prohibition is also granted to enjoin respondent Judge, Monarch and
Tabacalera from proceeding further with execution of the judgments in question
insofar as the execution would satisfy the claims of Monarch and Tabacalera in

excess of their pro-rata shares and in effect reduce the balance of the proceeds for
distribution to the other claimants to their prejudice.
The question of whether or how much of the claims of Monarch and Tabacalera
against the insurance proceeds has already been settled through the writ of
execution and auction sale in question, being factual issues, shall be threshed out
before respondent judge.
The writ of preliminary injunction issued in favor of Aboitiz, having served its
purpose, is hereby lifted. No pronouncement as to costs.
SO ORDERED.

20

Hence, the instant petition for review on certiorari where petitioners Monarch,
Tabacalera and Judge Purisima raise the following assignment of errors:
1. The appellate court grievously erred in re-opening the Purisima decisions, already
final and executory, on the alleged ground that the issue of real and hypothecary
liability had not been previously resolved by Purisima, the appellate court, and this
Hon. Supreme Court;
2. The appellate court erred when it resolved that Aboitiz is entitled to the limited
real and hypothecary liability of a ship owner, considering the facts on record and
the law on the matter.
3. The appellate court erred when it concluded that Aboitiz does not have to present
evidence to prove its entitlement to the limited real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v.
CA and Allied Guaranty Insurance Co., Inc. (G.R. No. 88159), decided by this
Honorable Supreme Court as early as November 13, 1989, considering that said
case, now factual and executory, is in pari materia with the instant case.
5. The appellate court erred in not concluding that irrespective of whether Aboitiz is
entitled to limited hypothecary liability or not, there are enough funds to satisfy all
the claimants.
6. The appellate court erred when it concluded that Aboitiz had made an
"abandonment" as envisioned by Art. 587 of the Code of Commerce.
7. The appellate court erred when it concluded that other claimants would suffer if
Tabacalera and Monarch would be fully paid.
8. The appellate court erred in concluding that certiorari was the proper remedy for
Aboitiz. 21
G.R. NOS. 94867 & 95578

Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited,

filed a complaint against Aboitiz for the recovery of P278,536.50 representing the
value of 676 bags of PVC compound and 10 bags of ABS plastic lost on board the
M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus
attorney's fees, exemplary damages and costs. 22 Docketed as Civil Case No.
138643, the case was heard before the Regional Trial Court of Manila, Branch XXIV,
presided by Judge Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel
Manufacturing Corporation, filed an amended complaint against Franco Belgian
Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85 representing
the value of 76 drums of synthetic organic tanning substances and 1,000 kilograms
of optical bleaching agents which were also lost on board the M/V P. Aboitiz, with
legal interest from the date of filing of the complaint, plus 25% attorney's fees,
exemplary damages, litigation expenses and costs of suit. 23 Docketed as Civil Case
No. 138396, the complaint was assigned to the Regional Trial Court of Manila,
Branch VIII.
In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for
the amounts being recovered, alleging that the loss was due to a fortuitous event or
an act of God. It prayed for the dismissal of the cases and the payment of attorney's
fees, litigation expenses plus costs of suit. It similarly relied on the defenses of force
mejeure, seaworthiness of the vessel and exercise of due diligence in the carriage of
goods as regards the cross-claim of its co-defendants. 24
In support of its position, Aboitiz presented the testimonies of Capt. Gerry N.
Racines, master mariner of the M/V P. Aboitiz, and Justo C. Iglesias, a meteorologist
of the Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA). The gist of the testimony of Capt. Racines in the two cases follows:
The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October
29, 1980 after securing a departure clearance from the Hong Kong Port Authority.
The departure was delayed for two hours because he (Capt. Racines) was observing
the direction of the storm that crossed the Bicol Region. He proceeded with the
voyage only after being informed that the storm had abated. At about 8:00 o'clock
in the morning of October 30, 1980, after more than twelve (12) hours of
navigation, the vessel suddenly encountered rough seas with waves about fifteen to
twenty-five feet high. He ordered his chief engineer to check the cargo holds. The
latter found that sea water had entered cargo hold Nos. 1 and 2. He immediately
directed that water be pumped out by means of the vessel's bilge pump, a device
capable of ejecting 180 gallons of water per minute. They were initially successful in
pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his
chief engineer that the water level in the cargo holds was rapidly rising. He altered

the vessel's course and veered towards the northern tip of Luzon to prevent the
vessel from being continuously pummeled by the waves. Despite diligent efforts of
the officers and crew, however, the vessel, which was approximately 250 miles
away from the eye of the storm, began to list on starboard side at 27 degrees. Capt.
Racines and his crew were not able to make as much headway as they wanted
because by 12:00 noon of the same day, the cargo holds were already flooded with
sea water that rose from three to twelve feet, disabling the bilge pump from
containing the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18
degrees North, longitude 170 degrees East in the South China Sea in between Hong
Kong, the Philippines and Taiwan with the nearest land being the northern tip of
Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos Norte. Responding to
the captain's distress call, the M/V Kapuas (Capuas) manned by Capt. Virgilio
Gonzales rescued the officers and crew of the ill-fated M/V P. Aboitiz and brought
them to Waileen, Taiwan where Capt. Racines lodged his marine protest dated
November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, testified in
both cases that during the inclusive dates of October 28-31, 1980, a stormy weather
condition prevailed within the Philippine area of responsibility, particularly along the
sea route from Hong Kong to Manila, because of tropical depression
"Yoning." 25 PAGASA issued weather bulletins from October 28-30, 1980 while the
storm was still within Philippine territory. No domestic bulletins were issued the
following day when the storm which hit Eastern Samar, Southern Quezon and
Southern Tagalog provinces, had made its exit to the South China Sea through
Bataan.
Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were
lost due to force majeure, relying mainly on the marine protest filed by Capt.
Racines as well as on the Beaufort Scale of Wind. In his marine protest under oath,
Capt. Racines affirmed that the wind force an October 29-30, 1980 was only ten (10)
to fifteen (15) knots. Under the Beaufort Scale of Wind, said wind velocity falls
under scale No. 4 that describes the sea condition as "moderate breeze," and "small
waves becoming longer, fairly frequent white horses." 26
To fortify its position, Equitable presented Rogelio T. Barboza who testified that as
claims supervisor and processor of Equitable, he recommended payment to Axel
Manufacturing Corporation as evidenced by the cash voucher, return check and
subrogation receipt. Barboza also presented a letter of demand to Aboitiz which,
however, the latter ignored. 27
On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No.
138643 as follows:

WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping

Company to pay plaintiff Allied Guarantee Insurance Company, Inc. the sum of
P278,536.50, with legal interest thereon from March 10, 1981, then date of the filing
of the complaint, until fully paid, plus P30,000.00 as attorney's fees, with costs of
suit.
SO ORDERED.

28

A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor
of plaintiff and against defendant Aboitiz Shipping Corporation, to pay the sum of
P194,794.85 with legal rate of interest thereon from February 27, 1981 until fully
paid; attorney's fees of twenty-five (25%) percent of the total claim, plus litigation
expenses and costs of litigation.
SO ORDERED.

29

In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV
No. 04121. On March 23, 1987, the Court of Appeals affirmed the decision of the
lower court. A motion for reconsideration of the said decision was likewise denied by
the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then filed a petition for
review with this Court docketed as G.R. No. 88159 which was denied for lack merit.
Entry of judgment was made and the lower court's decision in Civil Case No. 138643
became final and executory. Allied prayed for the issuance of a writ of execution in
the lower court which was granted by the latter on April 4, 1990. To stay the
execution of the judgment of the lower court, Aboitiz filed a petition
for certiorari and prohibition with preliminary injunction with the Court of Appeals
docketed as CA-G.R. SP No. 20844. 30 On August 15, 1990, the Court of Appeals
rendered the assailed decision, the dispositive portion of which reads as follows.
WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990
granting the execution is hereby set aside. The respondent Judge is further ordered
to stay the execution of the judgment insofar as it impairs the rights of the 100
other claimants to the insurance proceeds including the rights of the petitioner to
pay more than the value of the vessel or the insurance proceeds and to desist from
executing the judgment insofar as it prejudices the pro-rata share of all claimants to
the insurance proceeds. No pronouncement as to costs.
SO ORDERED.

31

Hence, Allied filed the instant petition for certiorari, mandamus and injunction with
preliminary injunction and/or restraining order before this Court alleging the
following assignment of errors:

1. Respondent Court of Appeals gravely erred in staying the immediate execution of

the judgment of the lower court as it has no authority nor jurisdiction to directly or
indirectly alter, modify, amend, reverse or invalidate a final judgment as affirmed by
the Honorable Supreme Court in G.R. No. 88159.
2. Respondent Court of Appeals with grave abuse of discretion amounting to lack or
excess of jurisdiction, brushed aside the doctrine in G.R. No. 88159 which is now the
law of the case and observance of time honored principles of stare decisis, res
adjudicata and estoppel by judgment.
3. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of
Commerce which is the basis of the questioned decision (Annex "C" hereof) is
without application in the face of the facts found by the lower court, sustained by
the Court of Appeals in CA-G.R. No. 04121 and affirmed in toto by the Supreme
Court in G.R. No. 88159.
4. Certiorari as a special remedy is unavailing for private respondent as there was
no grave abuse of discretion nor lack or excess of jurisdiction for Judge Mabunay to
issue the order of April 4, 1990 which was in accord with law and jurisprudence, nor
were there intervening facts and/or supervening events that will justify respondent
court to issue a writ of certiorari or a restraining order on a final and executory
judgment of the Honorable Supreme Court. 32
From the decision of the trial court in Civil Case No. 138396 that favored Equitable,
Aboitiz likewise appealed to the Court of Appeals through CA-G.R. CV No. 15071. On
August 24, 1990, the Court of Appeals rendered the Decision quoting extensively its
Decision in CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the appeal
as follows:
WHEREFORE, we hereby affirm the trial court's awards of actual damages,
attorney's fees and litigation expenses, with the exception of legal interest, in favor
of plaintiff-appellee Equitable Insurance Corporation as subrogee of the consignee
for the loss of its shipment aboard the M/V "P. Aboitiz" and against defendantappellant Aboitiz Shipping Corporation. However, the amount and payment of those
awards shall be subject to a determination of the pro-rata share of said appellee in
relation to the pro-rata shares of the 109 other claimants, which determination shall
be made by the trial court. This case is therefore hereby ordered remanded to the
trial court which shall reopen the case and receive evidence to determine appellee's
pro-rata share as aforesaid. No pronouncement as to costs.
SO ORDERED.

33

On September 12, 1990, Equitable moved to reconsider the Court of Appeals'

Decision. The Court of Appeals denied the motion for reconsideration on October 4,
1990. 34 Consequently, Equitable filed with this Court a petition for review alleging
the following assignment of errors:

1. Respondent Court of Appeals, with grave abuse of discretion amounting to lack or

excess of jurisdiction, erroneously brushed aside the doctrine in G.R. No. 88159
which is now the law of the case as held in G.R. No. 89757 involving the same and
identical set of facts and cause of action relative to the sinking of the M/V "P.
Aboitiz" and observance of the time honored principles of stare decisis, and
estoppel by judgment.
2. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of
Commerce which is the basis of the assailed decision and resolution is without
application in the face of the facts found by the trial court which conforms to the
conclusion and finding of facts arrived at in a similar and identical case involving the
same incident and parties similarly situated in G.R. No. 88159 already declared as
the "law of the case" in a subsequent decision of this Honorable Court in G.R. No.
89757 promulgated on August 6, 1990.
3. Respondent Court of Appeals gravely erred in concluding that limited liability rule
applies in case of loss of cargoes when the law itself does not distinguish; fault of
the shipowner or privity thereto constitutes one of the exceptions to the application
of limited liability under Article 587, 590 and 837 of the Code of Commerce, Civil
Code provisions on common carriers for breach of contract of carriage prevails. 35
These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the
Resolution of August 5, 1991 on the ground that the petitioners "have identical
causes of action against the same respondent and similar reliefs are prayed for." 36
The threshold issue in these consolidated petitions is the applicability of the limited
liability rule in maritime law in favor of Aboitiz in order to stay the execution of the
judgments for full indemnification of the losses suffered by the petitioners as a
result of the sinking of the M/V P. Aboitiz. Before we can address this issue, however,
there are procedural matters that need to be threshed out.
First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge
Amante Purisima, whose decision in the Regional Trial Court is sought to be upheld,
is named as a co-petitioner. In Calderon v. Solicitor General, 37 where the petitioner
in the special civil action of certiorari and mandamus was also the judge whose
order was being assailed, the Court held that said judge had no standing to file the
petition because he was merely a nominal or formal party-respondent under Section
5 of Rule 65 of the Rules of Court. He should not appear as a party seeking the
reversal of a decision that is unfavorable to the action taken by him. The Court there
said:
Judge Calderon should be-reminded of the well-known doctrine that a judge should
detach himself from cases where his decision is appealed to a higher court for
review. The raison d'etre for such doctrine is the fact that a judge is not an active
combatant in such proceeding and must leave the opposing parties to contend their
individual positions and for the appellate court to decide the issues without his

active participation. By filing this case, petitioner in a way ceased to be judicial and
has become adversarial instead. 38
While the petition in G.R. No. 92735 does not expressly show whether or not Judge
Purisima himself is personally interested in the disposition of this petition or he was
just inadvertently named as petitioner by the real parties in interest, the fact that
Judge Purisima is named as petitioner has not escaped this Court's notice. Judges
and litigants should be reminded of the basic rule that courts or individual judges
are not supposed to be interested "combatants" in any litigation they resolve.
Second. The petitioners contend that the inapplicability of the limited liability rule to
Aboitiz has already been decided on by no less than this Court in G.R. No. 88159 as
early as November 13, 1989 which was subsequently declared as "law of the case"
in G.R. No. 89757 on August 6, 1990. Herein petitioners cite the aforementioned
cases in support of their theory that the limited liability rule based on the real and
hypothecary nature of maritime law has no application in the cases at bar.
The existence of what petitioners insist is already the "law of the case" on the
matter of limited liability is at best illusory. Petitioners are either deliberately
misleading this Court or profoundly confused. As elucidated in the case of Aboitiz
Shipping Corporation vs. General Accident Fire and Life Assurance Corporation, 39
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280282, Rollo) shows that the same settles two principal matters, first of which is that
the doctrine of primary administrative jurisdiction is not applicable therein; and
second is that a limitation of liability in said case would render inefficacious the
extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is
not the same one now in issue at bar, but an altogether different aspect. The limited
liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of
stipulations in the Bill of Lading, popularly known as package limitation clauses,
which in that case was contained in Section 8 of the Bill of Lading and which limited
the carrier's liability to US$500.00 for the cargo whose value was therein sought to
be recovered. Said resolution did not tackle the matter of the Limited Liability Rule
arising out of the real and hypothecary nature of maritime law, which was not raised
therein, and which is the principal bone of contention in this case. While the matters
threshed out in G.R. No. 88159, particularly those dealing with the issues on primary
administrative jurisdiction and the package liability limitation provided in the Bill of
Lading are now settled and should no longer be touched, the instant case raises a
completely different issue. 40
Third. Petitioners asseverate that the judgments of the lower courts, already final
and executory, cannot be directly or indirectly altered, modified, amended, reversed
or invalidated.

The rule that once a decision becomes final and executory, it is the ministerial duty
of the court to order its execution, is not an absolute one: We have allowed the
suspension of execution in cases of special and exceptional nature when it becomes
imperative in the higher interest of justice. 41 The unjust and inequitable effects
upon various other claimants against Aboitiz should we allow the execution of
judgments for the full indemnification of petitioners' claims impel us to uphold the
stay of execution as ordered by the respondent Court of Appeals. We reiterate our
pronouncement in Aboitiz Shipping Corporation vs. General Accident Fire and Life
Assurance Corporation on this very same issue.
This brings us to the primary question herein which is whether or not respondent
court erred in granting execution of the full judgment award in Civil Case No. 14425
(G.R. No. 89757), thus effectively denying the application of the limited liability
enunciated under the appropriate articles of the Code of Commerce. . . . .
Collaterally, determination of the question of whether execution of judgments which
have become final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its
stand that the very purpose for its existence is to see the accomplishment of the
ends of justice. Consistent with this view, a number of decisions have originated
herefrom, the tenor of which is that no procedural consideration is sancrosanct if
such shall result in the subverting of justice. The right to execution after finality of a
decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355
[1885]), this Court ruled that:
xxx

xxx

xxx

. . . every court having jurisdiction to render a particular judgment has inherent

power to enforce it, and to exercise equitable control over such enforcement. The
court has authority to inquire whether its judgment has been executed, and will
remove obstructions to the enforcement thereof. Such authority extends not only to
such orders and such writs as may be necessary to prevent an improper
enforcement of the judgment. If a judgment is sought to be perverted and made a
medium of consummating a wrong the court on proper application can prevent it. 42
Fourth. Petitioners in G.R. No. 92735 ever that it was error for the respondent Court
of Appeals to allow Aboitiz the benefit of the limited liability rule despite its failure
to present evidence to prove its entitlement thereto in the court below. Petitioners
Monarch and Tabacalera remind this Court that from the inception of G.R. No. 92735
in the lower court and all the way to the Supreme Court, Aboitiz had not presented
an iota of evidence to exculpate itself from the charge of negligence for the simple
reason that it was declared as in default. 43
It is true that for having been declared in default, Aboitiz was precluded from
presenting evidence to prove its defenses in the court a quo. We cannot, however,

agree with petitioners that this circumstance prevents the respondent Court of
Appeals from taking cognizance of Aboitiz' defenses on appeal.
It should be noted that Aboitiz was declared as in default not for its failure to file an
answer but for its absence during pre-trial and the trial proper. In Aboitiz' answer
with counterclaim, it claimed that the sinking of the M/V P. Aboitiz was due to an act
of God or unforeseen event and that the said ship had been seaworthy and fit for
the voyage. Aboitiz also alleged that it exercised the due diligence required by law,
and that considering the real and hypothecary nature of maritime trade, the sinking
justified the extinguishment of its liability for the lost shipment. 44
A judgment of default does not imply a waiver of rights except that of being heard
and presenting evidence in defendant's favor. It does not imply admission by the
defendant of the facts and causes of action of the plaintiff, because the codal
section 45 requires the latter to adduce evidence in support of his allegations as an
indispensable condition before final judgment could be given in his favor. Nor could
it be interpreted as an admission by the defendant that the plaintiff's causes of
action find support in the law or that the latter is entitled to the relief prayed
for. 46 This is especially true with respect to a defendant who had filed his answer
but had been subsequently declared in default for failing to appear at the trial since
he has had an opportunity to traverse, via his answer, the material averments
contained in the complaint. Such defendant has a better standing than a defendant
who has neither answered nor appeared at trial. 47 The former should be allowed to
reiterate all affirmative defenses pleaded in his answer before the Court of Appeals.
Likewise, the Court of Appeals may review the correctness of the evaluation of the
plaintiffs evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue of its entitlement to
the limited liability rule for the first time on appeal thus, the respondent Court of
Appeals may properly rule on the same.
However, whether or not the respondent Court of Appeals erred in finding, upon
review, that Aboitiz is entitled to the benefit of the limited liability rule is an
altogether different matter which shall be discussed below.1awphi1
Rule on Limited Liability. The petitioners assert in common that the vessel M/V P.
Aboitiz did not sink by reason of force majeure but because of its unseaworthiness
and the concurrent fault and/or negligence of Aboitiz, the captain and its crew,
thereby barring Aboitiz from availing of the benefit of the limited liability rule.
The principle of limited liability is enunciated in the following provisions of the Code
of Commerce:
Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of goods which
he loaded on the vessel; but he may exempt himself therefrom by abandoning the

vessel with all the equipments and the freight it may have earned during the
voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from his liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its
appurtenances and the freightage served during the voyage.
Art. 837 appeals the principle of limited liability in cases of collision hence, Arts. 587
and 590 embody the universal principle of limited liability in all cases. In Yangco v.
Laserna, 48 this Court elucidated on the import of Art. 587 as follows:
The provision accords a shipowner or agent the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right
to abandon-"the vessel with all her equipments and the freight it may have earned
during the voyage." It is true that the article appears to deal only with the limited
liability of the shipowners or agents for damages arising from the misconduct of the
captain in the care of the goods which the vessel carries, but this is a mere
deficiency of language and in no way indicates the true extent of such liability. The
consensus of authorities is to the effect that notwithstanding the language of the
aforequoted provision, the benefit of limited liability therein provided for, applies in
all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. 49
"No vessel, no liability," expresses in a nutshell the limited liability rule. The
shipowner's or agent's liability is merely co-extensive with his interest in the vessel
such that a total loss thereof results in its extinction. The total destruction of the
vessel extinguishes maritime liens because there is no longer any res to which it
can attach. 50This doctrine is based on the real and hypothecary nature of maritime
law which has its origin in the prevailing conditions of the maritime trade and sea
voyages during the medieval ages, attended by innumerable hazards and perils. To
offset against these adverse conditions and to encourage shipbuilding and maritime
commerce, it was deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment, and freight, or
insurance, if any. 51
Contrary to the petitioners' theory that the limited liability rule has been rendered
obsolete by the advances in modern technology which considerably lessen the risks
involved in maritime trade, this Court continues to apply the said rule in appropriate
cases. This is not to say, however, that the limited liability rule is without

exceptions, namely: (1) where the injury or death to a passenger is due either to the
fault of the shipowner, or to the concurring negligence of the shipowner and the
captain; 52 (2) where the vessel is insured; and (3) in workmen's compensation
claims. 53
We have categorically stated that Article 587 speaks only of situations where the
fault or negligence is committed solely by the captain. In cases where the ship
owner is likewise to be blamed, Article 587 does not apply. Such a situation will be
covered by the provisions of the Civil Code on common carriers. 54
A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz
would absolve Aboitiz from any and all liability pursuant to Article 1734(1) of the
Civil Code which provides in part that common carriers are responsible for the loss,
destruction, or deterioration of the goods they carry, unless the same is due to
flood, storm, earthquake, lightning, or other natural disaster or calamity. On the
other hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or
negligence of Aboitiz, the ship captain and crew of the M/V P. Aboitiz would render
inapplicable the rule on limited liability. These issues are therefore ultimately
questions of fact which have been subject of conflicting determinations by the trial
courts, the Court of Appeals and even this Court.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving
Monarch's and Tabacalera's evidence, the trial court found that the complete loss of
the shipment on board the M/V P. Aboitiz when it sank was neither due to a
fortuitous event nor a storm or natural cause. For Aboitiz' failure to present
controverting evidence, the trial court also upheld petitioners' allegation that the
M/V P. Aboitiz was unseaworthy. 55 However, on appeal, respondent Court of Appeals
exculpated Aboitiz from fault or negligence and ruled that:
. . ., even if she (M/V P. Aboitiz) was found to be unseaworthy,
this fault (distinguished from civil liability) cannot be laid on the shipowner's door.
Such fault was directly attributable to the captain. This is so, because under Art.
612 of the Code of Commerce, among the inherent duties of a captain, are to
examine the vessel before sailing and to comply with the laws on navigation. 56
and that:
. . . although the shipowner may be held civilly liable for the captain's fault . . .
having abandoned the vessel in question, even if the vessel was unseaworthy due
to the captain's fault, Aboitiz is still entitled to the benefit under the rule of limited
liability accorded to shipowners by the Code of Commerce. 57
Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court,
which found that the sinking of the M/V P. Aboitiz was not due to an act of God
or force majeure. It added that the evidence presented by the petitioner Equitable

demonstrated the negligence of Aboitiz Shipping Corporation in the management

and operation of its, vessel M/V P. Aboitiz. 58
However, Aboitiz' appeal was favorably acted upon by the respondent Court of
Appeals which reiterated its ruling in G.R. No. 92735 that the unseaworthiness of
the M/V P. Aboitiz was not a fault directly attributable to Aboitiz but to the captain,
and that Aboitiz is entitled to the benefit of the limited liability rule for having
abandoned its ship. 59
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the
M/V P. Aboitiz was not lost due to a fortuitous event or force majeure, and that
Aboitiz had failed to satisfactorily establish that it had observed extraordinary
diligence in the vigilance over the goods transported by it. 60
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and
found that the sinking of the vessel was due to its unseaworthiness and the failure
of its crew and master to exercise extraordinary diligence. 61 Subsequently,
however, Aboitiz' petition before the Court of Appeals, docketed as CA-G.R. SP No.
20844 (now G.R. No. 94867) to annul and set aside the order of execution issued by
the lower court was resolved in favor of Aboitiz. The Court of Appeals brushed aside
the issue of Aboitiz' negligence and/or fault and proceeded to allow the application
of the limited liability rule "to accomplish the aims of justice." 62 It elaborated thus:
"To execute the judgment in this case would prejudice the substantial right of other
claimants who have filed suits to claim their cargoes that was lost in the vessel that
sank and also against the petitioner to be ordered to pay more than what the law
requires." 63
It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by
reason of force majeure is not a novel one for that question has already been the
subject of conflicting pronouncements by the Supreme Court. In Aboitiz Shipping
Corporation v. Court of Appeals, 64 this Court approved the findings of the trial court
and the appellate court that the sinking of the M/V P. Aboitiz was not due to the
waves caused by tropical storm "Yoning" but due to the fault and negligence of
Aboitiz, its master and crew. 65 On the other hand, in the later case of Country
Bankers Insurance Corporation v. Court of Appeals, 66 this Court issued a Resolution
on August 28, 1991 denying the petition for review on the ground that the Court of
Appeals committed no reversible error, thereby affirming and adopting as its own,
the findings of the Court of Appeals that force majeure had caused the M/V P. Aboitiz
to founder.
In view of these conflicting pronouncements, we find that now is the opportune time
to settle once and for all the issue or whether or not force mejeure had indeed
caused the M/V P. Aboitiz to sink. After reviewing the records of the instant cases,
we categorically state that by the facts on record, the M/V P. Aboitiz did not go
under water because of the storm "Yoning."

It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during the

inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within
the Philippine area of responsibility, particularly along the sea route from Hong Kong
to Manila, because of tropical depression "Yoning". 67 But even Aboitiz' own evidence
in the form of the marine protest filed by Captain Racines affirmed that the wind
force when the M/V P. Aboitiz foundered on October 31, 1980 was only ten (10) to
fifteen (15) knots which, under the Beaufort Scale or Wind, falls within scale No. 4
that describes the wind velocity as "moderate breeze," and characterizes the waves
as "small . . . becoming longer, fairly frequent white horses." 68 Captain Racines also
testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200) miles
away from storm "Yoning" when it sank. 69
The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V
P. Aboitiz has also been subject of conflicting rulings by this Court. In G.R. No.
100373, Country Bankers Insurance Corporation v. Court of Appeals, this Court
found no error in the findings of the Court of Appeals that the M/V P. Aboitiz sank by
reason of force majeure, and that there was no negligence on the part of its officers
and crew. In direct contradiction is this Court's categorical declaration in Aboitiz
Shipping Corporation v. Court of Appeals," 70 to wit:
The trial court and the appellate court found that the sinking of the M/V P. Aboitiz
was not due to the waves caused by tropical storm "Yoning" but due to the fault and
negligence of petitioner, its master and crew. The court reproduces with approval
said findings . . . . 71
However, in the subsequent case of Aboitiz Shipping Corporation v. General
Accident Fire and Life Assurance Corporation, Ltd., 72 this Court exculpated Aboitiz
from fault and/or negligence while holding that the unseaworthiness of the M/V P.
Aboitiz was only attributable to the negligence of its captain and crew. Thus,
On this point, it should be stressed that unseaworthiness is not a fault that can be
laid squarely on petitioner's lap, absent a factual basis for such conclusion. The
unseaworthiness found in some cases where the same has been ruled to exist is
directly attributable to the vessel's crew and captain, more so on the part of the
latter since Article 612 of the Code of Commerce provides that among the inherent
duties of a captain is to examine a vessel before sailing and to comply with the laws
of navigation. Such a construction would also put matters to rest relative to the
decision of the Board of Marine Inquiry. While the conclusion therein exonerating the
captain and crew of the vessel was not sustained for lack of basis, the finding
therein contained to the effect that the vessel was seaworthy deserves merit.
Despite appearances, it is not totally incompatible with the findings of the trial court
and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain
to the structural condition of the vessel which is the basis of the BMI's findings, but
to the condition it was in at the time of the sinking, which condition was a result of
the acts of the captain and the crew. 73

It therefore becomes incumbent upon this Court to answer with finality the nagging
question of whether or not it was the concurrent fault and/or negligence of Aboitiz
and the captain and crew of the ill-fated vessel that had caused it to go under water.
Guided by our previous pronouncements and illuminated by the evidence now on
record, we reiterate our findings in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd. 74, that the unseaworthiness of the M/V P.
Aboitiz had caused it to founder. We, however, take exception to the
pronouncement therein that said unseaworthiness could not be attributed to the
ship owner but only to the negligent acts of the captain and crew of the M/V P.
Aboitiz. On the matter of Aboitiz' negligence, we adhere to our ruling in Aboitiz
Shipping Corporation v. Court of Appeals, 75 that found Aboitiz, and the captain and
crew of the M/V P. Aboitiz to have been concurrently negligent.
During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735),
petitioners Monarch and Tabacalera presented a survey from Perfect Lambert, a
surveyor based in Hong Kong that conducted an investigation on the possible cause
of the sinking of the vessel. The said survey established that the cause of the
sinking of the vessel was the leakage of water into the M/V P. Aboitiz which probably
started in the forward part of the No. 1 hull, although no explanation was proffered
as to why the No. 2 hull was likewise flooded. Perfect Lambert surmised that the
flooding was due to a leakage in the shell plating or a defect in the water tight bulk
head between the Nos. 1 and 2 holds which allowed the water entering hull No. 1 to
pass through hull No. 2. The surveyor concluded that whatever the cause of the
leakage of water into these hulls, the seaworthiness of the vessel was definitely in
question because the breaches of the hulls and serious flooding of the two cargo
holds occurred simultaneously in seasonal weather. 76
We agree with the uniform finding of the lower courts that Aboitiz had failed to
prove that it observed the extraordinary diligence required of it as a common
carrier. We therefore reiterate our pronouncement in Aboitiz Corporation v. Court of
Appeals 77 on the issue of Aboitiz' liability in the sinking of its vessel, to wit:
In accordance with Article 1732 of the Civil Code, the defendant common carrier
from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to all circumstances of the case. While the
goods are in the possession of the carrier, it is but fair that it exercise extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law
presumes that it was due to the carrier's fault or negligence; that is necessary to
protect the interest of the shipper which is at the mercy of the carrier . . . In the
case at bar, the defendant failed to prove hat the loss of the subject cargo was not
due to its fault or negligence. 78

The failure of Aboitiz to present sufficient evidence to exculpate itself from fault
and/or negligence in the sinking of its vessel in the face of the foregoing expert
testimony constrains us to hold that Aboitiz was concurrently at fault and/or
negligent with the ship captain and crew of the M/V P. Aboitiz. This is in accordance
with the rule that in cases involving the limited liability of shipowners, the initial
burden of proof of negligence or unseaworthiness rests on the claimants. However,
once the vessel owner or any party asserts the right to limit its liability, the burden
of proof as to lack of privity or knowledge on its part with respect to the matter of
negligence or unseaworthiness is shifted to it. 79 This burden, Aboitiz had
unfortunately failed to discharge. That Aboitiz failed to discharge the burden of
proving that the unseaworthiness of its vessel was not due to its fault and/or
negligence should not however mean that the limited liability rule will not be
applied to the present cases. The peculiar circumstances here demand that there
should be no strict adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated. The rule on limited liability should be applied in
accordance with the latest ruling in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd., 80promulgated on January 21, 1993, that
claimants be treated as "creditors in an insolvent corporation whose assets are not
enough to satisfy the totality of claims against it." 81 To do so, the Court set out in
that case the procedural guidelines:
In the instant case, there is, therefore, a need to collate all claims preparatory to
their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its
pending freightage at the time of its loss. No claimant can be given precedence
over the others by the simple expedience of having completed its action earlier
than the rest. Thus, execution of judgment in earlier completed cases, even these
already final and executory must be stayed pending completion of all cases
occasioned by the subject sinking. Then and only then can all such claims be
simultaneously settled, either completely or pro-rata should the insurance proceeds
and freightage be not enough to satisfy all claims.
xxx

xxx

xxx

In fairness to the claimants and as a matter of equity, the total proceeds of the
insurance and pending freightage should now be deposited in trust. Moreover,
petitioner should institute the necessary limitation and distribution action before the
proper admiralty court within 15 days from finality of this decision, and thereafter
deposit with it the proceeds from the insurance company and pending freightage in
order to safeguard the same pending final resolution of all incidents, for final prorating and settlement thereof. 82(Emphasis supplied.)
There is no record that Aboitiz. has instituted such action or that it has deposited in
trust the insurance proceeds and freightage earned. The pendency of the instant
cases before the Court is not a reason for Aboitiz to disregard the aforementioned
order of the Court. In fact, had Aboitiz complied therewith, even these cases could

have been terminated earlier. We are inclined to believe that instead of filing the
suit as directed by this Court, Aboitiz tolerated the situation of several claimants
waiting to gel hold of its insurance proceeds, which, if correctly handled must have
multiplied in amount by now. By its failure to abide by the order of this Court, it had
caused more damage to the claimants over and above that which they have
endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was obvious
that from among the many cases filed against it over the years, Aboitiz was waiting
for a judgment that might prove favorable to it, in blatant violation of the basic
provisions of the Civil Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims
singly rather than exert effort towards the consolidation of all claims. Consequently,
courts have arrived at conflicting decisions while claimants waited over the years
for a resolution of any of the cases that would lead to the eventual resolution of the
rest. Aboitiz failed to give the claimants their due and to observe honesty and good
faith in the exercise of its rights. 83
Aboitiz' blatant disregard of the order of this Court in Aboitiz Shipping Corporation v.
General Accident Fire and Life Assurance Corporation, Ltd. 84 cannot be anything
but, willful on its part. An act is considered willful if it is done with knowledge of its
injurious effect; it is not required that the act be done purposely to produce the
injury. 85 Aboitiz is well aware that by not instituting the said suit, it caused the delay
in the resolution of all claims against it. Having willfully caused loss or injury to the
petitioners in a manner that is contrary to morals, good customs or public policy,
Aboitiz is liable for damages to the latter. 86
Thus, for its contumacious act of defying the order of this Court to file the
appropriate action to consolidate all claims for settlement, Aboitiz must be held
liable for moral damages which may be awarded in appropriate cases under the
Chapter on human relations of the Civil Code (Articles 19 to 36). 87
On account of Aboitiz' refusal to satisfy petitioners' claims in accordance with the
directive of the Court in Aboitiz Shipping Corporation v. General Accident Fire and
Life Assurance Corporation, Ltd., it acted in gross and evident bad faith.
Accordingly, pursuant to Article 2208 of the Civil Code, 88 petitioners should be
granted attorney's fees.
WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The
decisions of the Court of Appeals in CA-G.R. No. SP-17427 dated March 29, 1990,
CA-G.R. SP No. 20844 dated August 15, 1990, and CA-G.R. CV No. 15071 dated
August 24, 1990 are AFFIRMED with the MODIFICATION that respondent Aboitiz
Shipping Corporation is ordered to pay each of the respective petitioners the
amounts of P100,000.00 as moral damages and P50,000.00 as attorney's fees, and
treble the cost of suit.

Respondent Aboitiz Shipping Corporation is further directed to comply with the

Order promulgated by this Court on January 21, 1993 in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., G.R. No.
100446, January 21, 1993, to (a) institute the necessary limitation and distribution
action before the proper Regional Trial Court, acting as admiralty court, within
fifteen (15) days from the finality of this decision, and (b) thereafter to deposit with
the said court the insurance proceeds from the loss of the vessel, M/V P. Aboitiz, and
the freightage earned in order to safeguard the same pending final resolution of all
incidents relative to the final pro-rating thereof and to the settlement of all
claims.1wphi1.nt
SO ORDERED.
G..R. No. 156978

May 2, 2006

ABOITIZ SHIPPING CORPORATION, Petitioner,

vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision 1 dated August 29, 2002 of the Court of
Appeals in CA-G.R. CV No. 28770 and its Resolution 2 dated January 23, 2003
denying reconsideration. The Court of Appeals affirmed the Decision 3 dated
November 20, 1989 of the Regional Trial Court of Manila in Civil Case No. 82-1475,
in favor of respondent New India Assurance Company, Ltd.
This petition stemmed from the action for damages against petitioner, Aboitiz
Shipping Corporation, arising from the sinking of its vessel, M/V P. Aboitiz, on
October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals
from France on board a vessel owned by Franco-Belgian Services, Inc. The cargo
was consigned to General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V
P. Aboitiz for transshipment to Manila.4
Before departing, the vessel was advised by the Japanese Meteorological Center
that it was safe to travel to its destination.5 But while at sea, the vessel received a
report of a typhoon moving within its general path. To avoid the typhoon, the vessel
changed its course. However, it was still at the fringe of the typhoon when its hull
leaked. On October 31, 1980, the vessel sank, but the captain and his crew were
saved.

On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating
that the wind force was at 10 to 15 knots at the time the ship foundered and
described the weather as "moderate breeze, small waves, becoming longer, fairly
frequent white horses."6
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the
vessel and all of its cargoes. General Textile, lodged a claim with respondent for the
amount of its loss. Respondent paid General Textile and was subrogated to the
rights of the latter.8
Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the
cause of the sinking. In its report,9 the surveyor concluded that the cause was the
flooding of the holds brought about by the vessels questionable seaworthiness.
Consequently, respondent filed a complaint for damages against petitioner Aboitiz,
Franco-Belgian Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig).
Respondent alleged that the proximate cause of the loss of the shipment was the
fault or negligence of the master and crew of the vessel, its unseaworthiness, and
the failure of defendants therein to exercise extraordinary diligence in the transport
of the goods. Hence, respondent added, defendants therein breached their contract
of carriage.101avvphil.net
Franco-Belgian Services and Zuellig responded, claiming that they exercised
extraordinary diligence in handling the shipment while it was in their possession; its
vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous
event. They also filed a cross-claim against petitioner alleging that the loss occurred
during the transshipment with petitioner and so liability should rest with petitioner.
For its part, petitioner also raised the same defense that the ship was seaworthy. It
alleged that the sinking of M/V P. Aboitiz was due to an unforeseen event and
without fault or negligence on its part. It also alleged that in accordance with the
real and hypothecary nature of maritime law, the sinking of M/V P.
Aboitiz extinguished its liability on the loss of the cargoes. 11
Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to
determine whether the captain and crew were administratively liable. However,
petitioner neither informed respondent nor the trial court of the investigation. The
BMI exonerated the captain and crew of any administrative liability; and declared
the vessel seaworthy and concluded that the sinking was due to the vessels
exposure to the approaching typhoon.
On November 20, 1989, the trial court, citing the Court of Appeals decision
in General Accident Fire and Life Assurance Corporation v. Aboitiz Shipping
Corporation12 involving the same incident, ruled in favor of respondent. It held
petitioner liable for the total value of the lost cargo plus legal interest, thus:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New

India and against Aboitiz ordering the latter to pay unto the former the amount of
P142,401.60, plus legal interest thereon until the same is fully paid, attorneys fees
equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed and their
counterclaim against New India is likewise dismissed
SO ORDERED.131avvphil.net
Petitioner elevated the case to the Court of Appeals and presented the findings of
the BMI. However, on August 29, 2002, the appellate court affirmed in toto the trial
courts decision. It held that the proceedings before the BMI was only for the
administrative liability of the captain and crew, and was unilateral in nature, hence
not binding on the courts. Petitioner moved for reconsideration but the same was
denied on January 23, 2003.
Hence, this petition for review, alleging that the Court of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE
APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837
OF THE CODE OF COMMERCE TO CASES INVOLVING THE SINKING OF THE M/V "P.
ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO.,
INC. ET AL. V. COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.;
B.
x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED
LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE HAD
BEEN CONSIDERED AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRORATA SHARES IN THE INSURANCE PROCEEDS FROM THE SINKING OF THE M/V "P.
ABOITIZ".14
Stated simply, we are asked to resolve whether the limited liability doctrine, which
limits respondents award of damages to its pro-rata share in the insurance
proceeds, applies in this case.

Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that
respondents claim for damages should only be against the insurance proceeds and
limited to its pro-rata share in view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary nature of maritime
law is not applicable in the present case because petitioner was found to have been
negligent. Hence, according to respondent, petitioner should be held liable for the
total value of the lost cargo.
It bears stressing that this Court has variedly applied the doctrine of limited liability
to the same incident the sinking of M/V P. Aboitiz on October 31, 1980. Monarch,
the latest ruling, tried to settle the conflicting pronouncements of this Court relative
to the sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel
was not due to force majeure, but to its unseaworthy condition.16 Therein, we found
petitioner concurrently negligent with the captain and crew. 17 But the Court stressed
that the circumstances therein still made the doctrine of limited liability applicable. 18
Our ruling in Monarch may appear inconsistent with the exception of the limited
liability doctrine, as explicitly stated in the earlier part of the Monarch decision. An
exception to the limited liability doctrine is when the damage is due to the fault of
the shipowner or to the concurrent negligence of the shipowner and the captain. In
which case, the shipowner shall be liable to the full-extent of the damage. 19 We thus
find it necessary to clarify now the applicability here of the decision in Monarch.
From the nature of their business and for reasons of public policy, common carriers
are bound to observe extraordinary diligence over the goods they transport
according to all the circumstances of each case. 20 In the event of loss, destruction or
deterioration of the insured goods, common carriers are responsible, unless they
can prove that the loss, destruction or deterioration was brought about by the
causes specified in Article 1734 of the Civil Code. 21 In all other cases, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence. 22 Moreover, where the vessel
is found unseaworthy, the shipowner is also presumed to be negligent since it is
tasked with the maintenance of its vessel. Though this duty can be delegated, still,
the shipowner must exercise close supervision over its men. 23
In the present case, petitioner has the burden of showing that it exercised
extraordinary diligence in the transport of the goods it had on board in order to
invoke the limited liability doctrine. Differently put, to limit its liability to the amount
of the insurance proceeds, petitioner has the burden of proving that the
unseaworthiness of its vessel was not due to its fault or negligence. Considering the
evidence presented and the circumstances obtaining in this case, we find that
petitioner failed to discharge this burden. It initially attributed the sinking to the
typhoon and relied on the BMI findings that it was not at fault. However, both the
trial and the appellate courts, in this case, found that the sinking was not due to the

typhoon but to its unseaworthiness. Evidence on record showed that the weather
was moderate when the vessel sank. These factual findings of the Court of Appeals,
affirming those of the trial court are not to be disturbed on appeal, but must be
accorded great weight. These findings are conclusive not only on the parties but on
this Court as well.24
In contrast, the findings of the BMI are not deemed always binding on the
courts.25 Besides, exoneration of the vessels officers and crew by the BMI merely
concerns their respective administrative liabilities. 26 It does not in any way operate
to absolve the common carrier from its civil liabilities arising from its failure to
exercise extraordinary diligence, the determination of which properly belongs to the
courts.27
Where the shipowner fails to overcome the presumption of negligence, the doctrine
of limited liability cannot be applied.28 Therefore, we agree with the appellate court
in sustaining the trial courts ruling that petitioner is liable for the total value of the
lost cargo.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August
29, 2002 and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R.
CV No. 28770 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. L-23326

December 18, 1965

PHILIPPINE CONSTITUTION ASSOCIATION, INC., JOSE E. ROMERO,

SALVADOR ARANETA, GUILLERMO B. GUEVARA, PIO PEDROSA, CONRADO
BENITEZ, JOSE M. ARUEGO, SOTERO H. LAUREL, FELIXBERTO M. SERRANO,
and ROMAN OZAETA, petitioners,
vs.
PEDRO M. GIMENEZ, JOSE VELASCO, ELADIO SALITA and JOSE
AVILES, respondents.
Roman Ozaeta, Guillermo B. Guevara, Jose M. Aruego, Sotero H. Laurel and
Felixberto M. Serrano for themselves and for other petitioners.
Office of the Solicitor General for respondents.
REGALA, J.:
We are called upon in this case to decide the grave and fundamental problem of the
constitutionality of Republic Act No. 3836 "insofar as the same allows retirement
gratuity and commutation of vacation and sick leave to Senators and
Representatives, and to the elective officials of both houses (of Congress)." The suit
was instituted by the Philippine Constitution Association, Inc. (Philconsa, for short),

a non-profit civic organization, duly incorporated under Philippine laws, by way of a

petition for prohibition with preliminary injunction to restrain the Auditor General of
the Philippines and the disbursing officers of both Houses of Congress from "passing
in audit the vouchers, and from countersigning the checks or treasury warrants for
the payment to any former Senator or former Member of the House of
Representatives of retirement and vacation gratuities pursuant to Republic Act No.
3836; and likewise restraining the respondent disbursing officers of the House and
Senate, respectively, and their successors in office from paying the said retirement
and vacation gratuities."
It is argued that the above-numbered Republic Act, at least to the end that it
provided for the retirement of the members of Congress in the manner and terms
that it did, is unconstitutional and void. The challenge to the constitutionality of the
law is centered on the following propositions:
1. The provision for the retirement of the members and certain officers of Congress
is not expressed in the title of the bill, in violation of section 21 (1) of Article VI of
the Constitution.
2. The provision on retirement gratuity is an attempt to circumvent the
Constitutional ban on increase of salaries of the members of Congress during their
term of office, contrary to the provisions of Article VI, Section 14 of the Constitution.
3. The same provision constitutes "selfish class legislation" because it allows
members and officers of Congress to retire after twelve (12) years of service and
gives them a gratuity equivalent to one year salary for every four years of service,
which is not refundable in case of reinstatement or re-election of the retiree, while
all other officers and employees of the government can retire only after at least
twenty (20) years of service and are given a gratuity which is only equivalent to one
month salary for every year of service, which, in any case, cannot exceed 24
months.
4. The provision on vacation and sick leave, commutable at the highest rate
received, insofar as members of Congress are concerned, is another attempt of the
legislators to further increase their compensation in violation of the Constitution.
The text of Republic Act No. 3836
The text of Republic Act No. 3836 reads:
AN ACT AMENDING SUBSECTION (c), SECTION TWELVE OF COMMONWEALTH ACT
NUMBERED ONE HUNDRED EIGHTY-SIX, AS AMENDED BY REPUBLIC ACT NUMBERED
THIRTY HUNDRED NINETY-SIX:
Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Subsection (c), Section twelve of Commonwealth Act Numbered One

Hundred eighty-six, as amended by Republic Act Numbered Thirty hundred ninetysix, is further amended to read as follows:
"(c) Retirement is likewise allowed to a member, regardless of age, who has
rendered at least twenty years of service. The benefit shall, in addition to the return
of his personal contributions plus interest and the payment of the corresponding
employer's premiums described in subsection (a) of Section five hereof, without
interest, be only a gratuity equivalent to one month's salary for every year of
service, based on the highest rate received, but not to exceed twenty-four months:
Provided, That the retiring officer or employee has been in the service of the said
employer or office for at least four years immediately preceding his retirement.
"Retirement is also allowed to a senator or a member of the House of
Representatives and to an elective officer of either House of the Congress,
regardless of age, provided that in the case of a Senator or Member, he must have
served at least twelve years as a Senator and/or as a member of the House of
Representatives, and, in the case of an elective officer of either House, he must
have served the government for at least twelve years, not less than four years of
which must have been rendered as such elective officer: Provided, That the gratuity
payable to a retiring senator, member of the House of Representatives, or elective
officer, of either House, shall be equivalent to one year's salary for every four years
of service in the government and the same shall be exempt from any tax
whatsoever and shall be neither liable to attachment or execution nor refundable in
case of reinstatement or re-election of the retiree.
"This gratuity is payable by the employer or office concerned which is hereby
authorized to provide the necessary appropriation or pay the same from any
unexpended items of appropriations or savings in its appropriations or saving in its
appropriations.
"Elective or appointive officials and employees paid gratuity under this subsection
shall be entitled to the commutation of the unused vacation and sick leave, based
on the highest rate received, which they may have to their credit at the time of
retirement."
SECTION 2. This Act shall take effect upon its approval.
Approved, June 22, 1963.
The Solicitor General's Office, in representation of the respondent, filed its answer
on September 8, 1964, and contends, by way of special and affirmative defenses
that:

1. The grant of retirement or pension benefits under Republic Act No. 3836 to the
officers objected to by the petitioner does not constitute "forbidden compensation"
within the meaning of Section 14 of Article VI of the Philippine Constitution.
2. The title of the law in question sufficiently complies with the provisions of Section
21, Article VI, of the Constitution that "no bill which may be enacted into law shall
embrace more than one subject which shall be expressed in the title of the bill.
3. The law in question does not constitute legislation.
4. Certain indispensable parties, specifically the elected officers of Congress who
are authorized to approve vouchers for payments for funds under the law in
question, and the claimants to the vouchers to be presented for payment under said
items, were not included in the petition.
5. The petitioner has no standing to institute this suit.
6. The payment of commutable vacation and sick leave benefits under the said Act
is merely "in the nature of a basis for computing the gratuity due each retiring
member" and, therefore, is not an indirect scheme to increase their salary.
A brief historical background of Republic Act No. 3836
Republic Act No. 3836 was originally House Bill No. 6051, which was introduced by
Congressmen Marcial R. Pimentel of Camarines Norte and Marcelino R. Veloso of the
Third District of Leyte, on May 6, 1963. On the same date, it was referred to the
Committee on Civil Service. which on the following May 8, submitted its REPORT No.
3129, recommending approval of the bill with amendments, among others, that the
word "TWENTY" in the bill as filed representing the number of years that a
senator or member must serve in Congress to entitle him to retirement under the
bill must be reduced to "TWELVE" years, and that the following words were
inserted, namely, "AND THE SAME (referring to gratuity) SHALL BE EXEMPT FROM
ANY TAX WHATSOEVER AND SHALL NOT BE LIABLE FROM ATTACHMENT OR
EXECUTION NOR REFUNDABLE IN CASE OF REINSTATEMENT OR REELECTION OF THE
RETIREE." On May 8, 1963, the bill with the proposed amendments was approved on
second reading. It was passed on third reading on May 13, 1963, and on the same
day was sent to the Senate, which, in turn, on May 23, 1963, passed it without
amendment. The bill was finally approved on June 22, 1963. As explained in the
EXPLANATORY NOTE attached to the bill, among others
The inclusion of members of Congress in subsection (c), Section 12 of C.A. 186, as
amended, will enable them to retire voluntarily, regardless of age, after serving a
minimum of twenty years as a Member of Congress. This gratuity will insure the
security of the family of the retiring member of Congress with the latter engaging in
other activities which may detract from his exalted position and usefulness as
lawmaker. It is expected that with this assurance of security for his loved ones,

deserving and well-intentioned but poor men will be attracted to serve their people
in Congress.
As finally approved, the law (Subsection [c], paragraph 2, Section 1, R.A. 3836)
allows a Senator or a Member of the House of Representatives and an elective
officer of either House of Congress to retire regardless of age. To be eligible for
retirement, he must have served for at least twelve years as such Senator and/or as
member of the House of Representatives. For an elective officer of either House, he
must have served the government for at least twelve years, of which not less than
four years must have been rendered as such elective officer. The gratuity payable
by the employer or office concerned is equivalent to one year's salary for every four
years of service in the government. Said gratuity is exempt from taxation, not liable
to attachment or execution, and not refundable in case of reinstatement or reelection of the retiree.
First legal point personality of the Petitioner to bring suit.
The first point to be considered is whether petitioner Philconsa has a standing to
institute this action. This Court has not hesitated to examine past decisions
involving this matter. This Court has repeatedly held that when the petitioner, like in
this case, is composed of substantial taxpayers, and the outcome will affect their
vital interests, they are allowed to bring this suit. (Pascual v. Secretary, G.R. No. L10405, December 29, 1960; and Gonzales v. Hechanova, 60 Off. Gaz. 802 [1963]).
The petitioner, Philconsa, is precisely a non-profit, civic organization composed of
several leaders from all walks of life whose main objective is to uphold the
principles of the Constitution.
In rejecting the motion to dismiss in the case of Pascual v. Secretary, supra, this
Court stated, among other things, that "there are many decisions nullifying, at the
instance of the taxpayers, laws providing the disbursement of public funds, upon
the theory that the expenditure of public funds by an officer of the State for the
purpose of administering an unconstitutional act constitutes a misappropriation of
such funds, which may be enjoined at the request of the taxpayers." 1 This
legislation (Republic Act 3836) involves the disbursement of public funds.
We are not, however, unmindful of the ruling laid down by the Supreme Court of the
United States in the case of Massachusetts v. Mellon, 262 U.S. 447, holding that:
... the relation of a taxpayer of the United States to the Federal Government is very
different. His interest in the moneys of the Treasury partly realized from taxation
and partly from other sources is shared with millions of others; is comparatively
minute and indeterminable; and the effect upon future taxation of any payment out
of the funds, so remote, fluctuating and uncertain, that no basis is afforded for an
appeal to the preventive powers of equity.

The general view in the United States, which is followed here, is stated in the
American Jurisprudence, thus
In the determination of the degree of interest essential to give the requisite
standing to attack the constitutionality of a statute the general rule is that not only
persons individually affected, but also taxpayers have sufficient interest in
preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public
moneys. (11 Am. Jur. 761; emphasis supplied.)
As far as the first point is concerned, We hold, therefore, that the contention of the
Solicitor General is untenable.
Second legal point Whether or not Republic Act No. 3836 falls within the
prohibition embodied in Art. VI, section 14 of the Constitution.
The first constitutional question is whether Republic Act 3836 violates Section 14,
Article VI, of the Constitution, which reads as follows:
The senators and the Members of the House of Representatives shall, unless
otherwise provided by law, receive an annual compensation of seven thousand two
hundred pesos each, including per diems and other emoluments or allowances, and
exclusive only of travelling expenses to and from their respective districts in the
case of Members of the House of Representative and to and from their places of
residence in the case of Senators, when attending sessions of the Congress. No
increase in said compensation shall take effect until after the expiration of the full
term of all the Members of the Senate and of the House of Representatives
approving such increase. Until otherwise provided by law, the President of the
Senate and the Speaker of the House of Representatives shall each receive an
annual compensation of sixteen thousand pesos (emphasis supplied)
Before discussing this point, it is worthy to note that the Constitution embodies
some limitations and prohibitions upon the members of Congress, to wit:
1. They may not hold any other office or employment in the Government without
forfeiting their respective seats;
2. They shall not be appointed, during the time for which they are elected, to any
civil office which may have been created or the emoluments whereof shall have
been increased while they were members of Congress; (Section 16, Article VI,
Constitution)
3. They cannot be financially interested in any franchise;
4. They cannot appear in any civil case wherein the Government is an adverse
party;

5. They cannot appear as counsel before any Electoral Tribunal; and

6. They cannot appear as counsel in any criminal case where an officer or employee
of the Government is accused. (Section 17, Article VI, Constitution)
In addition to the above prohibitions, the Anti-Graft Law (Republic Act 3019) also
prohibits members of Congress to have any special interest in any specific business
which will directly or indirectly be favored by any law or resolution authored by
them during their term of office.
It is thus clear that the Constitutional Convention wisely surrounded the Constitution
with these limitations and prohibitions upon Members of Congress. This is a
practical demonstration or application of the principle of the and balances which is
one of the peculiar characteristics of our Constitution. In the light of this
background, can We conclude that Congress can validly enact Republic Act 3836,
providing retirement benefits to its members, without violating the provisions in the
aforementioned Article VI, Section 14, of the Constitution, regarding increase of the
compensation act including other emoluments?
It is worthy to note that the original salary for the members of the National
Assembly (unicameral body) was fixed at P5,000.00 per annum each. This was
raised to P7,200 per annum by the enactment of the 1940 Constitutional
amendment, when the unicameral body, the National Assembly, was changed to
Congress, composed of two bodies, the Senate and the House of Representatives.
Again, in 1964, by the enactment of Republic Act 4143, the salary for the Members
of Congress was raised to P32,000.00 per annum for each of them; and for the
President of the Senate and the Speaker of the House of Representatives, to
P40,000.00 per annum each.
Likewise, it is significant that, as stated above, when the Constitutional Convention
first determined the compensation for the Members of Congress, the amount fixed
by it was only P5,000.00 per annum, but it embodies a special proviso which reads
as follows: "No increase in said compensation shall take effect until after the
expiration of the full term of all the members of the National Assembly elected
subsequent to approval of such increase." In other words, under the original
constitutional provision regarding the power of the National Assembly to increase
the salaries of its members, no increase would take effect until after the expiration
of the full term of the members of the Assembly elected subsequent to the approval
of such increase. (See Aruego, The Framing of the Constitution, Vol. 1, pp. 296-300;
Sinco, Philippine Government and Political Law, 4th ed., p. 187)
This goes to show how zealous were the members of the Constitutional Convention
in guarding against the temptation for members of Congress to increase their
salaries. However, the original strict prohibition was modified by the subsequent
provision when the Constitutional amendments were approved in 1940 2

The Constitutional provision in the aforementioned Section 14, Article VI, includes in
the term compensation "other emoluments." This is the pivotal point on this
fundamental question as to whether the retirement benefits as provided for in
Republic Act 3836 fall within the purview of the term "other emoluments."
Most of the authorities and decided cases have regarded "emolument" as "the profit
arising from office or employment; that which is received as compensation for
services or which is annexed to the possession of an office, as salary, fees and
perquisites.3
In another set of cases, "emolument" has been defined as "the profit arising from
office or employment; that which is received as compensation for services, or which
is annexed to the possession of office, as salary, fees and perquisites; advantage,
gain, public or private." The gain, profit or advantage which is contemplated in the
definition or significance of the word "emolument" as applied to public officers,
clearly comprehends, We think, a gain, profit, or advantage which is pecuniary in
character. (citing Taxpayers' League of Cargon County v. McPherson, 54 P. 2d. 897,
90l.: 49 Wy. 26; 106 A.L.R. 767)
In Schieffelin v. Berry, 216 N.Y.S. (citing Wright v. Craig, 202 App. Div. 684, 195
N.Y.S. 391, affirmed 234 N.Y. 548, 138 N.E. 441), it has been established that
pensions and retirement allowances are part of compensation of public officials;
otherwise their payment would be unconstitutional.
In another case, State v. Schmahl, 145 N.W. 795, 125 Minn. 104, it is stated that "as
used in Article 4, section 9, of the Constitution of Minnesota, providing that no
Senator or Representative shall hold any office, the emoluments of which have been
increased during the session of the Legislature of which he was a member, until
after the expiration of his term of office in the Legislature, the word "emoluments"
does not refer to the fixed salary alone, but includes fees and compensation as the
incumbent of the office is by law entitled to receive because he holds such office
and performed some service required of the occupant thereof."
From the decisions of these cases, it is evident that retirement benefit is a form or
another species of emolument, because it is a part of compensation for services of
one possessing any office.
Republic Act No. 3836 provides for an increase in the emoluments of Senators and
Members of the House of Representatives, to take effect upon the approval of said
Act, which was on June 22, 1963. Retirement benefits were immediately available
thereunder, without awaiting the expiration of the full term of all the Members of
the Senate and the House of Representatives approving such increase. Such
provision clearly runs counter to the prohibition in Article VI, Section 14 of the
Constitution.

Third Legal Point Whether or not the law in question violates the equal protection
clause of the Constitution.
Another reason in support of the conclusion reached herein is that the features of
said Republic Act 3836 are patently discriminatory, and therefore violate the equal
protection clause of the Constitution. (Art. III, Sec. 1, part. 1.)
In the first place, while the said law grants retirement benefits to Senators and
Members of the House of Representatives who are elective officials, it does not
include other elective officials such as the governors of provinces and the members
of the provincial boards, and the elective officials of the municipalities and
chartered cities.
The principle of equal protection of law embodied in our Constitution has been fully
explained by Us in the case of People v. Vera, 65 Phil. 56, 126, where We stated that
the classification to be reasonable must be based upon substantial distinctions
which make real differences and must be germane to the purposes of the law.
As well stated by Willoughby on the Constitution of the United States (second
edition), p. 1937, the principle of the requirement of equal protection of law applies
to all persons similarly situated. Why limit the application of the benefits of Republic
Act 3836 to the elected members of Congress? We feel that the classification here is
not reasonable. (See also Sinco, Philippine Political Law, 11th ed. [1962]; Selected
Essays on Constitutional Law [1938-62], p. 789; The Equal Protection of the Laws,
37 Cal. Law Rev. 341.)
Secondly, all members of Congress under Republic Act 3836 are given retirement
benefits after serving twelve years, not necessarily continuous, whereas, most
government officers and employees are given retirement benefits after serving for
at least twenty years. In fact, the original bill of Act 3836 provided for twenty years
of service.
In the third place, all government officers and employees are given only one
retirement benefit irrespective of their length of service in the government,
whereas, under Republic Act 3836, because of no age limitation, a Senator or
Member of the House of Representatives upon being elected for 24 years will be
entitled to two retirement benefits or equivalent to six years' salary.
Also, while the payment of retirement benefits (annuity) to an employee who had
been retired and reappointed is suspended during his new employment (under
Commonwealth Act 186, as amended), this is not so under Republic Act 3836.
Lastly, it is peculiar that Republic Act 3836 grants retirement benefits to officials
who are not members of the Government Service Insurance System. Most grantees
of retirement benefits under the various retirement laws have to be members or
must at least contribute a portion of their monthly salaries to the System. 4

The arguments advanced against the discriminatory features of Republic Act 3836,
as far as Members of Congress are concerned, apply with equal force to the elected
officers of each House, such as the Secretaries and the Sergeants-at-arms. Under
Republic Act 3836, the Secretaries and Sergeants-at-arms of each House are given
the benefits of retirement without having served for twenty years as required with
other officers and employees of the Government.
Fourth Legal Point Whether or not the title of Republic Act No. 3836 is germane
to the subject matter expressed in the act.
Another Constitutional point to determine is whether the title of Republic Act 3836
complies with the requirement of paragraph 1, section 21, Article VI of the
Constitution, which reads as follows:
No bill which may be enacted into law shall embrace more than one subject which
shall be expressed in the title of the bill.
We are not unmindful of the fact that there has been a general disposition in all
courts to construe the constitutional provision with reference to the subject and title
of the Act, liberally.
It is the contention of petitioner that the said title of Republic Act 3836 gives no
inkling or notice whatsoever to the public regarding the retirement gratuities and
commutable vacation and sick leave privileges to members of Congress. It is
claimed that petitioner learned of this law for the first time only when Jose Velasco,
disbursing officer of the House, testified on January 30, 1964, before Justice
Labrador, in connection with the hearing of the case, and he revealed that in 1963,
Congress enacted the retirement law for its members. In fact the Appropriation Act
for the fiscal year 1964-65, Republic Act No. 4164, provides:
13. For payment of retirement gratuities of members of the Senate pursuant to the
provisions of Republic Act No. 3836: PROVIDED, That no portion of this
Appropriation shall be transferred to any other item until all approved claims shall
have been paid P210,000.00.
In the appropriations for the House of Representatives the following items appear:
7. For government share of premiums on life insurance and retirement of Members
and employees of the House of Representatives, as provided for under Republic Act
No. 1616 P300,000.00
8. For payment of the cash commutation of the accumulated vacation and sick
leaves as provided for under Republic Act No. 611, and retirement gratuities of
Members and employees of the House of Representatives under Republic Act No.
1616 P1,300,000.00.

In the Appropriations Act of 1965-1966 (Republic Act No. 4642), the following item
appears in the appropriations for the Senate:
13. For payment of retirement gratuities of Senate personnel pursuant to the
provisions of Republic Act No. 1616: PROVIDED, That no portion of this appropriation
shall be transferred to any other item until all approved claims shall have been paid
P100,000.00.
It is thus clear that in the Appropriations Act for 1965-1966, the item in the Senate
for P210,000.00 to implement Republic Act 3836 was eliminated.
In the appropriations for the House (1965-1966), the following items appear:
7. For government share of premiums on life insurance and retirement of Members
and employees of the House Of Representatives as provided for under Republic Act
No. 1616 P1,200,000.00.
8. For payment of the cash commutation of the accumulated vacation and sick
leaves as provided for under Republic Act No. 611, and retirement gratuities of
Members and employees of the House of Representatives under Republic Act No.
1616 P1,700,000.00.
It is to be observed that under Republic Act 3836, amending the first paragraph of
section 12, subsection (c) of Commonwealth Act 186, as amended by Republic Acts
Nos. 660 and. 3096, the retirement benefits are granted to members of the
Government Service Insurance System, who have rendered at least twenty years of
service regardless of age. This paragraph is related and germane to the subject of
Commonwealth Act No. 186.
On the other hand, the succeeding paragraph of Republic Act 3836 refers to
members of Congress and to elective officers thereof who are not members of the
Government Service Insurance System. To provide retirement benefits, therefore, for
these officials, would relate to subject matter which is not germane to
Commonwealth Act No. 186. In other words, this portion of the amendment (re
retirement benefits for Members of Congress and elected officers, such as the
Secretary and Sergeants-at-arms for each House) is not related in any manner to
the subject of Commonwealth Act 186 establishing the Government Service
Insurance System and which provides for both retirement and insurance benefits to
its members.
Parenthetically, it may be added that the purpose of the requirement that the
subject of an Act should be expressed in its title is fully explained by Cooley, thus:
(1) to prevent surprise or fraud upon the Legislature; and (2) to fairly apprise the
people, through such publication of legislation that are being considered, in order
that they may have the opportunity of being heard thereon by petition or otherwise,

if they shall so desire (Cooley, Constitutional Limitations, 8th ed., Vol. 1, p. 162; See
also Martin, Political Law Reviewer, Book One [1965], p. 119)
With respect to sufficiency of title this Court has ruled in two cases:
The Constitutional requirement with respect to titles of statutes as sufficient to
reflect their contents is satisfied if all parts of a law relate to the subject expressed
in its title, and it is not necessary that the title be a complete index of the content.
(People v. Carlos, 78 Phil. 535)
The Constitutional requirement that the subject of an act shall be expressed in its
title should be reasonably construed so as not to interfere unduly with the
enactment of necessary legislation. It should be given a practical, rather than
technical, construction. It should be a sufficient compliance with such requirement if
the title expresses the general subject and all the provisions of the statute are
germane to that general subject. (Sumulong v. The Commission on Elections, 73
Phil. 288, 291)
The requirement that the subject of an act shall be expressed in its title is wholly
illustrated and explained in Central Capiz v. Ramirez, 40 Phil. 883. In this case, the
question raised was whether Commonwealth Act 2784, known as the Public Land
Act, was limited in its application to lands of the public domain or whether its
provisions also extended to agricultural lands held in private ownership. The Court
held that the act was limited to lands of the public domain as indicated in its title,
and did not include private agricultural lands. The Court further stated that this
provision of the Constitution expressing the subject matter of an Act in its title is not
a mere rule of legislative procedure, directory to Congress, but it is mandatory. It is
the duty of the Court to declare void any statute not conforming to this
constitutional provision. (See Walker v. State, 49 Alabama 329; Cooley,
Constitutional Limitations, pp. 162-164;5 See also Agcaoili v. Suguitan, 48 Phil. 676;
Sutherland on Statutory Construction, Sec. 111.)
In the light of the history and analysis of Republic Act 3836, We conclude that the
title of said Republic Act 3836 is void as it is not germane to the subject matter and
is a violation of the aforementioned paragraph 1, section 21, Article VI of the
Constitution.
In short, Republic Act 3836 violates three constitutional provisions, namely: first, the
prohibition regarding increase in the salaries of Members of Congress; second, the
equal protection clause; and third, the prohibition that the title of a bill shall not
embrace more than one subject.
IN VIEW OF THE FOREGOING CONSIDERATIONS, Republic Act No. 3836 is hereby
declared null and void, in so far as it refers to the retirement of Members of
Congress and the elected officials thereof, as being unconstitutional. The restraining

order issued in our resolution on December 6, 1965 is hereby made permanent. No

costs.